Future of Pensions Policy

Damien Moore Excerpts

Tuesday 8th December 2020 Westminster Hall

[Rob Roberts]

Absolutely; I thank the Minister for his intervention. It was in the Aviva article that I saw the fresh-faced youthfulness of the Minister, although he has now turned into an advert for Just for Men. It is working well for him.

The Minister is absolutely right. Adding a health review to that mid-life MOT process could also have untold benefits: it could catch illnesses early and could encourage people to change their lifestyle before problems arise. I completely endorse the Minister’s support of the mid-life MOT process and encourage him to work across Departments to put something together in that space that could drive real change in financial and medical wellbeing.

The banking and financial industry has developed and adapted to the 21st century, and in the same way the financial advice sector needs to undergo wholesale reform and change. Financial advice is often viewed as too expensive, or individuals worry that they do not have enough to invest. Those outdated perceptions of the sector need to change. To do that, the sector needs to become more transparent and to move towards set fees on an hourly rate, or towards a project fee basis. That would help make access to financial advice easier and more affordable.

There is a large amount of worry and mistrust around the financial services industry. It would certainly help boost consumers’ trust and confidence that they were getting the right advice if the advice sector were made more transparent. The inherent unfairness of percentage-based charging is clear. It is simply wrong to charge double the fee for handling a £200,000 investment compared with a £100,000 investment; it literally takes no more time and no more resource to do the work.

Even factoring in slightly more indemnity risk to the adviser for advising on a higher sum would certainly not justify anything like a doubling of the fee. I firmly believe that the public should seek out advisers who charge fees expressed in pounds and pence, and who give a quotation for services based on time expected or a fixed project fee rather than a percentage-based amount.

[Damien Moore (Southport) (Con)]

Does my hon. Friend agree that many providers who give pensions advice should actually be putting their fees and charges explicitly on websites and other promotional materials, so that people can see what the costs would be from the start of the process?

[Rob Roberts]

I very much agree with my hon. Friend. It is now incumbent on advisers when they see clients for the first time to give them an initial disclosure document, which sets out the fees and charges that the client can rightly expect to pay. The disclosure of fees should always be completely upfront and agreed to by the client, before any work is undertaken—that is an absolutely vital part of the process, for sure.

Too many consumers are missing out on the potential opportunities that advice can bring because of a lack of understanding or a perception that advice is too expensive. It is time to develop the financial advice sector and make it work for consumers. I urge the Minister to continue to develop awareness of financial advice and guidance services, and make them as accessible as possible so that the advice gap around pensions can be closed.

One area of pensions where the advice gap is intrinsically linked is costs and charges associated with pensions. In many cases, the associated costs and charges, whether the annual management charge or underlying fund charges, are too much of a focus for consumers, advisers, the regulator and policy—to the detriment of the performance and quality of the actual pension. Instead of focusing on which contract is the cheapest, more time and guidance need to be shared that consider the end result and outcome. This is what will be available to pensioners and what will impact the quality of their retirement.

Even though pension costs may be more expensive, if a contract has the propensity to generate higher returns, it will give a better end result for the individual. In addition, as many people do not seek financial advice regarding their pension, many will lack the knowledge to understand the full impact of any costs and charges, which often leads to people choosing the cheapest contract which may not benefit their situation. The principle of having lower charges and less of a drag on performance is a noble principle, but it does not always work out that principles follow through to superior outcomes. It is the outcomes that people can spend in retirement, not the principle.

Finally, it would not be right to hold a debate that seeks to improve people’s future in retirement without considering how to ensure that the pension industry is becoming green and playing its part in protecting the environment. Given that pension funds—long-term investments—hold around $20 trillion in assets globally, they are an integral part of socially responsible investing and can play a major part in helping the UK to reach net zero. I commend, in his absence, my hon. Friend the Member for Grantham and Stamford (Gareth Davies), whose campaign has led to the UK’s first green investment bond, which is on the horizon.

According to the Make My Money Matter campaign, sustainable pensions are 27 times more impactful in reducing your carbon footprint than stopping air travel and following a plant-based diet combined—27 times! Looking across the whole fund universe, we see that relatively few pension funds have fully embraced socially responsible investing or incorporated environmental, social and governance factors into their processes. While some have suggested that the Government should force private pension schemes to invest in a socially responsible way, that feels like an over-reach—an inappropriate and counter-productive use of power—as it may well encourage disinvestment. The bottom line to keep in mind is that pensions are there to provide retirement income first and foremost; if we can save the planet afterwards, that is an extra bonus. But 68% of UK savers want their investments to consider people and planet alongside profits, while 71% would opt for a fully or partially sustainable pension if they had the choice, showing the demand for socially responsible investment of pensions.

The Pension Schemes Bill has recently created a taskforce on climate-related financial disclosures that puts the consumer in charge and increases the transparency of pension funds regarding investments. There is clearly a demand in the UK for socially responsible investing within pension funds. The Government aim to facilitate that, as shown with the taskforce, and I commend them for it and look forward to seeing how it develops.

As I said at the beginning, pension policy is a topic that can often be overlooked. It is overly complex, too technical and not relevant to the many immediate, pressing issues of the day. But it does not have to be overlooked. Pensions policy is an incredibly important topic that will impact all of us in later life as we look to retire, and it is the responsibility of all of us to look at how we can shape it positively to provide the best retirement for as many people as possible. The contributions and sacrifices that our older citizens have made throughout this pandemic, and indeed throughout their lives, are considerable, and it is only right that our policies recognise and reflect that hard work and allow them to live out their retirement in comfort with the peace of mind that their pension will see them through.

I look forward to the contributions of colleagues, including the Minister and the shadow Minister. Although great strides have been made through the Pension Schemes Bill, there is more to do if we want our pensioners to have the retirement they deserve.

--- Later in debate ---

[Damien Moore (Southport) (Con)]

It is a pleasure to speak under your chairmanship, Mr Hosie. I thank my hon. Friend the Member for Delyn (Rob Roberts) for securing this important debate and it is a pleasure to follow the hon. Member for Luton North (Sarah Owen).

This is an important debate on a subject that should be talked about more by more of us. My hon. Friend mentioned the number of people who do talk about pensions. We could have done with seeing a few more people here today representing their constituents to discuss the future pensions policy of this country, which is incredibly important. I am sure my hon. Friend will thank all hon. Members here for participating; it is testimony to those who really care about the issue that they are here today.

The matter affects the lives of millions of people in our country. It is very complex and complicated for people to navigate. My Southport constituency has an incredibly high level of pensioners. We not only have a high number of our own but people come to retire to our beautiful seaside resort, so I quite often talk about pensions with people there.

I will discuss a few issues on pensions policy. A number of points have already been made but I want to reiterate some of them in my speech. I will first say that the introduction of the Pension Schemes Bill was welcome. It contains meaningful and impactful measures that will go a long way to address the challenges faced by pensioners. We know, for example, that people might hold at least 11 different jobs during their working lives and will have paid into a multitude of different pension pots. Someone is more likely to have 25 different name badges from companies than a gold watch after 25 years of service.

Most people will only realise when they reach that stage in life of coming up to retirement that those pension pots are theirs and are available, and they need to know how best to utilise them. That point is often too late. People might not realise that sometimes it is possible to take out funds, that the funds might not have been invested in the right way or might have been invested in a way that that person did not want. Information from pension providers, not just the annual update but more regular ones, is really important. Employers should also talk about pensions on payslips, whether they are physical or virtual, asking whether someone is getting the right pensions advice. That could be done every month for those who are paid monthly or every week for those paid weekly. There should be something there specifically talking about pensions, so that people are informed and reminded every step of the way, because people are obviously very busy.

The pensions dashboard is welcome. It will simplify pension information and bring it to one place. It will empower people to do more than they have previously been able to do, with pieces of paper given on an intermittent basis.

Another area of the Pension Schemes Bill is green pension investments. The UK is the first major economy to put climate risk and disclosure into statute for pension schemes. I asked the Secretary of State for Work and Pensions about that last week. It is a new area for pensions, but the generations coming up are more inclined to support green issues and might want their pensions to be invested in some of those companies, so we should empower them to do that.

As my hon. Friend the Member for Delyn set out, people should receive a good retirement. The Government have shown through the Bill that they understand the issues facing pensioners; I genuinely believe that they are responding to them. When we talk about pensions, however, we are talking about the end of the process—when people will receive one or what time of life they will retire. We need to start talking about pensions at the beginning of people’s working lives when they start a job or a career and, hopefully, start saving for their retirement. As he said, it may not be the sexiest subject to speak about, but it is one of the most important. If somebody gets it right or wrong at the start of their career, it can be life-changing. Of course, as has been said, we should also look at points in time where we can have an MOT of where our pensions are.

Education in schools is critical and it should be there for all children in all schools. My financial education was about opening a bank account, credit cards, overdrafts and how to fill in a cheque, which was a cause of great excitement for many fellow pupils. I must say that I am still excited about it; I still use cheques. That being said, there should have been, and there should be now, more emphasis on pensions and what that will mean in later life. If we do not start explaining the long-term value of saving for a pension, we will never do it when people get close to the point of receiving one. That is really important. I know that the Minister is committed to lifelong financial education, and there is no better advocate of that than him in the Government, but I would like to see more of that happen when he speaks to my right hon. Friend the Secretary of State for Education.

On pension credit, which has also been brought up, I know that the Government are doing all they can to ensure that people who are eligible for pension credit, who have paid into the system throughout their lives and done the right thing, receive it. Pension credit ensures that the pension of those who receive a weekly income is brought up to the minimum amount, which is an absolute lifeline to many people. As has been said, many people do not claim everything they can. We should encourage people to claim what they are entitled to.

Recent research commissioned by Independent Age shows that we must work harder on that. If the level of pension credit uptake was boosted to 100%, it could lift 450,000 pensioners out of poverty. Whether they are buying groceries or heating their homes, it is important that people in older age are living a life, not just existing, and that they do not feel shut away from society in any way. In 2018-19, £1.8 billion of pension credit was not received by those eligible for it. The low uptake of pension credit costs the taxpayer £4 billion a year in additional unavoidable NHS and social care spending. In an area that we are looking to reform and make better, we could prevent that high level of spending by giving people what they are entitled to.

Renewing our focus on increasing uptake would save the taxpayer money, as I have said, and people in all parts of our country would have a better standard of living. DWP representatives have already confirmed that the technology is there for greater automation of benefit provision and that the data required is largely already held by the Government. Hopefully, we can unlock that to get the process going. We need to build on that and work towards meaningful solutions for those in pension credit scenarios.

The key things that I would like the Minister to take away include education, of course, which is where we can start to build a better pensions policy and framework. If people have better education, they can take control of their lives. In later life, we need to look at the pension credit issue. We should also have an eye on innovation, technology and green industries and ensure that they are promoted to people now, because there is no better time for them to be thinking about it, in terms of their future and the future of our planet.