Poverty Programmes: Audit
Lord Lawson of Blaby Excerpts(8 years, 6 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Freud
The noble Lord will be aware that we publish an enormous number of reports, many of which are independent. Indeed, many of them have been developed at the request of this House.
Lord Lawson of Blaby (Con)
My Lords, does my noble friend not agree that the fact that we have the lowest level of unemployment of any country in Europe is testament to the success of the Government’s policies?
Lord Freud
I think that we have a very flexible labour market. We are developing programmes and a culture that encourages work in a way that we did not have in the early years of this century.
State Pension
Lord Lawson of Blaby Excerpts(8 years, 6 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Altmann
The estimates are that the new state pension will be cost-neutral for the first few decades. Therefore, the aim is that we can give people security and an understanding of what they will get from the state system, and that, as we roll out auto-enrolment to ensure that every worker will have a private pension, it is safe for those workers all around the country to save for their future so that they can supplement their own income.
Lord Lawson of Blaby (Con)
My Lords, will the Government seriously consider ending the anomalously tax-free status of the winter fuel payment by consolidating it into the basic state pension, which is, of course, taxable?
Welfare Reform and Work Bill
Lord Lawson of Blaby Excerpts(8 years, 11 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Hollis of Heigham
My Lords, I think the Minister must by now be feeling pretty miserable at the wretched nature of this two-child policy. It is quite striking that there has not been a single voice in support of these propositions from his own Benches. There are Members here with the expertise to offer that, but they are not giving the Minister the support one would normally expect. We all understand how wretched this policy will be as it plays out—and I am sure the Minister, who is a good man, also understands that.
This is a broad set of amendments, so I will pick up something which perhaps covers almost all the people who have been mentioned as exemptions so far in these amendments today. Poverty has been well researched by the DWP itself, in its evidence review of January 2014. Has the Minister read—I am sure he has—and accepted his department’s Evidence Review of the Drivers of Child Poverty for Families in Poverty Now and for Poor Children Growing up to be Poor Adults, which is at the centre of these child-related policies in the Bill? If so, would he explain to us why not one of the 323 pieces of research that this review analyses supports his policy? Indeed, in my view, they destroy it. Are we dealing with evidence-based public policy or private ideology offered as moral and financial rectitude?
The Minister knows better than anyone—but I will remind him—who are most at risk of serious long-term poverty. They are the third and subsequent children of lone parents. Three-quarters of such children will be in either persistent or recurrent poverty for four out of any seven years. One family in seven has three or more children; within that group, lone parents are twice as likely as couple families to be in poverty, and three-quarters of their children will be in persistent or recurrent poverty.
It is not temporary or transient poverty, deeply unwelcome though that is, which scars families. After all, one-third of the UK’s population falls into poverty at some point over a four-year period, usually when they have lost their job, their health or, desperately, a partner. Many will leave poverty within a year, perhaps to enter work. But the poverty that comes with additional children is not temporary or transient poverty; it is persistent poverty, because those children, for whatever reason, do not conveniently disappear. Yet it is long-term poverty that most damages families. Poverty builds upon itself: the longer you are in poverty, the harder it is to escape from it—and if you do, you have one or, at most, two deciles, and too often, with a year or two, you fall back to the bottom. Any mobility is short-distanced and short-lived. Such children, because they are in larger families, and thus even now facing long-term poverty, have unhappy childhoods, more strained relations with their parents, are more likely to be in contact with the police, and so on.
What does the review last year by the DWP tell us about the drivers of poverty, and how consistent is this Bill with its research? The answer is: not at all. The DWP report says on page 19 that the strongest driver is worklessness, which I am sure we all accept; though even that is a diminishing problem, and of course conceals the unwaged work of caring. Yes, two-thirds of poor children are in a working household, which is a shocking statistic. That is of course because most children are in working families. Proportionately three times as many children in workless families are in poverty as children in working families, so we need to address poverty both in and out of work.
After worklessness, what is the second biggest driver of poverty, according to the DWP? According to the Government in this Bill, it is educational attainment. But that is not so: it is family size. Some 25% of all children are in families of three children or more, and 38%—nearly 40%—of those children in poverty live in larger families. According to the review, other drivers include family instability, parental ill health and lower parental qualifications, but none of those matters anywhere near as much as family size. The DWP’s review concludes on page 30 that other possible drivers—much quoted by the Secretary of State—such as substance abuse and child educational attainment have only limited, indeed marginal, effect.
I repeat: what counts, from the DWP’s own research, are worklessness and a family size of three or more children. Obviously, poverty results from a combination of too low income and family need. Larger families are hit on both counts, because additional and younger children take the single parent or the potential second earner out of the labour market at just the point when family need increases. Research shows that families not in poverty are more likely to enter poverty when they have a third child and not be able to climb out of it.
That is not rocket science, but is recognised across the whole of the OECD—except in this country. Many countries rightly increase financial support for additional children: the rates go up with three, four or five children. Any Government who cared about child poverty, and therefore child life chances, would do the same. Instead, the Government are going to do exactly the opposite, making each child in that family poorer, because the money for two children will now have to be spread over three or four, making their poverty cumulative and inescapable. What a dowry to give to a child: not only are you as a third child not going to be financially supported or helped by tax credits, but your very existence will make your brothers and sisters poorer as a result. You will bring them sliding down the slope of poverty with you.
Every child matters except to the DWP, yet the DWP’s own research shows that families with more than two children, whether through kinship care, through reformation or more generally, will be locked into persistent poverty from which many will never escape, and which will play out for some of them, alas, in troubled lives. The DWP will then piously moralise at them about the very situation that it has itself constructed in this Bill, along the lines of the Reverend Thomas Chalmers in 1819, almost 200 years ago, who said that,
“character is the cause, and … comfort is the effect”.
Today the DWP, just like the Reverends Malthus and Chalmers before it, bleats about poor, large families’ lack of moral or financial continence. This policy is no better than early 19th-century class-superior sermonising, and with little respect for the facts as evidenced in the DWP’s own report. But Malthus and Chalmers, clergymen both, at least had the excuse that they did not have the evidence of statistics, which were not collected then. The Government have no such excuse. They have nowhere to hide. The Minister’s policy today—I cannot believe he wants this at all—is the exact opposite of his department’s own research findings, and will lock large families into persistent poverty.
We know whom the Bill will hit. I have no doubt that it will, directly or indirectly, discriminate against faith and ethnic minority groups. One last thought: we are all living longer, with fewer workers to support pensioners who are living much longer. We need children and, if they are not born British, we will be encouraging Mrs May to bring in immigrants instead.
I ask the Minister again: has he read his own department’s research of last year? If so, or indeed if not, why is the DWP so flagrantly ignoring it? It is abundantly clear that removing financial support, not just from these exempted groups but from the third child and beyond, is the single most powerful way for the Government to increase child poverty and to increase persistent poverty. It is the very worst thing that the Government can do, and they are doing it. Why?
Lord Lawson of Blaby (Con)
My Lords, I had not intended to take part in this debate but it seems to me, listening to the noble Baroness who has just sat down, who spoke with her usual eloquence, that she has given only one-half of the story. Government is a matter of making difficult choices. There are always good points on both sides, so it is right that another point of view should be expressed. I speak, incidentally, as the father of a very large number of children.
The late Dick Crossman was a friend of mine; he was Secretary of State for Health and Social Security, as I think it was called then, in the 1960s. He told me how surprised he was when he discovered that the family allowance, which was the precursor of child benefit, was unpopular. Whenever he increased family allowance he expected it to be very popular, but it was not. He set out to discover why. The reason why it was unpopular, so he told me, was that the great majority of people in this country felt it was unfair to those parents who had decided to limit the number of their children—having children is an expensive business, what with clothing them and looking after them and so on—that improvident large families were getting all this family allowance. That sense of fairness is very acute among the people of this country, and that has to be weighed in the balance on the other side of the totally one-sided evidence that the noble Baroness presented.
Lord Lawson of Blaby
Is the noble Earl, whom I greatly respect, aware that Professor Deaton received earlier this year the Nobel prize for economics? His subject is global poverty and one of his important findings is that official aid does more harm than good.
The Earl of Listowel
I thank the noble Lord for drawing that to my attention and I shall make it my business to read that finding.
Perhaps I chose a poor example, but often decisions that are unpopular can be the right decisions to make. Governments have a little more time to reflect and can decide that the cost of bringing children up in poverty has such long-term problems in terms of poor educational outcomes, imprisonment and later dependency on the state that despite such a policy being unpopular it is worth while investing in large, impoverished families to prevent their offspring becoming dependent on the state later on.
The Minister said that the average size of families was 1.7 children. What is the average size of families on benefit and the average size of a family in poverty? My sense is that they tend to be larger families and that this particular legislation will penalise larger families.
Pensions Bill
Lord Lawson of Blaby Excerpts(10 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Freud
My Lords, in moving Amendment 2, I shall speak also to government Amendments 3, 4 and 5.
As I have said in previous debates, the Government are committed to ensuring that costs and charges in defined contribution workplace pension schemes are made as transparent as possible. This is one part of the programme to ensure that consumers, especially those who are automatically enrolled, receive value for money from their pension savings. The full programme of measures will be published soon.
These amendments build on those made on Report to require regulations to be made providing for the disclosure of transaction costs. Following the points raised by my noble friend Lord Lawson during that discussion, I agreed to consider how to make explicit the Government’s commitment to publishing the information on transaction costs. I am pleased to say that these amendments would require the information about costs and charges to be made publicly available. We will have further work to do to establish the best way to enable this publication, not least to ensure that we do so in a way that allows for meaningful and helpful comparisons. However, I can confirm that we will work to achieve publication in a way that enables scrutiny and comparison by any interested member of the public.
As noble Lords have said in previous debates, it is clear that for disclosure of information on costs and charges to be meaningful the full range of costs and charges that may be borne by members must be made transparent, and that this must be done in a way that enables scrutiny of the total amount that may be deducted from an individual’s pension pot. It is particularly vital that those with a fiduciary duty—namely, the trustees and independent governance committees who will have a role in representing members’ interests—can see both itemised and total costs and charges borne by members.
As I assured the House in our previous discussion on this matter, the “some or all” formulation in the drafting of this provision has been used to future-proof the legislation and provide flexibility to amend it as new types of cost and charge become apparent over time. This flexibility, and our existing powers to require disclosure of information, will enable us to provide for full transparency of all pension scheme costs and charges.
These amendments also make a technical change to this provision since the issue was last considered by noble Lords. The amendments now place a corresponding duty on the Financial Conduct Authority to that which we have placed on the Secretary of State. In this way, it provides a better fit with the shared approach to regulation of pensions that exists between the Pensions Regulator and the Financial Conduct Authority. It provides for regulations and rules to be made that apply in a consistent way across both trust and contract-based provision. The duty on the Financial Conduct Authority mirrors the duty on the Secretary of State requiring both disclosure and publication of information about costs.
These duties apply only to defined contribution schemes. As I touched on in our latest discussion on this subject, this is narrower than the provision of our existing power. This focus reflects the Government’s concerns about the failures in the defined contribution workplace pensions market that have been identified by the Office of Fair Trading. The nature of defined benefit schemes means that members are effectively shielded from the impact of costs and charges. As for employers and trustees, both have a keen interest and ability to achieve value for money in the administration and governance of their schemes.
However, as I said during our debate on Report, the Government do have the power to require transparency of costs and charges in defined benefit as well as defined contribution schemes, and I indicated that we would continue to consider whether this is necessary. Having begun to consider the question, we think that it merits further examination and consultation with a range of interested parties. It may be that such a measure would enable trustees of defined benefit schemes to better discharge their fiduciary duties.
We will formally consult before making regulations for disclosure of information about costs and charges in defined contribution schemes. When we carry out that consultation, we will also examine whether some form of disclosure requirements should be extended to defined benefit schemes.
As I have said previously, this Government are committed to ensuring that consumers receive value for money from their pension savings and we will publish our full programme of measures soon. I am pleased that these amendments build on the commitments made on Report and will ensure there is full transparency and publication of costs and charges. I beg to move Amendment 2.
Lord Lawson of Blaby (Con)
My Lords, I need not detain the House long because, I am glad to say, my noble friend the Minister has met pretty well in full the points that we made at earlier stages of the Bill. I am extremely grateful to him for that. There is a real mischief in the huge range of costs which bear no relation whatever to investment performance incurred in different pension schemes. It has always been known, but it was documented fully by the Pensions Commission some time back. That we have been able to improve the Bill in this way is a tribute to this House, but particularly to my noble friend the Minister, who has listened carefully, accepted the need to deal with that mischief, and put forward a practical and sensible way of doing it.
There is only one loose end, and although the Minister dealt with it I would like to spend a minute or two on it. The amendment says “some or all” costs, but that is purely a legal technicality and in fact it means all costs, itemised. That is the firm intention. They will be published generally, not just given to the members of the schemes, so that all can see. However, as the Minister said, the provision deals exclusively with defined contribution schemes and not with defined benefit schemes. I understand his reason for that—because it is only in the defined contribution schemes that pensioners are, in effect, from time to time ripped off by investment managers who charge far too much in the way of costs. There are five times as many people in defined benefit schemes as in defined contribution schemes, however, and the money in defined benefit schemes is well over £1 trillion.
Of course, if the same kind of ripping off goes on—obviously it does; there is no difference in the investment manager’s behaviour from one to the other—it is not a victimless crime. The pensioners may not be the victims, but the shareholders in the companies certainly are. The Government cannot desire to see shareholders ripped off when it can so easily be prevented by extending to defined benefit schemes the disclosure and transparency requirements that the Minister will put in place for defined contribution schemes. He says that he will consult on that. I am delighted to hear it, but I very much hope that the result of the consultation will be to require the same disclosure and transparency for defined benefit schemes as for defined contribution schemes.
Baroness Drake (Lab)
My Lords, I declare my interests in the area: I am a trustee of the Santander and Telefónica pension schemes, and a member of the NAPF Pension Quality Mark board. As no doubt other noble Lords here today are, I am concerned to understand the extent to which Amendments 2 to 5 provide for full transparency on transaction costs and deliver on the assurances that the noble Lord, Lord Freud, gave on Report. I would therefore like to ask the Minister several questions.
The Minister confirmed that the Secretary of State would be divested of the power to set the requirements for securing transparency of transaction costs in relation to money purchase personal pension schemes, by giving that responsibility to the FCA. As he said, the amendment does not extend the existing powers of the FCA but imposes a duty on it to make rules on the disclosure of information, following consultation with the Secretary of State and the Treasury, to ensure consistency between FCA rules and the regulations made by the Secretary of State. If the FCA response to that consultation is not considered adequate in achieving such consistency, which Minister will be responsible for ensuring that the FCA fulfils its duty in that regard, and with which powers?
There will no doubt be much consultation and lobbying prior to regulations and rules being set, and no doubt various interests will be brought to bear in those considerations. However, does the Minister agree that the draft statement of recommended practice put forward by the Investment Management Association to the FCA does not provide a sufficient set of requirements for full reporting on transaction costs by investment managers?
Pensions Bill
Lord Lawson of Blaby Excerpts(10 years, 8 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Lawson of Blaby (Con)
My Lords, I begin by welcoming very warmly what my noble friend has said. The Government have done the right thing and moved a long way since we debated this issue in Committee. We see government Amendment 26A as part of that move, but I am glad to say that the Minister has at the Dispatch Box this afternoon said that he will, quite rightly, go even further. I should therefore like to go over the points, perhaps for clarity. The Minister does need to go further, some of the reasons for which he has mentioned. I will not therefore speak to any of the amendments in my name as such because they have been overtaken by events. It is the substance that matters.
There seem to me to be four ways in which further improvement is needed beyond Amendment 26A, the first of which my noble friend has agreed to. That amendment would open the door to disclosure but to a limited number of categories. It is essential that there should be full public disclosure. This is important. For example, all potential members of pension schemes and workers should know what is happening, given that every -one knows that the costs of pension schemes vary enormously, as the noble Lord, Lord Turner, mentioned. This is not in dispute. It is a fact. Studies have shown that that variation bears no relation to performance, and some of the costs are absolutely enormous. In money purchase schemes, that is a direct cost to the pension that the beneficiary will get at the end of the day.
Nobody has mentioned this so far but I do not think that we should forget the press. There are sections of the press that give excellent consumer advice on financial matters, and not just the press: there is the excellent Paul Lewis, with his “Money Box” programme on the wireless. All these people need the information. They need to be the beneficiaries of disclosure if they are to be as effective as they might be for the benefit of members of pension schemes. Therefore, there should be total disclosure, and I suggest in my amendment that perhaps the best way of achieving that is for there to be disclosure to the Pensions Regulator, who publishes a public register which anybody can look at. However, there may be another way which the Government prefer and which is equally good. I was very glad to hear my noble friend say that there will be full public disclosure, which goes beyond that set out in Amendment 26A. That is what is needed.
Another way in which Amendment 26A is inadequate is that it refers to “some or all” of the costs. My noble friend touched on that but it is of the first importance that it says “all costs” and that all the costs are itemised. It is obvious that if only some costs are disclosed, it will be easy for investment managers to load on to their costings costs which are not among those that need to be disclosed. That is a complete nonsense. It is absolutely essential that all costs are itemised and disclosed.
There is another thing that needs to be attended to and where further progress needs to be made, but again it seems that in the spirit of what my noble friend said he is prepared to go there. His amendment concerns disclosure of information about transaction costs. It refers exclusively to transaction costs and, again, that is not adequate; it has to be all costs. There are, for example, investment managers’ fees, performance fees and custody fees, all of which are not transaction costs. Indeed, the Investment Management Association has stated that it does not classify equity commissions as transaction costs. Therefore, clearly the limitation to transaction costs is an invitation to abuse. All costs that are incurred have to be included.
The final way in which the amendment needs to be improved is perhaps less important than the other three ways; none the less, it is still important. The present proposal—my noble friend made this clear—relates only to money purchase schemes. It does not apply to defined benefit schemes. Defined contribution schemes, money purchase schemes, or whatever one likes to call them, are more important because the proposal directly impacts on the benefit that the beneficiary of the fund or pension gets at the end of the day. If it is a defined benefit scheme, one could say, “Why does it matter?”, but I do not think that it is a matter of indifference. Investment managers can say, “We have to control our costs, and reveal our costs, on money purchase schemes and defined contribution schemes. We can get the money back by loading extra costs on to the defined benefit schemes”. That would be wholly unsatisfactory. Most defined benefit schemes may be closed to new members but they are still going on and are substantial. A further point is that on a number of occasions the Government have expressed concern about pension fund deficits. This proposal could have a direct effect on the size of pension fund deficits. Therefore, it is necessary to bring defined benefit schemes into this disclosure. Transparency should not be explicitly and exclusively confined to money purchase schemes.
Those are the four areas in which further progress needs to be made. My noble friend said that he would be happy to discuss how it will be done between now and Third Reading. I would be happy to take part with other interested parties in these discussions, following which we look forward to further proposals and amendments at Third Reading.
I have a further small point for clarification about something that is slightly obscure. I do not think that it has been mentioned yet—certainly not by the Minister. Subsection (6) of the proposed new clause in Amendment 26A states that,
“subsection (5) does not apply in relation to a scheme of a particular description if … as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description”.
The only thing that I can assume—I hope my noble friend will clarify it, as I cannot believe that he has some other Bill up his sleeve—is that there may a European Union directive in the offing that may cover this area. That may be what is being alluded to. It would be helpful to the whole House if he explained precisely what lies behind this curious subsection.
Lord Browne of Ladyton (Lab)
My Lords, it is a genuine pleasure to follow the noble Lord, Lord Lawson, and to engage in the debate on this group of amendments. The noble Lord has had an extremely distinguished career in both Houses of Parliament. I have seldom heard his name used with such strength by a Minister from the Front Bench—certainly not for a long time. It may be a lesson to others on the Benches behind the Minister on how to get that level of recognition.
Amendment 29 requires the Secretary of State to,
“lay before Parliament regulations to restrict such charges as soon as reasonably practicable and no later than 30th April 2015”.
We want to ensure that the promise to do so, and the commitment to see this through in this Parliament is not kicked further into the long grass, but is exercised,
“as soon as reasonably practicable”.
This may be redundant now, as the noble Lord, Lord Lawson, has indicated, but my noble friend Lady Sherlock and I support Amendments 27 and 28, which require full disclosure of management and transaction charges for each work-based pension scheme. Amendment 26B amends government Amendment 26A that is broadly to the same effect. Amendment 26B requires the information that the Government now belatedly agree should be disclosed to pension scheme members should also be disclosed to the pension scheme regulator who, in turn, must maintain a public register of all costs. Of course, I welcome Amendment 26A and I thank the Minister and congratulate him on having tabled it. I have the advantage of the Minister’s explanation about why, at this extremely late stage, the Government have—I will not say U-turned—but changed their position substantially by almost 180 degrees on the very issue of transparency and disclosure. I welcome the amendment. When the Minister was explaining this, his overconcentration on the amendments of the noble Lord, Lord Lawson, and his engagement with this process—airbrushing out the contribution of my honourable friend Gregg McClymont, who persistently raised this issue in amendments in the House of Commons—may have given some people the impression that the Government’s change of position is more to do with Conservative Party discipline than their commitment to disclosure and transparency in these issues in the interests of the saver.
Pensions Bill
Lord Lawson of Blaby Excerpts(10 years, 10 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Lawson of Blaby (Con)
My Lords, I will speak to Amendments 63 and 67 in my name, which are linked. I am glad that some time after I tabled these amendments the Official Opposition tabled their amendments, which are very much on the same point. I hope that what I did may have been some kind of a stimulus to them, because we are to a considerable extent on the same point.
There is a difference between the approach that the noble Lord, Lord Browne, takes and that which I take. However, before I explain the difference, I wish to articulate what the problem is. This problem is not confined to the pension area but is well known to those who have studied any economics at all. It is known in the trade as the principal agent problem, where a principal cannot achieve his or her economic objectives without giving an agent responsibility for dealing with it. The incentive for the agent may be very different from the incentive with which the principal originally entrusted the agent to carry out what is needed. Here the principal is essentially the pension fund beneficiary, via the pension fund itself, and the agent is the investment manager. How is this of interest? I would hope that my noble friend the Minister, even if he does not accept either the Labour amendment or my amendments, will agree that there is a problem here that has to be addressed. I hope that he will say how the Government propose to address it.
There are two differences between the approach adopted in the amendment of the noble Lord, Lord Browne, and that adopted in mine. He seeks primarily to regulate various charges made for the carrying out of the investment. He mentioned disclosure, but the issue is mainly the cap on charges and other forms of regulatory charges. There are problems with that approach, which I shall not spell out because I do not want to detain the Committee.
What I have gone for is compulsory disclosure. In a competitive market, compulsory disclosure will go a very long way towards removing the mischief. If there is proper disclosure, there is no need for a cap or the regulation of charges in the first instance. We can then see how it works out. Events may subsequently suggest that there may be some need for regulation but initially the remedy must be to require disclosure. I have mentioned seven types of cost that I believe should be disclosed. The noble Lord, Lord Browne, said that the sector might very inventively find some other form of charge that does not fall within these headings. I think that is highly unlikely. If noble Lords look at the headings, it is difficult to see how any charge could not fall under one or other of them.
The important thing is the principle. The funds are inclined to say, “You don’t need to worry about costs; all that matters is the investment performance of the fund net of costs”. That is not acceptable. The costs are massive in this area. Of course, the investment performance may differ according to what period of time you look at. One fund may have a very good performance during one period and a bad performance during another. One has to look at the costs. Some costs are not revealed at all; some are. Even with the costs that are revealed, there is such a lack of consistency that it is difficult to compare them and to see whether or not they are remotely fair.
There are also other defects in the system. One is, I have to say, one of the many defects of the accountancy profession in this country. According to the accountancy profession, the Investment Management Association is responsible for writing the statement of recommended practice on cost disclosure for fund managers. This is ludicrous. You are asking the foxes to regulate the hen coop, as it were. If my noble friend the Minister looks at this, I am sure that he will find that it needs a remedy.
There is another relevant point. At the end of the day it is not merely the pension fund beneficiaries who are being cheated by these excessive costs—and many of these costs are grossly excessive—but there is also the problem of pension fund deficits. The more costs are ramped up unnecessarily by the pension funds, the worse that will make the problem of deficits. Of course, there is no incentive for investment managers to expose the costs that they are incurring in their recommendations to the funds if they are not obliged to do so. It will only make most of them look rather expensive.
There have been some studies in this area, both here and in the United States. Among the findings of these studies is that there is absolutely no correlation between investment management fees and performance. There is also no correlation between portfolio churn, which creates a lot of income for various people, and performance. There is some evidence, although it is not conclusive, that portfolios are deliberately churned in order to generate commissions. In the United States, a study has been done that shows that most foreign exchange currency pairs are not monitored but that, when they are, the foreign exchange costs paid by funds are halved. There are problems across the board, such as the fact that custodian banks pay lower rates on cash than money market funds or that financial intermediaries can collect excessive rewards.
The FRC has some of these problems in its sights, but it is totally inadequate. I believe that the FCA is pressing fund managers to manage their research procurement, another area of costs that I have identified, in a more defensible and transparent way. However, it is no accident that typically pension funds meet in Manchester and fund managers meet in Monte Carlo. I hope that my noble friends, who have done such an excellent job on this Bill, will take on board that this is a serious problem—the principal agent problem, as it affects pensions—and must be addressed one way or another.
Lord Bates
The noble Lord will therefore know that our position is that we do not comment on speculation in the press, even when it is in the Financial Times, and that the Minister’s announcement, which will be given to the House later this week, will be delivered first to the other place, and therefore we will have to respond to it.
Lord Lawson of Blaby
I am glad to hear that Steve Webb will make a statement in another place on this range of issues. Will my noble friend go further and say that the statement will accept the problem of the principal agent position as it affects pension funds, as was outlined in the contributions made by the noble Lord, Lord Browne, and myself, in this debate, and that it will put forward a remedy?
Lord Bates
After making deferential remarks to the noble Lord, Lord Browne, I have to make even more deferential ones to the noble Lord, Lord Lawson. The direct response is that I am not privy to the content of that statement, confirmation of which has been received only recently. However, addressing the principal agent problem which he so eloquently outlined for us was at the heart of the consultation process which was launched back in October, and was at the heart of what the OFT was driving at in its review. Therefore, in responding to that consultation, I reassure my noble friend that he will find—I hope—that this offers the reassurances he seeks. If not, he is at liberty to bring this matter back on Report, should he choose not to press his amendment at this stage.
On the definition of charges and transaction costs, Schedule 17 gives the Secretary of State the power to restrict administration charges by regulation. In the consultation we proposed specifying a broad definition of charges to encompass any expense that does not result in the provision of pension benefits for a member. We also asked for views on whether transaction costs should be included within a charge cap. Any charges that are restricted—even those under a possible cap—will have to be defined in regulations. These regulations will, of course, be subject to public consultation and we have accepted the DPRRC’s recommendation that these regulations be subject to the affirmative procedure on first use. Government Amendment 70 will achieve this.
With regard to the noble Baroness’s Amendment 62H on the Henry VIII power in Schedule 17, we have noted the comments and recommendations put forward by the DPRRC. However, we believe that it is vital that the Government’s ability to regulate effectively in this area is not inadvertently undermined by future legislation that could not have been foreseen. We are back to an earlier point.
The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab)
It will be possible for the noble Lord to speak briefly on his own amendment, Amendment 63. He has already spoken but he can certainly respond then.
Lord Lawson of Blaby
ScheduleWork-based schemes: requirements for disclosure of charges and other informationThe Secretary of State shall by regulations make provision to require disclosure at least annually of the following management and transaction charges incurred by the administration and management of each investment portfolio managed by or on behalf of a work-based scheme—
(a) fees and performance fees paid to investment managers,(b) commissions and bid-offer spreads paid to brokers,(c) bid-offer spreads paid to foreign exchange counterparties,(d) fees, revenue splits and bid-offer spreads paid to custodian banks,(e) fees paid to in-house or third party scheme administrators,(f) fees paid to professional advisors (e.g. actuaries, legal advisers, auditors, investment consultants etc.),(g) initial charges, bid-offer spreads, exit charges, other fees and rebates charged on investments in pooled funds.”
Lord Lawson of Blaby
Thank you, Lord Chairman. You advised me that I need to move this amendment, which I am happy to do even though we have already had the debate on it. I will just say one or two things briefly. First, I thought the debate was very useful and I am particularly grateful to my noble friend the Minister for indicating that the Government accept that there is an issue here that needs to be addressed and that the Minister in the Commons, Steve Webb, will make an announcement about it later this week. Presumably, he will set out what he considers to be the remedy for the problem identified. It would certainly be churlish to persist with my amendment in the light of that. I will wait to see what Steve Webb and the Government have to say and then decide whether that is adequate or that it is necessary to pursue the matter further on Report.
I have two other quick points. First, the Minister said that the degree of specification for costs to be disclosed, as I have in my amendment, was not suitable for primary legislation. He is probably right but I interpret the meaning of that to be that he thinks it is suitable for secondary legislation. This is certainly a matter where legislation is needed and I am perfectly happy to accept his advice that there is a need for secondary legislation.
The other point is that the noble Lord, Lord Browne, suggested that between Mr Webb’s announcement and Report, he and I might discuss the matter to see what we feel about this. I am very happy to do that. This is not a party-political point, but if we think that the Government’s remedy is inadequate—I hope that will not be the case—it may be that he and I can agree an amendment to jointly move on Report in the best bipartisan traditions of this House.
Having said that, unless any Member of the Committee objects, I beg leave to—
The Deputy Chairman of Committees
The noble Lord should move the amendment first.
Lord Lawson of Blaby
The silence is eloquent and, in the light of it, I beg leave to withdraw the amendment.