Pension Industry

Debate between David Mowat and Ian Paisley

Tuesday 21st February 2012 Commons Chamber

[David Mowat]

I am coming on to stakeholders and to caps. I want to ask the Minister some questions about those issues.

The industry defends itself by saying that active funds are worth paying for, claiming that higher charges are fair enough if better returns are secured, but the reality is that no correlation has ever been published to show a relationship between charges and returns. The consultants Lane Clark and Peacock recently issued a report to demonstrate that. Even if there were such a correlation, the fact that the charging regime is so opaque means that the punters could not get to grips with it in the first place. One of the many consequences is that this industry has failed to consolidate. I looked at a platform provider this morning and found that I could have bought 5,000 funds. There is no reason for that other than the fact that this industry has not been exposed to market forces.

[Ian Paisley (North Antrim) (DUP)]

Does the hon. Gentleman accept that one problem in the private pension sector is the lack of transparency when someone in public sector employment on a low salary decides to take out a little private pension to help them along? When it comes to the day of reckoning—when people want to cash the pension in—they realise that it prevents them from enjoying the benefits system because it just puts them over the threshold that would have allowed them to receive the benefits to which perhaps other family members or their colleagues are entitled. There should be transparency about what people get from their pension and how it affects them in the welfare system.

[David Mowat]

I agree. The key word that the hon. Gentleman used in that intervention was “transparency”. If the market is to work, there must be transparency and comparability, but it seems to me that there are people in the industry who do not want the market to work. The market might work better if independent advice were freely available, but in the past the industry has effectively controlled advisers by treating them as paid intermediaries with a commission structure that compromised their independence, and between 2002 and 2007 its payments to such intermediaries for their advice rose by 50%. Hopefully the RDR—the retail distribution review will deal with the problem, and I give the Government credit for that.