Pension Schemes Bill [ Lords ] (Second sitting)

Lord Mackinlay of Richborough Excerpts

Tuesday 7th February 2017 Public Bill Committees

[Alex Cunningham]

I am disappointed that the hon. Gentleman is not following my argument, but perhaps he will as I move to my conclusion.

As I was saying, charges for active investments have remained stable, unlike charges for passive investments, which have been falling. The FCA suggests that that reflects competitive pressures and the unwillingness of funds in the active fund market to undercut each other, and it says that weak pressure on prices can lead to weak cost control. The FCA report is particularly scathing about the role of investment consultants: with 60% of that market controlled by three firms, the FCA is considering a market investigation reference to the Competition and Markets Authority. The report concludes with a number of very welcome interim proposals on remedies, not least on transparency and all-in fees, but this is a hugely powerful and profitable sector and it will be lobbying hard to water down any action.

The Secretary of State confirmed that the Government will consult on hidden costs and charges later this year. On Second Reading, he said:

“Transparency is a key area. Hidden costs and charges often erode savers’ pensions. We are committed to giving members sight of all the costs that affect their pension savings… We plan to consult later in the year on the publication and onward disclosure of information about costs and charges to members. In addition to the Bill, other things are clearly required to give greater confidence in the pensions system.”—[Official Report, 30 January 2017; Vol. 620, c. 756.]

I asked in that same debate why it is necessary to start consulting people when we should simply be saying that we want to know what all the costs are in the entire investment chain. I said that, yes, I agree with consultation—but surely we are getting to the end of the tunnel on that.

The FCA is currently holding two separate consultations on cost transparency. The first is in response to the watchdog’s interim report on its asset management market study and calls for an all-in fee approach to quoting charges. The second, which closed to responses on 4 January, could require asset managers to disclose aggregate costs and then provide a further breakdown on request. That is good news and surely statutory bodies such as independent governance committees, the Local Government Pension Scheme advisory board and the Pensions Regulator are quite capable of making sure that whatever comes out of the FCA’s consultations is enforced. The only beneficiaries of further consultations are the asset managers, who will have won yet more years of grace in which they can operate under the radar.

The Investment Association has questioned the data and metrics the FCA used to come to its conclusions that active funds do not on average provide better value than passive funds. I am concerned that, despite making all the right noises and promising full transparency, the Investment Association has set out to kick the consultation process down the long road by persuading the Department for Work and Pensions that it needs to discover exactly what the FCA has spent the past two years discovering.

If we are to have another consultation, it will be in the teeth of all the evidence gathered so far, at enormous expense to Government and to the private sector, and will serve employers and workers very badly. Perhaps it is time for the DWP to stop consulting and start turning the current consultations into enforceable legislation. It should learn from its colleagues at DCLG, who, as I said earlier, have endorsed the work of the LGPS advisory board. DCLG’s own programme of fund consolidation included advice that the newly forming asset pools should prove to them that active fund management should be no more expensive than passive.

[Craig Mackinlay (South Thanet) (Con)]

I do not want to stop the hon. Gentleman when he is in full flow—we are very much enjoying his oration about the effects of compounding and charges. Surely, as we have more master trusts and the auto-enrolment market gets bigger and bigger, it will be a natural feature of that market that people will be more interested and aware of the charging structure. My personal view is that the concerns that the hon. Gentleman raises will come out as the market expands and evolves, and more and more of these trusts come forward. Much as I have enjoyed what he has to say, I have a feeling that that will be the natural progression of things in the market.

[Alex Cunningham]

Although I am grateful to the hon. Gentleman for his intervention, it is perhaps a typical response from a Conservative politician: just leave everything to the market. In my opinion, we should not leave everything to the market.

When offering investment funds to employers and members, master trusts need to prove the value of the investment post-charges and that active strategies are no more costly than passive. They should remember that the transaction cost issue, badly delivered in 2013, is up for review in 2017 and forms part of the auto-enrolment review.

The People’s Pension, the not-for-profit master trust launched by construction sector financial provider, B&CE, with 1.7 million members, is NEST’s closest private sector rival.

--- Later in debate ---

It is essential to ensure that the authorisation regime can cater for closer supervision when triggering events occur. Legislation therefore has to set out clearly what those risk events are, the dates on which they are taken to start and finish, and consequent requirements. That is what the clauses achieve, in conjunction with subsequent clauses in the Bill.

[Craig Mackinlay]

I seek just one clarification from the Minister. Earlier today we agreed to Government amendment 3, which defined a scheme funder as

“a body corporate or a partnership that is a legal person”.

However, item 5 in the table of triggering events listed in clause 22(6) interprets a scheme funder slightly differently, as

“a person or body of a kind that meets requirements prescribed under…the Pensions Act 2004”.

I am concerned that we have agreed to an amendment that exempts individual persons, but there seems to be a slightly different interpretation of what the scheme funder is in the table of triggering events. It may just be an oversight, but some clarification would be helpful.

[Richard Harrington]

I will get back to my hon. Friend on that very technical point, but I do not believe that there is any intention for the definition to be different.

Question put and agreed to.

Clause 21 accordingly ordered to stand part of the Bill.

Clause 22 ordered to stand part of the Bill.

Clause 23

Notification requirements