Pension Schemes Bill

Debate between David Mowat and Gregg McClymont

Tuesday 2nd September 2014 Commons Chamber

[Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)]

It was striking to hear the Minister refer to a “revolution” and a “war”—not terms one usually associates with Liberal politicians. Clearly, the excitement of pensions has overwhelmed his Liberal temper.

This is the third pensions Bill of this Parliament, and I note that the Minister spent the first 15 minutes of his half-hour speech talking about the first and second pensions Bills, and the fourth one still to come. There is no doubt that much has changed in the pensions landscape, but let me first pick up the Minister on some of the things that he suggested. He painted a picture of a pension policy—a revolution, indeed—that is coherent in every respect and said that the first pensions Bill begat the second, the second begat the third, and of course the fourth is still to come. There is, however, another way to look at aspects of the Government’s pension policy, and I ask the Minister to reflect on these points.

The Minister referred to auto-enrolment. As is characteristic of him, he took all the credit, leaving aside the fact that—as was pointed out by my hon. Friend the Member for Aberdeen South (Dame Anne Begg), the Chair of the Work and Pensions Committee—auto-enrolment emerged out of the Turner commission and the consensus built by the last Labour Government, and was rightly taken on by the Pensions Minister. Leaving aside that lack of generosity in the Minister’s reflections on auto-enrolment, there is a more fundamental point. The Turner consensus, which the Labour Government built and the Minister has continued, operated on the assumption of pensions being complex, long-term and difficult to navigate for anyone other than a financial professional. That necessitated a default-based approach whereby individuals employed without a pension were defaulted into a pension scheme. They did not exercise a choice to go into a pension scheme; they were defaulted into a good pension.

That was the Turner commission’s judgment and the consensus taken on by the last Labour Government, and indeed the Minister. However, the Government’s policy on budget reforms is predicated on a different approach and the assumption that at the point of retirement, when individuals come to turn their pension pot into an income—the whole point of a pension is to get as great a pension income as possible—they will be able to navigate that jungle of financial products successfully and maximise their retirement income. There is surely a tension between those two aspects of pension policy, and the Government’s approach to building up a pension pot and to turning a pension pot into retirement income.

That tension must be reflected on by the House, not because the Government’s policy for retirement income stage is necessarily wrong, but because there is a tension between the two poles of policy. If auto-enrolment policy was correct to assume that individuals need to be guided, helped and encouraged into better pension decisions, why do we no longer think that is the case at retirement? That is absent from the Government’s pension policy. The Minister would have us believe that everything fits together neatly, but it does not in that regard.

[David Mowat (Warrington South) (Con)]

The shadow Minister’s point would be stronger if in the past when people purchased annuities that had been done with the correct annuities and financial advice being given. We know, however, that 80% of people were buying the wrong annuities. At least in the model now coming in, there will be some compulsory advice, which is a step forward from what existed previously.

[Gregg McClymont]

The hon. Gentleman is a doughty fighter for better pensions and I respect that, but I ask him to reflect on what he has just said. The annuities market was broken because people did not shop around. They found annuities confusing and complex, and they defaulted into the option offered by their insurance company. Why do we think that that behaviour will suddenly change in a system that continues to be predicated on individuals making a choice?

Annuities for Pensioners

Debate between David Mowat and Gregg McClymont

Tuesday 7th January 2014 Westminster Hall

[David Mowat]

Since we are discussing the point I made, I feel I should chip in. Of course it was about participation. Two of my hon. Friends have made points about risk. The state already carries risk of inadequate pension provision, which is manifested daily. To talk about further risk in that context is disingenuous.

[Gregg McClymont]

That is clearly a matter for Conservative Members to debate among themselves after we leave the Chamber.

We face a broken market; the question is what to do about it. It seems to the Opposition that the way forward is increasingly to involve pension schemes in—I am wary about using this term, as I try not to use the jargon—“decumulation”. Pension schemes are involved in building up savings pots for members. They should also be involved in turning those savings pots into retirement income, which is what the process is all about, after all. Moving to a system in which pension schemes ensured that their members got decent, well regulated brokerage advice would mean bigger pension schemes, because many very small pension schemes do not now have the ability.

We have mentioned NEST. What does it do about annuities? It has sealed panel bids from annuity providers for each cohort coming to retirement. That is not the whole of the market, because NEST must annuitise for people with very small pots, as part of its public service objective, but that is the road we must go down. The Royal Mail pension scheme is another one that recently announced that it would provide an in-house brokerage service for its members.

The hon. Member for Gloucester was absolutely right in his analysis of the market. The problem—it is not his problem; he is an august Back Bencher, but not on the ministerial team—is that so far the pensions Minister and, I assume, the Treasury have not come up with anything concrete. Until they do, the hundreds of people who are annuitising as we speak and the 400,000 people who annuitise every year will surely look at the Government and ask when they will end the rip-off and the excess profits. If the pensions Minister says that insurance companies are profiting excessively from annuities, when will the Government act? Surely it must be sooner rather than later.

I make this point again to the Government, in the hope that they might listen. Any solution that depends solely on increasing individual consumers’ engagement in the process of buying an annuity will not succeed. The whole thrust of Government pensions policy since Turner, which this Government have continued, is that inertia is a reality that we must make work in the public interest, rather than in the interests of pension company shareholders. That has been the thrust of pensions policy for a decade now. Any solution to the annuities market dysfunction must start from that assumption. In the spirit of the Turner consensus and co-operation on auto-enrolment, I urge the Government to take heed of that reality in the annuities market.

Pensions Bill

Debate between David Mowat and Gregg McClymont

Tuesday 29th October 2013 Commons Chamber

[Gregg McClymont]

I thank the Minister for that thoughtful intervention. I am coming on to the issue of the charge cap and the rate at which it will be set, so I shall take up the point when I discuss our amendment (a) to new clause 1. He refers to small pots, but that takes us into territory we have previously discussed about getting aggregators to take them on. Why does he believe that only small pots that are stranded should automatically be transferred? My view is that all stranded pots should be liable for automatic transfer. I am grateful for his intervention, because it reminds me of something I intended to say. The Government’s position on the pot follows member system appears to be supported only by the Government, the Minister and the ABI. First, the only pots liable for automatic transfer will be those for less than £10,000, and secondly no pots that are stranded before the date on which the legislation takes effect will count as stranded pots. [Interruption.] The Minister shakes his head. I will give way to him if I am wrong on that point. He does not want to intervene, so I shall continue on the basis that what I am saying is correct.

This is an important issue, because I am building a case that the Minister does not realise how substantial the problems in the private pensions market are. He continues to think it can be treated like better-functioning or well-functioning dynamic markets. Actually, the market is more like the one in energy. I say that because when, under the Minister’s leadership, the Department for Work and Pensions looked at how to consolidate pots, it gave as a reason against aggregators the fact that they would disrupt the current market structure.

The Minister talks about new clause 1 and the need to take very strong action. Implicit but also explicit in what he says is that there are really serious problems with this market. If that was not explicit in what he said today, it was certainly explicit in his “Les Misérables” ditty at the NAPF. He knows about these problems, and he knows that we need significant change. We are going to be in a position, however, whereby all currently stranded pots will continue to be stranded. The Minister is shaking his head again. Does he want to tell me that I am wrong? I am happy to accept it if I am wrong, but on the basis of our Committee debates, I do not think that I am. Am I wrong? The Minister will not stand up to say so, so I shall assume that I am not and that he wants to keep the currently stranded pots still stranded and will not take action to deal with the problem. He also sets a £10,000 limit. Why? The answer is that he continues to be unprepared to stand up to the vested interests in the pensions market.

The Minister said several times that the ABI is doing this, and the ABI is doing that. That is welcome; we like to see the industry engaged. However, a time must come—and it is now—when the Government must get on and make the changes necessary to reform the pensions system. I put that on the record, and if he wishes to correct me, he can. As I say, currently stranded pots will not be encompassed by clause 29 and schedule 16, and no pot above £10,000 will be considered to be a pot eligible for automatic transfer. I think that says something significant—that he does not understand the necessity for significant change in this market.

It is not just me referring to private pensions as a failed industry. As I said, the group of 40 Tory MPs in the most marginal constituencies have done so too. They do so because they understand that if 10 million people are to be automatically enrolled into the new workplace pensions, every scheme must provide value for money. The Minister needs to take the necessary action and accept that.

[David Mowat]

I have just come back into the Chamber, but since the hon. Gentleman mentions the 40 Tory Members, I want to put on record the fact that as one of those 40, I was extremely happy to hear what the Minister said about the consultation, the 0.75% cap and his cognisance of the issues surrounding it. I shall therefore support the Government in any Divisions on these new clauses and amendments. [Interruption.]

[Gregg McClymont]

My letter has not had the desired effect. I thought that Madam Deputy Speaker called me “Greg Mulholland” there. I was processing that, rather than being shocked at the fact that the Treasury Parliamentary Private Secretary is going to vote with the Government. Believe it or not, that did not come as much of a surprise to me.

--- Later in debate ---

[Gregg McClymont]

My hon. Friend makes a very good point. The logic of moving to a system in which every scheme has independent trustees flows from the fact that in the pensions market as it stands the consumer who is a member of a scheme without trustees cannot have their voice heard. What happens then? The interests of shareholders over-dominate. In a market that functions effectively, of course, the consumer can shop around, compare prices and if they buy something that they do not like they can even buy something else. None of that is true of the pensions market and that is why, in our view and given the options available, reaching a situation in which every scheme has trustees is the best way to try to ensure proper representation of saver interests. My hon. Friend is absolutely right.

[David Mowat]

I am listening to the hon. Gentleman’s argument, and it seems to me that all his points should be input into the consultation the Minister announced earlier. The Minister made it quite clear that one issue that would be consulted on was a cap of 0.75%, and that among the issues to be resolved was what factors would be included—for example, total expense ratios, annual management charges or any other kind of charge. Those are all legitimate topics for consultation. I welcome the discussion, as it is surely the right thing.

[Gregg McClymont]

I do not disagree with any of that, apart from the fact that the chance to take the necessary steps has today been laid in front of the Government and the Minister. We must concede that auto-enrolment is already well under way, but at what stage will we see the action that is necessary? We will be in 2017 before we know it, when everyone will be auto-enrolled, and if the Minister has continued to consult rather than act we will be no further forward. The Minister has taken action on consultancy charges—he can do it—and I give him credit for that. He is undertaking a significant reform of the state pension, which we will discuss later, and he has many things to deal with, but the Government must act faster on these issues.