Pensions Bill

Debbie Abrahams Excerpts

Tuesday 29th October 2013 Commons Chamber

[Gregg McClymont]

That is a lesson in not posing a rhetorical question. Whatever my hon. Friend believes, I do not see this as an evil Government—in particular, no one doubts the Minister’s good intentions—but our amendment must be understood in the context of the Beecroft report.

As you will remember, Mr Speaker, Adrian Beecroft is a Tory donor who has produced a report in the last 18 months arguing that red tape and bureaucracy on small businesses are far too heavy and that micro-employers should be removed from auto-enrolment. I know the Minister does not support that and said the Government had no intention of doing it—no one is suggesting he would do such an awful thing—but he will not be there for eternity. Given his recent comments about God being a liberal, perhaps he does intend to be around for eternity, but for those of us of a more sceptical temper, I think we can say he will not be around for ever, so it would be sensible to constrain a future Government, or even this Government—anything could happen—who might be under pressure from the Beecrofts of this world, in a way that is consonant with the best objectives of public policy.

The Minister said that amendment 53 did not even define a small and medium-sized enterprise, but he will know that the Companies Act 2006 clearly defines an SME as an enterprise with 50 or fewer employees. That is a common definition of an SME. The broader point, however, is exactly the one I have already expressed: we are trying to do him a favour by protecting him from those within the coalition Government who take a less enlightened view of the benefits of auto-enrolment. We tabled the amendment in that spirit.

On clause 29 and the debate around schedule 16, the Minister mentioned the Australian example. I was at the National Association of Pension Funds last week, and I have even watched him in the video—I was hoping he would entertain us with the song from “Les Misérables”, but I will come to that when I deal with costs and charges. He said that Australia is doing pot follows member—the inference is that I often point to the benefits of the Australian system—but that is not surprising, because Australia has several hundred schemes, whereas we have 200,000, and that is not including personal private pensions. To compare a system so scaled with our system is to let one’s a priori views of the world get in advance of the evidence, or to put it more simply: he is comparing apples and pears. Australia has several hundred pension schemes; we have 200,000, and that is a fundamental problem with comparing our system. Australia is in a much better place in terms of scale.

The Minister says that pot follows member will be simple and effective and that we will regulate for quality, by which he means there will be minimum standards—or at least he tells us there will be minimum standards, but, guess what, that is also currently part of a consultation. There is a broader theme to which I shall return; when the Minister feels under pressure from the Labour agenda on private pensions, he calls for consultation. He says that this and that will happen but when we study the detail, we see that what he has called for is a consultation. That is not the same as decisive action.

On pot follows member, the problem is that the UK has a fragmented pensions system; we have 200,000 pension schemes. We have—to put it in a simple fashion—great variations in quality. The Minister is being asked repeatedly by the pensions world how pot follows member will work in those circumstances. It is again worth listening closely to what he says, because he has not yet explained how it will work. He has set out his plan and objective to get to pot follows member but not how the mechanism will work. One of the reasons for that is that it is very difficult to do. To go back to the Australian point, pot follows member would be a sensible approach if we started from a very different place, but we do not. We start from a very fragmented private pensions system with a massive variation in quality.

On costs and charges, the Minister does not actually know what is going on in the pensions world. We had a very interesting conversation, or debate on this in Committee. In arguing a point with me, he pointed to DWP evidence. It turned out that the way in which he quoted that evidence was not appropriate, but my point is not to criticise him for making a mistake, which does happen; it is much broader. The DWP is forced to take surveys of employers to try to find out what pension providers are charging them. The Minister talks about evidence. Would not a much more effective way to approach things to have the costs and charges laid out for everyone to see in the first place? Why has he not got on with ensuring that costs and charges are disclosed? Instead, the DWP has to take surveys of employers who, in many cases—as his own survey evidenced—are not aware of what they are buying in terms of a pension scheme.

That brings us to the broader issue of who buys pensions. The Minister wants to move to pot follows member and says that there will be quality criteria; these will be minimum quality criteria. But, as things stand, he could not explain to the House all the costs and charges that exist in a pension scheme. Neither the Government nor the regulator gather that evidence. That is a fundamental point about the pensions market today.

Similarities are often drawn between energy and pensions. One way in which they are similar is that the vertical integration of pension providers—the same as with energy companies—means that it is very hard to crack where the costs and charges lie. I put that point on the table. The Minister wants to move to pot follows member but has not set out in detail the mechanism and the IT by which he would do this. More widely, he is not able to say at this stage what the costs and charges are in pension schemes. So how can he be sure that no one will move from a superior to an inferior scheme? He will say, and has said, that he will ensure that this happens. Again, I do not doubt his good intentions, but he has not so far delivered on costs and charges. More widely, if he does deliver—as I am sure he has every intention of doing—the amount of regulation that it will take to make a pot follows member pension automatic transfer system work is enormous. That is why so many stakeholders in pensions do not think it is a feasible way to proceed. The Minister said that the Association of British Insurers supports it. That is hardly surprising, because this is a system that will have the least detriment to the ABI’s members.

1.45pm

The Minister feels that he is now catching up with the pension charges debate; that is evident from his language and from the extent to which he talks about the Labour agenda, which is quite striking for the Report stage of a Bill. But he is still caught in the mindset of “If only I can get the industry round the table, it will deliver.” There is no evidence of delivery so far and no evidence therefore that that will happen. The reason that there is no evidence relates to a point made by my right hon. Friend the Leader of the Opposition in his powerful 2013 conference speech, which still reverberates around British politics. He asked, rightly, why one would expect an industry to take the decisions necessary to reform a market when it is not in its interests to do so. Why, indeed? I say to the Minister that, on pot follows member, he has to look beyond the ABI’s interests and look to the interests of the wider pensions community and of the most important people, savers.

The Minister mentioned the National Association of Pension Funds conference, where he mentioned pot follows member. I am sure that he got a very warm reception, because the national association is very clear not only that pot follows member is not the best way to proceed, but that there is a serious possibility of significant consumer detriment, which, in everyday language, means rip-offs. The national association, which the Minister so eloquently addressed the other week, is very clear on that. Not only is the association clear that we should have no truck with pot follows member, but it supports—the House will be surprised to learn—aggregators.

The Minister sets out my approach to aggregators as being, “Labour wants several aggregators, but how would they work?” He said that aggregators stop individuals engaging with their pension, or make that engagement impossible. He knows very well that the whole logic of auto-enrolment, which Labour began and which he has followed through, is that we have to use the power of inertia in pensions, because all the evidence is that many people will find it difficult to engage with pensions whatever the circumstances, given their complexity. Also, as he must be all too aware, auto-enrolment involves employers buying pensions, not the saver.

A criticism that I would make more widely of the Minister is that he approaches the pensions market as if it were a functioning market; functioning in the sense that we can and do have a consumer who is engaged, informed and sovereign, and a seller. The Minister knows that that is not the basis on which auto-enrolment proceeds because it is the employer who buys the pension. In other spheres, he has shown that he is fully aware that there is a big problem in the pensions market, which develops from the fact that the saver in many cases cannot be the sovereign—the person who makes the decisions—first, because the employer buys the pension and, secondly, because the pensions are so complex and their annual statements so opaque.

In those circumstances and with the Minister being aware of that, to claim that the aggregators should be excluded and rejected on the basis that they do not allow consumer engagement is a bit of a straw man. Let me say a little about why I think aggregators are so important. This relates to my other new clauses and I should iterate at this stage that these new clauses must, if we are to develop a serious policy to improve auto-enrolment outcomes, go together. For example, the Minister talked about trustees and said that the OFT says that the key is the quality of the trustees. He is of course right. My view, and that of the Labour party, is that trustees, in scaling up the pensions system, and aggregators go together to try to make a significant difference to the 10 million people being automatically enrolled in pensions.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

My hon. Friend is making an excellent speech. I recognise that the Minister is sincere in his intention to improve pensions but, in relation to costs and charges, does my hon. Friend think that the inertia might be a result of the Government not wanting to challenge the vested interests of the big pension providers in order to stand up for ordinary, hard-working people?

[Gregg McClymont]

I thank my hon. Friend for her shrewd intervention.

The Minister has been slow to understand the depth of the problems in the pensions market, and the House does not have to take my word for that. Earlier this week, I wrote to the Conservative MPs in the 40 most marginal Conservative seats, who have recently published a manifesto-cum-policy document. The language therein is—how shall I put this?—tougher on the private pensions market even than mine. The document, “40 Policy Ideas from the 40”, describes it as a failed market. It also states:

“Pension providers still refuse to clearly identify hidden charges such as churn and related fees…91% of retirees buy their pension annuity from their fund manager without checking other market options…the problem is that the private pensions market in the UK is a failed industry with higher charges than in any other country.”

That was not written by the Labour party. It was written by the Conservative MPs in the 40 most marginal constituencies. It seems a bit odd that they should take a tougher line on the pensions market than the Liberal Democrat Pensions Minister.

The way to explain that conundrum—I will not call it a paradox—is to say that anyone who believes in markets and thinks that they should work properly will support Labour’s proposals on reforming the private pensions industry. We want to reform it to ensure that the 10 million new savers going into automatically enrolled pensions get a fair deal. This pertains in particular to clause 29 and schedule 16, and the amendments thereto. It comes down to whether we believe that the pensions market is ready and able to proceed with pot follows member, given its fragmentation. The evidence shows that it clearly is not. Again, Members need not take my word for that. The National Association of Pension Funds has made it clear that we need to move to an aggregator system.

Given that the Minister was kind enough to spend a considerable period of time talking about the Labour amendments, I will do the same. I want to say a little about why aggregators are important. When the Minister addressed the NAPF, he gave a lucid, walk-around-the-stage performance that I enjoyed very much. He referred to two songs from “Les Misérables”. It would be unfair of me to sing either of those songs to him now. I have to confess that I am not a musicals man, although I suspect that the Minister might be a man for musicals—