Pension Schemes Bill [Lords]

Alex Cunningham Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

We have had a good, almost conciliatory debate, but we have also rightly focused on the opportunity that the Government have missed to bring forward an appropriate Bill that addresses the issues surrounding pensions. The Chamber again heard from my hon. Friend the Member for Swansea East (Carolyn Harris) on the plight of the thousands of WASPI women left stranded by this Tory Government, who selfishly and needlessly accelerated the state pension age, leaving many women no time to make alternative provision for themselves in their 60s. If one line was added to the Bill to extend pension credit to the WASPI women—that is our policy—it would have gone a long way to pacifying us this evening.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

The hon. Gentleman has got his mention in; let’s stick to the Bill.

[Alex Cunningham]

So I suppose, Mr Deputy Speaker, that you do not want me to mention the fact that we do not have clarity on the state pension age, either. The Government have already said that they do not have a long-term commitment to the triple lock; we would like to know what their plans are, both on that and, more importantly, for many of our people who work in the most demanding physical jobs, and suffer ill health much earlier in life than those who spend their life behind a desk.

I will not test your patience any further, Mr Deputy Speaker, but we have drifted away from the principles of an effective pension scheme to a muddled view of saving for retirement. Indeed, such is the political hostility towards pensions that they do not get a mention in the latest leaflet produced by the Treasury, “Ways to save in 2017”. There are lots of mentions of different types of individual savings account—cash, junior, help to buy, lifetime and stocks and shares—but not one mention of the word “pension”, or of auto-enrolment.

Although this narrow Bill needs improvement, it is much needed, and we will work with the Government in Committee to help make it fully fit for purpose. Labour is proud of its achievements with auto-enrolment, but we are a long way from finishing the job. The sluggish response of this Government and the last to the development of a regulatory framework for auto-enrolment has left people’s savings at risk for too long. Given what the shadow Secretary of State, my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), said, our priorities for improving the Bill should be fairly obvious. There should be transparency: members must know what choices they are making, and how much those choices cost—and I mean all the costs in the investment chain. There seem to be conciliatory thoughts on that on both sides of the Chamber.

We also need improved governance and a pension system in which members are more engaged. I am glad to read in the media and published reports that in many cases the regulators and the Government agree with the Opposition. As I said on 9 January, I welcome the one-word commitment from the Under-Secretary of State for Pensions to implement the FCA recommendations to improve transparency in the pensions industry. We will hold them to account for that.

I repeat that members must know how much things cost—they must know how much each investment costs and how much transactions cost. It is not good enough simply to say that a default fund is capped at 0.75% and that people should be content. The industry tells us that it is moving towards greater transparency across all its platforms. We will be pleased to see what it comes up with. I have no doubt that we need to help the industry with appropriate legislation.

In the past, pension fund providers and others involved in fund management have often tried to dodge the issues when asked direct questions about costs, including by saying, “You should be happy to reward performance,” when we know that lower costs give a better net performance. Other hon. Members have spoken about that in the debate. They also say, “We are incentivised to manage costs, so when your funds do well, we get a bigger pay-off,” but we know that 80% of asset manager fees are based on just holding members’ money rather than making it perform well. When people realise that the average compensation of an asset manager, from the most junior to the most senior employee, is £225,000, people have the right to know how they are using the scheme’s money.

The Opposition favour a change in reporting to ensure that pension schemes must report to members on the three headings: administration, investment costs and transaction costs.

I know that the Minister values the cost-collection template, which has been negotiated with the Investment Association by the Local Government Pension Scheme Advisory Board. We must encourage its use by all pension providers. I hope the Minister will confirm his support for such an approach for master trusts.

On member governance, all the investment risk lies with the member and not with the sponsor or the provider. There is an argument to be made that, since the pot belongs to the member and the scheme-sponsoring employer bears no investment risk, governance by scheme members should prevail in number over employers. Some companies choose to operate a trust-based defined-contribution scheme, but most newer auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare.

We are in a new landscape—we have lost member-nominated trustees, which we had believed to be a clear fiduciary principle. A member perspective adds diversity, which prevents the risk of group-think within boards. Ian Pittaway, chair of the Association of Professional Pension Trustees, has said:

“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits of a death-in-service case or something like that.”

In the defined-benefit world, as long as the scheme was well governed and well administered, the member would end up with a reasonable replacement ratio, but in the defined-contribution world, a member’s outcome depends on a host of factors that are currently beyond their control.

There may be resistance to member representation from master trusts, with tens of thousands of schemes and hundreds of thousands or even millions of members, but the industry has proved that it is possible. We will address that more in Committee. Whatever the route to better representation, most in the sector agree that it can only be beneficial for the defined-contribution landscape. There is a clear argument and there are clear demands that the Bill is the best place to start. We look forward to working with the Minister to make it happen.

Yes, we could have debated equally if not more important measures in the Bill, but sadly we are not. It could be many years before we get a chance to pass legislation in those areas. The Bill can both protect and empower the people whose money is being invested on their behalf. The Opposition are therefore happy to see the Bill progress to Committee, where we hope the Minister will be open to the improvements I am sure we can make to the Bill.

--- Later in debate ---

[Richard Harrington]

I congratulate you, Mr Deputy Speaker, on continuing so well the leadership and robustness started by your predecessor in the Chair. I apologise for any offence caused to the Chair. I actually thought I was speaking within the scope of the Bill, but I will of course be led by the Chair and move on to the substance of the Bill.

As I said, the points raised in the debate by Members on both sides of the House have been broadly complimentary. The whole purpose of the Bill is for the Government to be able to respond very quickly to the phenomenal and exponential growth in master trusts over the past two years. That growth was not predicted by the Opposition, who take credit for auto-enrolment—in fact, there was cross-party consensus—and it was not predicted by either the coalition Government or this Government. It happened very quickly and I believe the Government are doing the right thing by responding quickly. I do not accept that the Government have acted too slowly.

I was very glad to receive the support of the shadow Secretary of State, and she made a very relevant point when she explained her view about the expansion of master trusts. We are not allowed to mention the “w” word, as the hon. Member for Bootle (Peter Dowd) calls it from a sedentary position, because that would be outside the scope of the Bill. The regulation has been very considered. Both Labour Front-Bench spokesmen and the SNP spokesman commented on the large amount of secondary legislation. The reason is very clear: we want to consult very quickly with industry and responsible parties on the detail, but this process will not take a long time. We have to get the detail absolutely right, because this is a one-off chance to regulate. There will be a chance for scrutiny by both Houses, because in the first instance the regulations will be subject to affirmative procedure.

Many Government Members, including my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), spoke about transparency. We take this very seriously and we are consulting on it. It is not in the Bill, but it is in the spirit of the Bill, because the regulator will be provided with many powers that will help to enforce transparency and members’ rights, which have been discussed.

[Alex Cunningham]

On the specific point of transparency, why is it necessary to start consulting people when we should simply be saying, “We want to know what all the costs are in the entire investment chain”?

[Richard Harrington]

I must explain to the shadow spokesman that we believe in democracy, and part of that is consulting to get it right. We believe this is very important; it has gone on long enough; it needs to be done right. I am sure that the hon. Gentleman did not mean that the Government should just decide what to do without consulting on this hugely complex area within the industry. When it comes to the regulations, let me repeat that we will consult on all of them. I apologise to the hon. Gentleman if consulting is not correct, but we have to get this absolutely right.

[Alex Cunningham]

I certainly agree with consulting, but will the consultation extend to the members of the master trusts and not just the people who manage the members’ money?

[Richard Harrington]

I believe in full transparency and disclosure, but this is a very complex issue. Brevity of disclosure is sometimes clearer to people, helping them to understand all the costs and charges within their pension, rather than giving them 10, 12 or 14 pages. I would like to move on.

One point was made eloquently by both the hon. Member for Ross, Skye and Lochaber (Ian Blackford) and my hon. Friend the Member for Gloucester (Richard Graham) on the question of whether the Pensions Regulator will be properly resourced to carry out the new duty. I can confirm that we have already had extensive talks with the Pensions Regulator, and that it is the Government’s fundamental view that we cannot enact a Bill such as this which deals with improving and expanding on the response without giving the regulator the proper resources that it needs.

I am pleased to say that many Members of all parties have explained that master trusts are an important part of the pensions industry. The Government are filling a gap between personal pensions and insurance-based pensions that are regulated on the one side, and on the other side the evolution of the trust system, for which there is ample pensions law and regulations. There is a significant gap in the market. We are pleased that master trusts have expanded in the way they have, but they need some regulation and attention because companies have been moving into this area simply because there is that gap in regulation. That does not mean that such trusts are a bad thing, and I am delighted to report that we are carrying out this Bill from a position of little failure. This is not a Government responding to catastrophe or calamity when people have lost money; what has happened has been successful, but we need to provide the correct regulatory framework for it.

I can do no better than conclude my speech by citing my hon. Friend the Member for Gloucester, who said that the Bill was simple and important and that everybody should support it. For that reason, I commend the Bill to the House and support its Second Reading.

Question put and agreed to.

Bill accordingly read a Second time.

Pension Schemes Bill [Lords] (Programme)

Motion made, and Question put forthwith (Standing Order No. 83A(7)),

That the following provisions shall apply to the Pension Schemes Bill [Lords]:

Committal

(1) The Bill shall be committed to a Public Bill Committee.

Proceedings in Public Bill Committee

(2) Proceedings in the Public Bill Committee shall (so far as not previously concluded) be brought to a conclusion on Tuesday 21 February 2017.

(3) The Public Bill Committee shall have leave to sit twice on the first day on which it meets.

Proceedings on Consideration and up to and including Third Reading

(4) Proceedings on Consideration and any proceedings in legislative grand committee shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which proceedings on Consideration are commenced.

(5) Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on that day.

(6) Standing Order No. 83B (Programming committees) shall not apply to proceedings on Consideration or to other proceedings up to and including Third Reading.

Other proceedings

(7) Any other proceedings on the Bill (including any proceedings on consideration of any message from the Lords) may be programmed.—(Mark Spencer.)

Question agreed to.

Pension Schemes Bill [Lords] (Money)

Queen’s recommendation signified.

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of:

(1) any expenditure incurred under or by virtue of the Act by the Secretary of State; and

(2) any increase attributable to the Act in the sums payable under any other Act out of money so provided.—(Mark Spencer.)

Question agreed to.

Pension Schemes Bill [Lords] (Ways And Means)

Motion made, and Question put forthwith (Standing Order No. 52(1)(a)),

That, for the purposes of any Act resulting from the Pension Schemes Bill [Lords], it is expedient to authorise:

(1) the levying of charges under the Pension Schemes Act 1993 for the purpose of meeting expenditure arising under any Act resulting from the Pension Schemes Bill [Lords] or any other Act; and

(2) the payment of sums into the Consolidated Fund.—(Mark Spencer.)

Question agreed to.