Gregg McClymont
Main Page: Gregg McClymont (Labour - Cumbernauld, Kilsyth and Kirkintilloch East)Department Debates - View all Gregg McClymont's debates with the Department for Work and Pensions
(11 years, 1 month ago)
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Steve Webb
My hon. Friend is right. The consultation document discusses what should be included in the charge cap. My instinct is to prefer a comprehensive definition of charges. Clearly, we do not want to cap annual management charges and find out that the industry has cunningly managed to get its money back by some other route or a disguised charge. We therefore discuss what should be included.
My instinct is to go for a broad measure. There is an issue with transaction costs—we clearly want to know about them. Including transaction costs in the cap could lead to a slightly odd situation. Towards the end of the financial year, the fund and the trustees might believe that conducting a transaction is the right thing to do for the benefit of the pension fund. However, they might be unable to do that because the transaction costs would take them over the annual limit. We would be grateful for feedback on that and need to address those issues. One reason why we are having a consultation rather than laying down a definite answer is that we want insight on the fine detail, as my hon. Friend says. The basic principle is that we are looking at ensuring that 99p-plus of every £1 put into a pension goes into a pension. I am grateful for his comments.
I should add that there has been a suite of activity on charges. To remind the House, we announced a ban on consultancy charges earlier in the year. Government new schedule 1 and Government new clause 1 give us the power to put a set of powers to cap and regulate charges and quality all in one place. That includes automatic enrolment schemes, qualifying schemes and closed schemes. Lots of people have lots of money tied up in closed schemes. Without those measures, we would not necessarily have the powers we need to regulate the charges they pay. In some ways, the charges that people in closed schemes are paying—they are often old, high-charge schemes—are worrying, because people are often not engaged with their pension saving in a closed pension scheme.
Prompted by the OFT and working with the ABI, we are looking at legacy schemes—schemes introduced before 2001. The average charges in legacy schemes are 26% higher than charges in schemes sold after 2001. This is a full-frontal assault on pension scheme charges. We have banned consultancy charges; we are taking powers in the Bill to go further for auto-enrolment schemes; and we are looking at legacy schemes, charges and charge caps. We are taking effective action on issues that previous Governments have only dabbled with. That is why I urge my hon. Friends to support our new clause and our other proposals. They deliver, whereas the Opposition’s proposals mess about around the edges.
On governance and administration—in the context of new clauses 9, 10, 11 and 12, and amendments 54 and 55—quality in pension saving is not only about charges. How well schemes are governed and administered is important. Interesting issues are raised by the Opposition’s proposals—obviously, they are flawed, but I acknowledge that they raise important issues. New clause 9 would impose a trust-based structure for all pension schemes, with independent trustees across the board. But interestingly, the Office of Fair Trading’s project leader on the workplace pensions report that has just been published was recently quoted as saying that although trusts feel like an intuitively better way of looking after people’s pensions, that
“is largely dependent on the quality of the trustees.”
Given the many pension schemes we have at the moment, including many defined-benefit schemes, a requirement for every scheme to have a particular sort of trustee could be a real challenge, especially for smaller DB schemes.
Some of the Opposition’s suggestions may not be in the interests of members of schemes. I think the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East was at the recent conference of the National Association of Pension Funds, where he would have heard Fiona Reynolds, the chief of the Australian Institute of Superannuation Trustees—our friends the Australians again—commenting on his suggestion. She said:
“Looking at the Australian system, we conducted a lot of research into whether there should be more independent trustees but in actual fact we found there was a greater alignment of interest within trust based schemes, and these schemes outperformed other schemes where independent directors were present.”
In other words, these are interesting ideas, but they have been tried elsewhere and they are not a panacea or golden bullet.
Gregg McClymont (Cumbernauld, Kilsyth and Kirkintilloch East) (Lab)
If that is the case for Australia—and I looked very closely at Ms Reynolds’s comments—why are the Australian Government giving the regulator and trustees a duty to consider how to improve the Australian pension system in the future?
Steve Webb
I do not see any incompatibility. The specific finding in Australia that independent trustees are not a magic bullet is not inconsistent with requiring schemes to ensure they are doing a good job. We will require schemes to meet quality standards that we will set out shortly.
Our call for evidence earlier this year sought views on provider-level governance structures, and the OFT has announced that the Association of British Insurers will work on independent governance committees for the big insurance-based schemes. We welcome that development and will consider our own proposals in detail in our response to the call for evidence.
The second set of governance issues relates to fiduciary duty and sustainability, addressed in new clause 12, tabled by the hon. Member for Brighton, Pavilion (Caroline Lucas) and amendments 54 and 55. By happy coincidence, I took part in a conference this morning organised by ShareAction. The hon. Lady was on the attendance list—perhaps she was sitting at the back heckling, but I did not see her there. The conference was to launch ShareAction’s green light project, which aims to get pension funds to take sustainability and climate change seriously. I was delighted to take part in that conference and I am very supportive of that agenda.
Clearly, the duty of trustees to their members is a cornerstone of trust-based governance, but we are looking at whether we have got the definition of fiduciary duty right. I welcome the fact that the Law Commission has consulted on this. Its interim conclusion is that fiduciaries should look at longer-term issues, and it is legitimate for them to look at environmental, social and governance—ESG—issues. The Government are therefore considering what the fiduciary duty on trustees means and how far we can deal with it through a better understanding of that work.
One of the issues that came out of the conference this morning—I shall try not to deviate too much from the new clauses, Mr Speaker—was that the trustee toolkit that the Pensions Regulator provides could be amended to take account of some of these concerns. One of the challenges is to try to ensure that the trustees do their job properly and have a broad understanding of what it entails. As I say, the Law Commission’s interim conclusion was that trustees should—note “should”, not just “may”—consider
“in general terms, whether their policy will be to take account of ESG factors in their decision-making”.
Gregg McClymont
I have listened closely to the Minister. When one listens to him, particularly on pension charges, one has to listen very closely, because—how shall I put this politely?—there is a gap between the rhetoric and the reality. I will analyse the extent to which there remains a gap. In one sense, he has caught up with the questions that need to be asked about pension charges, but from the detail—or lack of detail—in his announcements, it seems we are still a long way from getting answers.
On other matters first, however, the Minister says that auto-enrolment is going “exceptionally well”. I think that that is accurate, but I am sure he would agree that we have to be cautious, given that it is very large employers that have enrolled and that the percentage of savers’ income going into the new pension schemes is very small—in many cases, it is hard to notice. We welcome the developments, however, and pay tribute to him for taking forward the previous Labour Government’s auto-enrolment scheme; there is consensus, I think, on both sides of the House that auto-enrolment has to work effectively. It is crucial that every single one of the 10 million people being auto-enrolled between 2012 and 2017 can be sure of getting value for money from that pension scheme. The necessity of value for money for all auto-enrolment schemes is what drives my amendments.
I wish to say a little about why that matters so much and how the Minister’s wind-up of the state pension interacts crucially with auto-enrolment. Essentially, he has gone for a hard and fast wind-up of the second state pension. No doubt, he will justify that move, and there are reasons to think it is sensible, but if we are to have a quick wind-up of the second state pension and a fast move to a flat-rate state pension, the biggest losers from that switch—this might be defensible, because there are always winners and losers—are likely to be lower-paid workers in the private sector who did well out of the redistribution accrual mechanism in the second state pension. If someone was low paid in the private sector, they accrued in a way that brought them closer to those on higher incomes. In many cases, therefore, the same people now being auto-enrolled will be the same people losing out from the hard and fast wind-up of the second state pension, or losing out in the longer term. That makes getting auto-enrolment right all the more important. The first thing he should have done when he took office—I know he will have an enormous in-tray—was work out how to ensure that every one of the 10 million people enrolled got value for money. That is the context of this debate.
The Minister says that the Bill will further improve the situation, so let me pursue some of his comments and then turn to Labour’s vision for private pensions. Amendments 5 to 10 to clause 32, on short service refunds, are more or less uncontroversial. On clause 34 and exemptions from auto-enrolment, he referred to our amendment 53 and said that I saw this as an “evil Government”.
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—
Gregg McClymont
It seems that he is, and that is fair enough. I myself am not. Musicals are not my thing. He quoted from the innkeeper’s song, which I am certainly not going to sing. For one thing, I do not know the words. He used the song as a basis to talk about 2% here, 3% there and charges everywhere, and presented that as the problem in the UK pensions market. That is very different from what he was saying not long ago. It is just over a year since he accused Labour of scaremongering about pension charges, but he has moved a long way since then—rhetorically, if not perhaps substantially. He talked about that ditty and made it clear that there was a problem, but he still does not grasp the fact that pot follows member is impossible because of the fragmentation in the pensions market.
Labour’s new clauses would enable the restructuring of the UK pensions market so that savers’ interests would be appropriately represented. The Minister referred to our new clause 9, which deals with trustees, and he quoted the OFT’s view that the trustees would have to be good ones. He also quoted someone from Australia who is over here at the moment, who had said that in some cases trustees were not the answer.
Our proposals involve having trustees in every scheme, the scaling up of the UK pensions industry to reduce the fragmentation born of 200,000 different schemes—it is the most fragmented private pension system in the world—and the reform of the annuities market. Our amendment (a) to new clause 1 proposes that all costs and charges should be disclosed. Those measures need to be taken together as a package, as a Labour Government would do, and they would provide a starting point for tackling the fundamental problem in the UK pensions industry.
Our proposals would deal with the first problem, the system’s fragmentation. Secondly, they would deal with the problem that, as history tells us, pension savers are not the same engaged, informed consumers as those who buy tins of beans. The Minister seems to have undergone a damascene conversion on the merits and demerits of comparing the pensions market to the tin of beans market, and I will come back to that point. Savers are not informed and engaged in that way.
Buying a pension is not like buying a tin of beans. The consumer does not exert the same pressure. Someone buying a tin of beans might be given a choice of five different kinds. With pensions, such a choice would not be available to the saver anyway, because the employer buys the product. But let us use the Minister’s metaphor and compare the pensions market with the tin of beans market. First, if there were a pensions market in a supermarket, the saver would not choose the pension themselves; their employer would do so. That would be an odd arrangement in the tin of beans market. Secondly, the buyer of beans can taste the various kinds, from the cheaper ones to the more expensive, and come to a judgment based on taste relative to cost. It would be difficult for them to make a similar comparison with pensions; historically, it has never happened. Thirdly, I return to the point that it is the employer who makes the purchase of a pension.
The Minister has done something significant in the state pension sphere. He and I have been exchanging views across the Dispatch Box for almost two years now, and I say to him gently that he is still approaching the private pensions market on the basis that it has the ability to function like other markets, including the market for beans, even though, as he looks at it more closely, he can see that there are big problems. It cannot function like that. If we are to make it work properly, we have to ensure that the people acting in the pension saver’s interests are muscled, scaled and resourced.
That is what our new clauses would achieve. They would enable the scaling up of the pensions system, so that schemes would be able to get an effective deal from providers. Let us be clear: the providers in the pensions market have scale. In that sense, it is a bit like the energy market. They are large-scale, efficient organisations. It is the people saving into pensions who do not have scale, and that is because there are 200,000 pension schemes. They do not have the necessary representation because the smaller employers, in particular, who are auto-enrolling their employees are not pension experts. I know that the Minister is aware of those facts—we have discussed them a number of times—and I urge him to think about how all that relates to restructuring the private pensions system so that it takes cognisance of that reality. It is in that area that he is not taking on what the Opposition are saying.
We are clear that we need to move to an aggregator system, because otherwise pot follows member will not work and because if we enable the creation of aggregators, we have a chance to bring down charges in the auto-enrolment market. We know that there are millions of stranded pension pots, and the Minister rightly and repeatedly talks about them. How do we use the stranded pots issue to generate some change in the interests of pension savers, particularly the 10 million new savers automatically being enrolled in pensions for the first time? How do we do that? That is what our new clauses wink towards.
Steve Webb
The hon. Gentleman is making a thoughtful contribution, but what he seems to be saying is that if I have a small amount of money, I can have a 50 basis points pension fund, but his proposal for the charge cap for active members is 100 basis points or 1%. If I have a lot of money in pensions, I have to pay 1%, but if I go off to an aggregator, it is 0.5%. Why is that a good deal?
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.
Madam Deputy Speaker (Mrs Eleanor Laing)
I beg the hon. Gentleman’s pardon. That was my mistake. Perhaps the hon. Member for Leeds North West (Greg Mulholland) will speak later. I call Greg McClymont.
Gregg McClymont
Thank you, Madam Deputy Speaker. I was not sure whether I had misheard or whether the hon. Member for Leeds North West (Greg Mulholland) was trying to intervene.
I want to pay tribute to the hon. Member for Warrington South (David Mowat), one of the group of 40, as a doughty campaigner on behalf of those who wish to see radical reform of the pensions market. I do not know whether he had left his place when I quoted from the “40 Policy Ideas from the 40” and the description of the private pensions market as “failed”. I noted that the language used by those 40 MPs was stronger than anything I had used about the private pension market, and suggested that it is a little odd that Conservative MPs take a tougher line on the industry than the Liberal Democrat Minister. Perhaps it is not odd, however, because those who believe in free markets will want the pensions market to work effectively. [Interruption.] I did not catch what was said by the hon. Member for Gloucester (Richard Graham), but I invite him to intervene if he wishes to do so.
Mr Speaker—[Laughter]—I am sorry, Madam Deputy Speaker. You are not the only one who can make a verbal slip!
I was struck by what the Minister said about decumulation. It proved my point about his ability to talk but not necessarily to take any action, or enough action. New clause 11 calls for an independent brokerage service to guide those who annuitise on retirement through the process. Its aim is to deal with the lack of competition which, according to the NAPF and others, causes people to receive an average of 20% less in their annuities than they would have received had they shopped around. That returns me to a point with which I have been trying to persuade the Minister to engage. Buying an annuity involves a huge decision which a person will make only once in a lifetime, and which will affect the rest of that person’s life. However, the process is complicated, and because they find it hard to understand what they are being told, most people currently default to the annuities that they are being offered by their existing pension providers.
Katy Clark
I am glad that my hon. Friend is speaking up for savers. He is raising issues that have already been raised with me by a number of my constituents. When I told the Minister that we were waiting to hear proposals from the Government, he said that we would hear something very soon. Has my hon. Friend been given any indication of when that might happen?
Gregg McClymont
Thank you, Madam Deputy Speaker. That was beautifully pronounced, which is what I would expect from a Member from Kilmacolm. I look forward to your pronunciation of my constituency.
My hon. Friend made a very good point. I think she, and indeed everyone who listened to the Minister’s response to new clause 11, will be wondering what he proposes in lieu of the new clause. “Nothing” is an honest and fair assessment—or, at least, “Nothing concrete or substantive.” Referring to decumulation, the Minister said, “An awful lot needs to be looked at. We need to go further, but we need a creative approach rather than merely focusing on annuities.” I understand what he meant, because there is an ongoing debate about annuities as a product, but people out there, including our constituents, are annuitising every day. I do not think that saying to those people, “We are going to think about some creative solutions, we cannot tell you what they are, and because we are going to do something creative, we should not at this stage do something specific and concrete in order to improve outcomes,” stands the test. How long will it be before the Minister deals with this problem?
We know that annuities are a huge issue and that plenty of ideas are flying around, but ours is a concrete, practical proposal to improve annuity outcomes as things stand. I do not deny that the Minister has done something pretty significant in respect of state pensions, and I know that he must maintain a balance between pension schemes, but is it really good enough for him to respond to us by saying, “We need to do something—we need to go further—but we need a creative approach rather than your approach, which is focused on annuities”?
Annuities are the product that most people have to buy, and I think it unfair of the Minister to reject our new clause on the grounds that he prefers a more creative approach without explaining what that creative approach will be. I know that he has a great deal on his plate with state pension reform—winding up the state second pension as quickly as he intends to wind it up constitutes an incredibly big reform—but I ask him to reflect on whether it is good enough to say to people who have saved throughout their lives, and who are now receiving much less than they could have received had they shopped around, “We cannot support the Opposition’s new clause because although an awful lot needs to be done and we need to go further, we need a more creative approach.” I do not believe that anyone will be convinced by that.
Steve Webb
The hon. Gentleman’s central thesis seems to be that he should claim credit for Labour’s 2008 auto-enrolment legislation. He likes to say that auto-enrolment is a Labour thing. However, he has spent the last three quarters of an hour telling us how fatally flawed that legislation was. It contains no standards relating to quality or to annuities. I would have asked myself on day one, “How can we get value for money?” Why did Labour think that it was good enough to legislate for auto-enrolment without addressing any of those issues?
Gregg McClymont
The Minister took a similar approach when he talked about stakeholders. I shall say more about the stakeholder issue later, but let me first make it clear to him that I have never claimed that all the credit for auto-enrolment should go to Labour; in fact, I have said a number of times that the Minister and the Government deserve credit for taking it on. The Minister is simply wrong to say that that is my “thesis”, as he put it. My thesis is that the Minister has underestimated the scale of the problems in the private pension market, and that the Bill and his comments on our new clauses suggest that he continues to do so. He says that Labour should have done this and should have done that, but I assure him that had I been pensions Minister in 2010, the first task on which a Labour Government would have focused would have been making the changes to auto-enrolment that were necessary to ensure that every saver was given value for money. [Interruption.] The new Whip, the hon. Member for Croydon Central (Gavin Barwell), of whom I am extremely fond, has just said something that I could not hear because I was talking at the same time as he was mumbling, but I am sure that it was shrewd and thoughtful.
The Minister talks of views. This is the Opposition’s critique. He has announced, “I want to carry out a radical reform of the state pension. I want to move from a very slow merging of the state second pension and the flat rate state pension to a hard and fast wind-up.” That is a complicated process that will take up a great deal of time. Meanwhile, he has been focusing on another issue, that of “defined ambition”. He spoke about that to the NAPF as well.
My specific critique of the Minister’s approach is to do with sequencing. Given his intentions and actions in respect of the state second pension, he should have made sure that there is nothing in the auto-enrolment market that could end up with any of the 10 million savers who are going to be automatically enrolled getting less than value for money. At one level the Minister does not disagree with that, because he told the NAPF that we will look back at this period as either one when something happened that was for the long-term good or as one when the problems in the private pension market were not dealt with. The Minister has been too slow to get on to this and, based on what he has said today, he is still not taking the necessary action. He is saying he might take action, but his words, which I will examine shortly, reveal it is in fact the appearance of action without the reality of action.
Let me develop that argument with reference to new clause 1 and our amendment (a). The Minister announced that there will be a consultation on a possible charge cap. We all knew that was coming: the Minister trailed it extensively. What did the Minister say about this consultation? First, it is important to note that it is a consultation, which, of course, does not commit the Government to doing anything. A consultation is not the same as legislation. The Minister became more engaged as he was speaking, and he finished by saying that this is a full-frontal assault on pension charges. The problem is he also said, “We will look at how far we can get.” A whole range of activity on charges has been undertaken, but, when he lists them, it is clear that they are mostly consultations. I give him credit on consultancy charges. The Minister acted decisively on that, but he needs to take similarly decisive action on the wider pension charges problem.
The Minister’s language was instructive. He wanted to dress up a consultation as action, but it is not action. He floated the possibility that one consultation option will be a cap of 75 basis points, but he did not say what the other options would be. Given my knowledge over two years of the way the Minister proceeds, I doubt that this will be a consultation with only one option, so will he tell us what the various options for a charge cap will be? He is probably giving the House only partial information by noting there will be one option of 75 basis points.
So the Minister announces a consultation, cherry-picks, for the benefit of his statement this afternoon, some of the things that will be in it, but no one in the House has yet seen the consultation and been able to examine it. That suggests the Minister is under pressure to get going on reforming the private pensions market, specifically in terms of costs and charges. That was what one felt when listening to the Minister. Not only did he spend a lot of time rebutting Labour’s vision for private pensions, but he felt the need to oversell what the Government are doing. I would say he felt that need because he feels under pressure on this issue. [Interruption.] The Minister suggests I am psychoanalysing him. As a historian rather than a psychoanalyst by trade, I will now present some evidence to support this view of the Minister.
Just over a year ago, when Labour pointed out the problems with charges, the Minister said we were scaremongering. However—to take us back to the issue of the tin of beans, as I promised—the Minister said in his statement that the pensions market is not like a tin of beans and that is why we have to look at a charge cap, but he also said in January this year, “I’m not sure a charge cap’s the way to go because the pensions market is like a tin of beans.” First, that suggests an obsession with tins of beans, which one would never have expected of the Minister, but it also suggests a little confusion in the Minister’s mind about what kind of market the pensions market is.
The Minister now says categorically, “The pension market is not like a tin of beans, so a charge cap has to be consulted upon”, but in January 2014 the Minister is quoted by AOL Money UK as saying there is no case for a pension charges cap and
“he is not yet persuaded that the Government should cap pension charges.”
The Minister can say he has changed his mind. I have absolutely no problem with that. He says he was not persuaded and now he is persuaded. That is a perfectly defensible position, but it gives credence to the Opposition argument that the Minister has been slow to realise just how dysfunctional this market is. The Minister said in January:
“Why does the Government not set a price cap on a tin of baked beans? We do not need to because there is a vibrant market; people have lots of choice”.
Yet today the Minister used the baked beans example himself and said categorically that the market is not like a tin of beans. That suggests the Minister has moved on this issue, which we welcome, but it raises this question: if he did not get it nine months ago, does he get it now? The way to test that is to look at what he said about charges, disclosure and caps in respect of new clause 1.
The Minister made it clear that the consultation is happening and it is important, and he pointed back to stakeholder pensions and said, “The Labour Government brought in stakeholder pensions in 2001, but look at how high the charges were capped.” I think the Minister will agree that he and this Government, by taking on the Turner consensus developed by the last Government, are grappling with fundamental legacies of pension policy decisions made by previous Conservative Governments in particular. [Interruption.] The Minister says Labour ones, too, but let me develop this argument.
The Thatcher Government did—I am sure for the best of intentions—a couple of things, one of which was breaking the link between earnings and the state pension, but we can come on to that when we talk about state pensions later. Specifically pertinent to the clauses and amendments currently under discussion, however, the Thatcher Government decided to encourage the taking out of personal private pensions and thereby encouraged—I will put it no stronger than that—5 million people to leave the state earnings-related pension scheme and/or occupational schemes. The Minister knows about pension pillars. The state pension is one pillar, and additional pension saving is another. What the Minister is trying to do in this Bill is reform the first pillar radically and make sure the additional pillar delivers effectively. That was the approach the Turner commission set out, and I am pleased to see the Minister nodding in agreement. The Turner commission reached that conclusion because it recognised that both pillars had to be rebuilt after the policy mistakes of the 1980s.
Andrew Griffiths (Burton) (Con)
The hon. Gentleman talks about policy mistakes of the Thatcher Government and about previous Governments. Will he admit that one of the most damaging things for our pension provision was the previous Prime Minister’s £100 billion raid on our pensions when he was Chancellor?
Gregg McClymont
I assume the hon. Gentleman is referring to the decision to remove the dividend—[Interruption.] I say to him, first, that I do not know where he gets that figure from. I have heard it from Conservative MPs, in particular, but I would be delighted if he explained where he got it from. I would be interested, because anyone who has looked at the matter closely would say that the figure had been plucked out of nowhere. Pensions are a long-term business, and I am not suggesting that the only Governments who ever made a mistake were previous Conservative Governments. However, the fundamental policy decisions that set the UK on a slippery slope regarding additional pension savings were the mistakes the Thatcher Government made through the enormous encouragement given to personal private pensions.
The hon. Gentleman might remember, or might have read about, the way in which an army of pension salesmen was unleashed to persuade people that they should leave high-quality occupational schemes or the high-quality second state pension—the state earnings-related pension scheme—and go into personal pensions. They were offered enormous lump sums, not realising that such sums, up front, actually came out of their pension savings. They were promised enormous returns, and they were promised that they could pay less into a pension and get a much better retirement income. Where did that lead? It led directly to the private pension mis-selling scandals, whose legacy of public mistrust of pensions we all live with today.
That relates back to my point about the Minister’s approach. He is trying to build back up and deliver, or try to deliver on, a consensus around the Turner proposals—that is the right thing to do. However, if he is going for a hard, fast wind-up of the second state pension, with the losers being low-paid private sector workers, he has to be clear and convinced that every auto-enrolment scheme—10 million people are going into these schemes—delivers value for money. That is where my view, and that of Opposition Members, that he has not moved fast enough comes from, and it is evident in his change in view that I have cited. His view on the private pensions market has evolved. We welcome his movement, but we say to him that he has to move faster, and that leads me to amendment (a).
We have to draw a distinction between costs and charges. Our amendment would, in particular, make possible the disclosure of all transaction costs. The Minister alluded to that, saying, rightly, that we cannot have transaction costs in the cap. I absolutely agree with that; I do not know anyone who would say that transaction costs could be included in the cap. However, we need to ensure that the transaction costs are disclosed to employees and employers. He suggested that it was odd that the Opposition would want there to be a statutory record of costs and charges, but that is not odd; it is central to reforming the private pensions market.
Steve Webb
A few minutes ago, the hon. Gentleman rebuked me for saying that engagement was important, because for most people this is all about inertia, but he is now saying that employees are going to go to the pensions regulator’s website to look at transaction cost charges on their pension. Those two things cannot both be right.
Gregg McClymont
That is not what I was saying, and I will explain why. I am not surprised by the Minister’s response, because it probably explains why he was reported as saying at the NAPF conference that transparency “gets you virtually nowhere”. I assume the basis for that view, which at first glance appears odd, is that he takes the point that I have been making throughout this debate that seeing the pensions market as one where the saver is always is in charge or can always be in charge is simply wrong. I just put that on the record, but now let me deal with his point directly.
First, I do not see any basis on which one can be against the full disclosure of everything that has an impact on pensions, including transaction costs. Secondly, if we had the disclosure of transaction costs, that would enable everyone with an interest in ensuring good pension outcomes, including the Government, to have the evidence at their fingertips to say to interested parties, stakeholders and, in particular, pension companies and fund managers, “That’s what you are charging? That’s not on.” How can the Minister not want to have all the evidence at his fingertips? He is taking a strange position. He says that he is carrying out a consultation on charges. We know that is a shift in his position, for the reasons I have set out and given his previous comments, but he is still behind the curve because he does not support the full disclosure of transaction costs—he certainly will not support our amendment (a), which will make such disclosure a reality.
Let us be clear about this: we simply do not know what happens on costs when pension moneys are put into the “investment chain”. That seems an obscure term, but I am talking about where someone saves into a pension, their pension provider passes the pension savings to fund managers—they are often in the same organisation, because, as with the energy sector, there is a lot of vertical integration—and then the savings are invested. There is no comprehensive disclosure of all the costs that accrue in that process, and that cannot stand for much longer in the 21st century.
The Minister was quoted as saying at the NAPF conference—if he has been quoted unfairly, I urge him to intervene to say so—not only that transparency “gets you virtually nowhere”, but that one had to strike a “balance” between the public’s right to know about transaction charges and the costs to fund managers of disclosure. We hear that argument a lot across political debate. It is not a foolish argument in some cases, but it is in this case, because fund management is such an opaque business and, according to the things we hear—without access to the facts we cannot know for sure—the costs can be significant. Hon. Members should not take my word for it. The Secretary of State for Business, Innovation and Skills commissioned the Kay report on equity markets and “long-termism”, and Professor Kay made it clear that all transaction costs should be disclosed.
Professor Kay was clear about that, on behalf of the Government—or, certainly, at the behest of the Minister’s Liberal Democrat colleague the Business Secretary—because of the evidence he had gathered that fund managers can over-churn pension fund savings. What do I mean by “over-churn”? The incentives lie in commissions for trading, and so rather than hold on to assets for the long-term—what one might call the “Warren Buffett” approach, which is a very successful long-term approach to investing and is consonant with the long-term nature of pensions—fund managers have a big interest in constantly trading, because that generates commissions. That might be the case, or it might not. We simply do not know, because those things are not disclosed. The Minister trumpets new clause 1, but it does not include any disclosure of transaction costs. If we want to move to an auto-enrolment system and have in mind the 10 million people who will be automatically enrolled, as a sine qua non of reform we must ensure that the transaction costs are disclosed.
I am not sure whether you are aware, Madam Deputy Speaker, but just over a year ago the Royal Society of Arts investigated what pension providers understand by “the costs and charges” of a pension. It contacted 25 big providers and the vast majority told it that the full costs and charges of a pension scheme were simply the annual management charges, not the total expenses ratio and not transaction costs. Our argument is that the Minister has been too slow to recognise how dysfunctional the private pension market remains. We welcome the fact that he is moving, but he is doing so far too slowly. As evidence of that, we cite the fact that he will not commit the Government today to the provision on the disclosure of transaction costs. Our amendment (a) to new clause 1 would ensure the disclosure of transaction costs.
Our other amendments, as they pertain to the scale and value of pension schemes, to trustees and to annuities, would make a significant difference in the market. They would start to make the changes that are necessary to ensure that everybody gets value for money.
Mr Brian H. Donohoe (Central Ayrshire) (Lab)
Does my hon. Friend make a distinction between a scheme with trustees and one under which the member must look after their own interests as it has no provision for a set of trustees to oversee it?
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.
Madam Deputy Speaker (Mrs Eleanor Laing)
Order. I appreciate that the hon. Gentleman is addressing a great many issues in this group of clauses and amendments, but, having heard his arguments several times, I trust that he will soon be drawing his remarks to a conclusion.
Gregg McClymont
Thank you for that wise advice, Madam Deputy Speaker. I was somewhat sidetracked by the excellent intervention—[Interruption.] That is another intervention from the Parliamentary Private Secretary. If Members want to stand up and say something, I am happy to take an intervention. If they want to heckle from the back row, I will continue to respond to those heckles.
Where are we? The Minister wants to be seen to be taking decisive action on pension charges but today he has called for yet another consultation. He has moved on during the past year, as he had said that Labour was scaremongering and he could see no need for a cap. The consultation is a development, but we need action now. Our amendment (a) to new clause 1 would ensure full disclosure of all costs and charges and our other proposals would ensure a private pension system that would mean that everyone who was auto-enrolled would get value for money. The Minister is right that auto-enrolment started well, but he knows as well as I do that the key is the smaller employers. We are determined that everyone should get a good deal from auto-enrolment and I therefore commend our new clauses and amendments to the House.
Richard Graham (Gloucester) (Con)
This is the first time I have made a speech while you have been in the Chair, Madam Deputy Speaker, so let me add my warm congratulations to the many that you have already been given.
Our debate today has been a pretty specialist affair so far, in a different language from that which many of our constituents speak. It has no doubt been a struggle for many in the Public Gallery to remain awake throughout. As we dive into the detail, let us not forget the goal: the Bill’s aims are simplicity, clarity, a reduction in the flaws in means-testing and, above all, to ensure that it always pays to save. Some of that was rather lost in the 85 minutes for which the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) spoke, so let me try to bring us swiftly back to the main points of detail.
Earlier we tackled auto-enrolment, small pots, aggregators, charges, scale and annuities. No doubt that would be enough to put many people off listening to any more, but let me add my thoughts briefly on each in turn. First, on auto-enrolment, the Minister outlined the success so far—1.7 million people already enrolled and 90% of them staying in. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East said that he was cautious and that that percentage might not be sustainable as we started enrolling those in smaller firms across the country. He may well be right about that. The Minister will be acutely aware of that, which is why he is right to tackle some of the detail now, ahead of the smallest companies enrolling.
The important thing in the section on auto-enrolment was the changes outlined today—two opt-outs: one for those who have already given notice of leaving their employer and one for those who would suffer negative tax penalties because they had already accumulated more than the maximum allowed for tax-free savings. The Minister confirmed that there is absolutely no intention of excluding small and medium-sized enterprises, the lifeblood of every Member’s constituency. That is important, and he rightly summarised Labour’s amendment 53 as unnecessary, unclear and ineffectual.
The discussion of small pots, importantly, covered the differences between the pot follows member approach recommended by the coalition Government and the aggregator approach proposed by the Opposition. The precedent of Australia is relevant. Those 5 million lost accounts worth some 20 billion Australian dollars are not a small matter. Millions of our constituents are affected. Those of us who have accumulated small pots at different periods in our life know that it is extremely hard to keep track of them and to have any idea of what our savings really are. The whole business of pensions is ultimately about savings. It is about accumulating a pot of money which will see us safely through retirement, ensuring that we can live after retirement without having to fall back on savings.
Gregg McClymont
There is a joke in that somewhere, but I will not go there. I was just struck that the hon. Gentleman—we have debated this in Committee—said that he was not a member of the Forty Group. I have in front of me a copy of “40 Policy Ideas from the 40”, which states that the group
“consists of the forty most marginal Conservative seats”,
and he is one of the Members listed.
Richard Graham
The shadow Minister must learn to be more precise in what he says. His letter referred to
‘“40 ideas from the 40”, to which you were a contributor’
but I did not contribute. When I have good ideas, which is rarely, I either keep them to myself or share them with colleagues verbally. I do not put them down on pieces of paper for him to read, or not read as the case may be. I hope that he will take on board that correction. I am a member of the Forty Group, but I was not a contributor, and there is a difference.
Gregg McClymont
This is all very curious, because the front cover of the document refers to “40 Policy Ideas from the 40”, and its states:
“The Forty Group consists of the forty most marginal Conservative seats”.
One of the MPs listed is the hon. Gentleman—
Madam Deputy Speaker (Mrs Laing)
Order. We are straying somewhat from the amendments and new clauses before us. If there is a difference of opinion, it will have to remain as such. I urge hon. Gentlemen on both sides of the Chamber please to stick to the points before us on private pensions.
Greg Mulholland (Leeds North West) (LD)
I will keep my remarks brief. Other Members wish to speak to amendments, so I will ensure I give them time to do so. I will start with a few introductory comments because I am aware that, with today’s short time scale, it is unlikely that I will be able to make them on Third Reading. I pay tribute to and praise the role played by my hon. Friend the Minister. He has done an incredible job in taking through this hugely important, historic and complex Bill on an issue that we all agree is of utmost importance to our constituents and society. We can agree across the House that there is no one more capable, knowledgeable or expert in taking through this Bill, and as a Liberal Democrat I am proud that he has played that role and that the Bill will receive its Third Reading today.
Equally, I pay tribute to the expert and intelligent contributions made by Members from across the House in Committee. This complicated matter requires particular scrutiny, which it has received, and contributions from right hon. and hon. Members have rightly reflected that. Having said that, there is a need to redress the balance. Although scrutiny is important, so far this section of today’s proceedings has missed the point that this is an incredibly positive Bill that will make a huge difference to people who are looking forward to retirement, and give them certainty about the level of income they can expect. The Bill builds on things that the Government have already established, including restoring the earnings link to the basic state pension and introducing the triple-lock guarantee. That guarantee has helped increase the state pension by £12.50 a week since 2010, and delivered the biggest increase in the state pension in 2010.
As a whole, this historic and important Bill will deliver the single-tier pension to give a clearer, fairer pension to all and, crucially, a better pension to women and the self-employed. In the context of the amendments, it is equally important, as I sure the Minister would be first to agree, to take forward the challenge of auto-enrolment and ensure that private and occupational pensions are built in alongside the historic and positive changes to the state pension.
I say gently that, after the earlier mix-up, I am sure that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) and I would agree that we want as many “Gregg Ms” in Parliament debating these issues as possible. To refer back to something he said, however, I think he has been one of “Les Misérables” today. He has not found a single thing to praise—certainly not with a smile on his face or any enthusiasm—while doing his job, as an Opposition spokesman, which I acknowledge he has to do, of scrutinising. The fact that the Bill is a huge improvement on what the previous Government, whom he served, introduced, has not come across. They introduced auto-enrolment, which was welcome, but the Bill is a huge step in taking it forward.
Greg Mulholland
I will of course allow the hon. Gentleman to intervene. Perhaps he will acknowledge that improvement with a smile on his face.
Gregg McClymont
The hon. Gentleman has referred to me as being among “Les Misérables”. Is he aware that I am Scottish?
Greg Mulholland
I had the great pleasure of living in Scotland for three years—two years in Glasgow. When I moved up there, I was more able to understand French than a broad Glaswegian accent, but I rectified that. He will be pleased that I know how to pronounce the name of his constituency in its entirety—[Interruption.] Gloaming—the word he utters from his seat on the Front Bench—is an excellent Scottish word.
Steve Webb
I am grateful for the chance to respond to the debate. I hope the House will forgive me if I focus my response to the shadow Minister on only the first hour of his speech, as I believe everything that followed had already been covered.
The gist of the remarks by the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) was: when I was appointed in 2010, I should have looked at my in-tray, cleared it out and said, “It is essential we ensure value for money in workplace pensions.” By implication, action was needed because the previous Government, after 13 years, had not put pension savers in a position in which they would get value for money in workplace saving. Indeed, the hon. Gentleman suggested in his narrative that all the evils of pensions happened in the preceding 18 years of the Conservative Government. Again, by implication, Labour comes to power in 1997 ready to put right the failures of the previous Government; they have 13 years to have a go at it, yet the first job of a new Liberal Democrat Minister appointed in 2010 is to sort out the mess in pensions. There is, I think, a bit of a logical flaw in that argument.
I enjoyed the hon. Gentleman’s psychoanalysis of me—it is cheaper than therapy, that is for sure. He said, “We do not want consultation; we want action”. That was powerful, emotional and gut-wrenching stuff, except when we look at his amendment (a) we realise that, as my hon. Friend the Member for Leeds North West (Greg Mulholland) pointed out, in the midst of a clarion-call for action, it provides that, before action, or
“Before making regulations under subsection (2), the Secretary of State must undertake a public consultation”.
When the Government do it, then, public consultation is a substitute for action, but when the Opposition call for it, it means dynamism and standing up for the consumer. I do not know whether the hon. Gentleman will be a Minister one day, but he will know that Governments are required to consult before they legislate. That is what we are doing, and he can be assured, as my hon. Friend the Member for Leeds North West said, that consultation is a precursor to action.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East said that pot follows member was not a good idea here because whereas there are not many pension schemes in Australia this country has very large numbers of them. He massively understates, however, the extent of concentration and consolidation in the pensions markets. The Office of Fair Trading has said that the four largest providers hold the majority of schemes, assets and members. The four largest providers on their own have 68% of the assets, 76% of the schemes and 61% of the members. The hon. Gentleman believes that the vast number of schemes means that pot follows member cannot possibly work because everybody is in a small pension scheme; actually, the opposite is true. Most people are in big pension schemes, which is why pot follows member works perfectly well. Consolidation is already happening—I mentioned the fall of a third in the number of medium-sized pension schemes—and, moreover, when we implement measures on scheme quality, which will include action on charges, that will trigger substantially more consolidation. So the hon. Gentleman is, in a sense, being backward-looking in referring to the large number of tiny pension schemes.
Gregg McClymont
I thank the Minister for giving way to me again: he is being very generous with his time. Is he not conflating providers with schemes? Is he not really saying that there are big pension providers, rather than schemes, in the United Kingdom? Big pension providers may service 200,000 schemes, but there will be many different schemes within their overall provision .
Steve Webb
That was powerfully put, if I may say so. However, the hon. Gentleman is trying to portray a workplace pensions sector that is ludicrously fragmented and all over the place, and in which most people are in tiny schemes. In fact, most people are in big schemes. The number of medium-sized schemes is falling, and the quality standards that we are introducing will accelerate an existing trend. Pot follows member will be even more fitting as time goes by, because we are overseeing and hastening a process of consolidation in the pensions industry.
I will not say too much about baked beans, with which the hon. Gentleman seems to be even more obsessed than I am, but the point of the baked beans analogy is that the baked beans market works. As the hon. Gentleman said, in the pensions market the demand side is weak, and leaving everything to market forces is not the answer.
The model that the hon. Gentleman has embodied in his amendments and new clauses is a very confused one. He seems to be suggesting that small pension pots will go off to the new aggregator schemes, which are really good, so a silly little amount of money will automatically go to a really good scheme, whereas in the case of large amounts, the quality standard will be more relaxed. I understand that his party advocates a 1% charge cap, but he wants a 0.5% charge cap for the aggregator. That would bring about bizarre circumstances in which people with serious amounts of pensions money could pay 1% charges, but people with small amounts in a scheme that they never chose pay 0.5%. How is that coherent? I am happy to give way to the hon. Gentleman, but he cannot explain how it is coherent because it ain’t.
We need to ensure that high quality standards apply not just to small pension pots in an aggregator, but across the board, so that when people’s pots follow them from scheme to scheme, they move from a good-quality scheme to another good-quality scheme. The hon. Gentleman quoted the National Association of Pension Funds. The association is, of course, right. If we were simply going to allow money to be transferred automatically from a good scheme to a bad scheme, we would have a problem, but because we will regulate for quality, no bad pension schemes will be used for the purpose of automatic enrolment.
The hon. Gentleman said that nothing was happening about annuities. In fact, the Financial Conduct Authority is reviewing them. It has already surveyed the rates offered to existing customers and those offered to customers accessing rates through the open market option, and is trying to establish whether profits in the internal annuities market are too high because too few people are exercising that option. Action on annuities is not just about what my Department does; the FCA is considering the issue actively, and we are working with our colleagues in the Treasury.
New clause 11 requires savers people to consult an annuity broker. The hon. Member for Edinburgh East (Sheila Gilmore), who is no longer in the Chamber, said that that would mean that people were given advice, but annuity brokers do not give regulated advice; people must pay for that. The broker will no doubt charge a fee, and those who want advice will either have to consult someone else or pay again for the broker’s advice.
The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East wants to require those in charge of auto-enrolment schemes to send people to brokers who may charge, so those people may have to go elsewhere for advice. He says that that must happen in order for a scheme to qualify as an auto-enrolment scheme. We consider his to be a backward-looking and restrictive model. Let me give an example. What about pension schemes that annuitise internally—which, in other words, provide the annuity themselves? They may provide a guaranteed annuity rate, but in the hon. Gentleman’s world people will still have to go off to an annuity broker and shop around, rather than taking advantage of the product that is in the scheme already. That is an example of where he is trying to be over-prescriptive. [Interruption.] He says it is all in my head; I am not quite sure what he is talking about. The point is that we are trying to provide forward-looking provision for decumulation. Annuities is one model, with deferring taking a pension, for example, or draw-down, or enabling people to swap their annuities around, as my hon. Friend the Member for Gloucester (Richard Graham) said. We need to be examining all these things, but the hon. Gentleman wants to hard-wire into primary legislation a single model for a single product, which is not the future of decumulation.
Steve Webb
I will certainly give way to the hon. Gentleman, but will he just clarify this? He mentioned in his speech a 0.5% cap for the aggregator and said, “There won’t be many of these. We can control them. We can guarantee quality. Quality equals 0.5%.” Then he says—he has said this publicly before—“The Labour party favours a 1% charge cap for schemes people are members of.” So why does he want to have half the charging level for people’s small amounts of money in an aggregator than for people’s active pension funds?
Gregg McClymont
I cannot respond at length as this is an intervention, but the Minister continues not to understand our proposal for aggregators. [Interruption.] He says, “It’s funny, that is”, but he just does not get it and I will discuss it with him further. We are very pleased the Minister takes Labour’s proposals so seriously that he is spending so much time and effort responding to them, but the aggregators would not only deal with the stranded pots. Pension providers can become aggregators if they meet governance, quality and charge standards, so it would not be deferred members from small pots alone who would be in these schemes as there would be larger schemes than that.
Steve Webb
I would love to say that clarified matters. Let me put this challenge to the hon. Gentleman. He says we do not understand his proposals, but I have not seen his proposals. He has not set out specifically his alternative proposals, and I am spending time on this is because no one is arguing about the Government amendments; it is the Opposition amendments that we are arguing about.
I challenge the hon. Gentleman to set down in some detail what exactly he is proposing and what kind of pensions market he envisages, because one of the confusing features of his vision—as it were—is that it is something like the energy market. He seems to envisage a small number of very large regulated providers who presumably get together with each other and maybe do not always have the consumer interest at heart. That is what the energy market that his party leader oversaw has delivered for consumers. I do not want to see the same thing in the pensions market.
Gregg McClymont
The Minister says he wants to take great action through a cap on charges, but after three years all he can do is introduce a consultation whose findings he will publish at some stage in the future. That is not a Government taking action, and he is doing that from the position of having all the powers of government at his disposal. I do not think we should take any lessons from a Government who are acting so sluggishly in sorting out the problems in the private pensions market.
Steve Webb
When the hon. Gentleman says we will publish that at some point in the future and he knows we are publishing tomorrow, we can understand why he feels vulnerable on this issue. I am simply suggesting that his reluctance to set out an alternative model shows the paucity of alternatives being offered to us.
On a specific point, the hon. Gentleman suggested we could deal with only small pots created after Royal Assent. That is not correct. We have the power to specify a prescribed date, and that date would in the first instance be likely to be the point at which auto-enrolment began. So in the first instance automatic enrolment pots from when this process began, rather than when we secured Royal Assent, would be within the scope of pot follows member. I just want to put him straight on that.
Gregg McClymont
Again, the Minister says he has a power but does not tell us how he is going to use it; that is common throughout the Bill. Will he categorically state that all pots stranded since auto-enrolment will be included within the Bill?
Steve Webb
I thought that was what I just said. Let me be clear: we want to get this thing going. The hon. Gentleman raised the issue of the £10,000 pot size limit. Clearly I would like to go further, and we look at a £20,000 pot size limit in our consultation document, but we have to get the thing going. May I tell hon. Members who were not here at the start of the debate that he said he had sat and watched a video of a speech of mine? I commend him for that, as watching videos of me speaking shows real devotion to the world of pensions. In my speech last week, I made it clear that we see this as the beginning of a process. The pot size limit could go up and the scope of pot follows member could be increased, but we envisage beginning with auto-enrolment pots. I am clear about that, and there is no ambiguity: we are beginning with auto-enrolment pots.
The hon. Member for Brighton, Pavilion (Caroline Lucas), who is not in her place, asked when further action would be taken on fiduciary duties. For the record, in case she should happen to read it later—or watch a video—I can confirm that the Law Commission’s final report on the issue will be published in June 2014. Obviously, further debate will take place at that point.
I wish to respond to the related issues raised by the hon. Members for Hayes and Harlington (John McDonnell) and for North Ayrshire and Arran (Katy Clark). The hon. Lady asked about the important issue of the position of protected persons, on which we have consulted and on which I hope we will shortly reach a conclusion. We think that slightly more workers are involved than she suggested, but certainly tens of thousands of workers are affected. One challenge we face is that this is not just a matter for our Department. For example, if we place a cost on the energy employers through the abolition of the national insurance rebate and if we exclude their employees because they are protected persons, that has the potential to feed its way into energy bills. Her party leader has a view on energy bills, as do we, but the knock-on effect of a decision we take on energy bills has to be thought through. The same applies in the transport sector, to which the hon. Member for Hayes and Harlington referred. If railway and other employers cannot pass on through the pension scheme the costs we are imposing on them through the ending of the rebate, that will find its way through into fare increases and to consumers. So we have to think through a wide range of consequences of these decisions. That is why this is taking a while, but I appreciate the need to get on with it.
The hon. Gentleman said that there was a special case for the railway industry. His new clause 7 does not provide any protection in respect of any of the other privatised utilities; there is no suggestion that if any of those employers went to the wall pension protection should apply—it would just apply to the rail industry. If he feels so strongly about the justice of this issue for rail workers, why does his new clause not say that any protected person should be protected if the sponsoring employer goes bankrupt? I know his affiliation, and I have spoken to him in his role as leader of the group on rail workers, but if Parliament were to accept his new clause, we would have to deal with the question about why we did not do this for everybody else, too.
John McDonnell
I wholeheartedly support the amendment tabled by the hon. Members for Worthing West (Sir Peter Bottomley) and for Brighton, Pavilion (Caroline Lucas). I think that there are injustices in the Bill that need to be addressed, and my amendment 35 seeks to do that as well.
The amendment returns us to the issue of the commitments that were given to people on privatisation. The Minister seemed to use a “divide and rule” tactic when he asked why I was taking the issue up purely on behalf of railway workers, as opposed to workers overall. There is a railway estate in my constituency, and I have taken an interest in the industry for nearly 40 years. I know what a sense of grievance exists among railway workers. The promises that they were given on privatisation are now being torn up by the Government. I do not like that “divide and rule” tactic—I want the same protection for all workers—but we can deal with the issue of railway workers tonight if the Government are so willing.
This is what John MacGregor, the then Secretary of State, promised in 1993. He said:
“Existing employee rights will be protected by statutory orders made under the Railways Bill.”
He described those rights as “indefeasible”. He went on to say:
“There will in addition be specific safeguards, in franchise contracts, to cover the transfer of pension funds when a franchise changes hands…Orders for setting up new schemes, transferring funds and protection of existing employees will be subject to the affirmative resolution procedure in both Houses.
He gave that assurance to members of all parties in the House. He continued:
“Orders relating to schemes and funds will be the subject of statutory consultation with the trustees.”—[Official Report, 20 May 1993; Vol. 255, c. 235-6W.]
That commitment was given, in the House, to all Members of Parliament, to all members of the pension fund and to all workers in the industry, but clause 24 will tear it up. The clause will allow employers who sponsor the railway pension scheme and the Transport for London pension fund to amend the rules to increase member contributions, reduce member benefits or both, and those who will be affected are the people whom we have described as protected persons. Employers will be able to do that without the consent of trustees or scheme members, and without taking any cognisance of the views of the House. That is unacceptable.
A promise was given by Conservative Ministers to those workers and members of the pension fund, and to future members of the fund, and that promise was accepted throughout the House. It was understood that changes in circumstances might require changes to be made in pension schemes, but the promise of that added protection reassured people. John MacGregor was right to say that such additional protection was needed. He said that trustees would be consulted, that the House would then take a view and, through an affirmative resolution, would be able to reach a decision, and that the trustees’ views would be laid before the House. However, the clause enables employers to tear up schemes, increase contributions, and reduce benefits.
It is also significant that there are 106 different employers in this sector now. If one changes the scheme, what happens when franchises are taken over? What happens when employees seek to change their employment from one company to another? We are introducing immense complexity into the overall industry, which I think will undermine the pensions protections that this House gave assurances on in 1993. This is a matter of morality and honour. To introduce this measure flies in the face of every undertaking made to these workers. My amendment would at least ensure that the trustees are involved in any decisions about the future of pensions in their sector. To be frank, I do not think it is much to ask for this House to ensure, and enforce, that Governments abide by their promises.
Gregg McClymont
I want to speak in particular to our new clause 8 and amendment 37. We are now discussing the provisions in this Bill that relate specifically to state pensions rather than private pensions, and it might be of some significance that the issue of protected persons and protected pension schemes is emerging in this context.
We have listened to the very powerful case made by my hon. Friend the Member for Hayes and Harlington (John McDonnell), and one cannot but feel that there is a specific set of circumstances around the privatisation of nationalised industries. My hon. Friend has eloquently focused on the railways, but amendment 37 deals with the issue of former nationalised industries in the round, and there are also energy schemes and some coal schemes.
We are in a curious situation. The Minister is giving himself the power to keep the promise made to the members of those schemes, but he has not yet said whether he will use that power to honour that promise. This is a Pensions Bill and there are 50,000 or so remaining members of these pension schemes, so it is curious that he has not yet said what he intends to do. Will he do so in his reply?
Katy Clark
Does my hon. Friend agree that the difference is that these privatisations were hugely contentious and there was huge opposition to them, and the pension promises were made by politicians to try to ensure that these things happened? That puts those situations in a different category from many of the others we are talking about.
Gregg McClymont
I thank my hon. Friend for that intervention. I agree that there is a specific set of circumstances around these pension schemes. I am certainly not saying that accruals and the terms and conditions of a pension can never be changed in any circumstances, but there is a specific set of politically charged circumstances to do with the privatisation of these industries. Specific undertakings were given to the members of those schemes to encourage them to accept, if not actively support, the privatisation of the industries in which they worked. I urge the Minister to tell us this evening, if he can do so, whether he intends to use the power he is giving himself in the Bill to honour the promises made to the members of those schemes. If he will not do so, we will force a Division to test the opinion of this House on amendment 37, which would mean that the promises made to the 50,000 or so men and women in those protected schemes were met.
I am conscious of the time and allowing the Minister appropriate time to respond to the broader debate. I noted closely what the hon. Member for Brighton, Pavilion (Caroline Lucas) said about her new clause 6 and her belief that the 700,000 or so women in the group born between 1951 and 1953 will not get the new state pension, because they are the last pension cohort before the equalisation of the pension age, whereas men of precisely the same age will get it. Let me put it in simple terms: if there were twins, one male and one female, in that age cohort, the male twin would get the new state pension in 2016 but the female twin would not, having retired a little earlier. Such issues do emerge when we are involved in pension reform. The Minister and I have gone back and forth on the matter on a number of occasions, and I will not anticipate his arguments because we have gone through them some time before. However, we have to look at the issue in the context of a view that has grown up among many women that this Government’s attitude to their pension provision is not as generous as they believe it should be.
When considering the 2011 legislation, we had to deal with the issue of a significant number of women having very little time to prepare for retirement and short notice. They would have had to work for longer but some of them would have had only five years to prepare for that. They were five years from when they thought they would be retiring and then found out that they might have to work for seven more years. I am pleased that the Minister made a concession on that, although he did not go as far as we wanted. That group of women—a slightly different group from those we are dealing with here—who were also approaching retirement, felt that they were being unfairly treated. Not only did they feel, rightly, that they were being unfairly treated, but we have also had to deal with the Minister’s approach to auto-enrolment, which is excluding more than half a million women—and rising—from the benefits of auto-enrolment, because of the raising of the threshold for auto-enrolment in line with the personal allowance. A general sense has developed that this Government do not quite get it with women and pensions.
Steve Webb
The hon. Gentleman’s new clause 8 calls for a review. Obviously, having a review is not the same as having an opinion, so what does he actually think should be done?
Gregg McClymont
I certainly think the Minister should undertake a review.
The perception I am talking about has developed, so let me quote something that the Minister might be aware of. I cited it a couple of years ago, but he has probably forgotten.
Julie Hilling (Bolton West) (Lab)
Before my hon. Friend moves on, I wonder whether he would be interested to hear the Minister’s response to my constituent Maureen Davenport. The Minister said that the maximum state pension under the new system will be “significantly lower” than under the current system. He also said:
“In some ways the new system will be less generous for those who retire after April 2016”.
That is somewhat different from the fanfare and the Government saying that these new pensions would be wonderful for everybody.
Gregg McClymont
I thank my hon. Friend for that powerful intervention. There has been an issue of this Government, certainly in the early stages, overselling some of the things they are doing.
The Government would be doing themselves a favour by undertaking this review, given the sense among significant groups of women that the Government do not care enough about their pension provision. In 2005, in the days when the Conservative party was still trying to say that it had changed, the Prime Minister said:
“If you put eight Conservative men round a table and ask them to discuss what should be done about pensions, you’d get some good answers…but what you are less likely to get is a powerful insight into the massive unfairness relating to women’s pensions.”
It is in that context—the sense that the Government have so far had their eye a little off the ball in respect of treating women fairly on pensions—that I intend to test the House’s opinion on our call for a review by the Government of these provisions.
Gregg McClymont
When the Minister first came to the House in January with his statement on the Government’s plans for a flat rate state pension, I suggested that the devil would be in the detail and that there would be winners and losers from such a substantial reform. Inevitably, that has proven to be the case. I think we have to give the Minister credit for taking the Bill through its various stages. It is a complex Bill; certainly some of its consequences and implications are complex.
The Minister has decided—with some justification on his part—that he sees a hard and fast wind-up of the second state pension and the move to a flat rate state pension as the best way to proceed. At the same time, the Minister says that the Bill makes private pensions fit for purpose and gives a firm foundation for auto-enrolment. That would be a fair characterisation of the Minister’s comments at Third Reading.
If we reflect for a moment—usually Third Reading is a time to do that—the Minister deserves credit for taking forward the consensus created by the Turner commission, which, set up by the last Government, had three important aspects in particular: to start dealing with the issue of longevity; to start rebuilding the additional pensions savings pillar that decisions of previous Conservative Governments had damaged significantly; and to get a simpler state pension. That is the context in which the Minister has proceeded with his Bill and taking forward that consensus means that he deserves significant credit.
In any Bill such as this, there will inevitably be kinks and things that need to be sorted out, but there is a lack of balance in the Bill. The Minister has been very clear and put into statute everything that will happen in terms of the state pension. In terms of the other side of the equation—private pensions via automatic enrolment for the 10 million people who are currently going through that process—the Minister says he has to do a lot of things, but a lot of them remain to be done. The Minister is giving himself powers in various areas but without specifying what he intends to do with those powers. I suggest that while we can welcome the move to a flat rate state pension, there will be more work for the House to do in terms of keeping the Minister on the right track regarding how the private pension system interacts in a coherent and comprehensive fashion with the flat rate state pension.
The Minister rather generously suggested that Labour Members had a vision for the private pensions market. He went on to say that he did not agree with it, but it turns out that in one respect, he does. He seems to have come round to Labour’s view on the need to take tough action to cap pension charges. As I mentioned earlier today, it was just over a year ago that he said that the Leader of the Opposition was scaremongering when he drew attention to the problems in the pensions market, yet we have heard the Minister using tough language today on the need to sort out the market, and on having a consultation on a price cap. The details of the consultation will be produced tomorrow, and we await them with great interest. We welcome the Minister across to the side of right and justice on the issue of a pensions price cap.
The Bill has thrown up a number of questions on the two essential parts of the pension system—state pension reform and the pillar of additional pension saving—and many of them have been dealt with effectively. However, questions remain about the pensions market side of the equation and about additional pension savings. Let us not forget that the new flat rate state pension will not provide most people with the kind of income they will need and expect in retirement. The burden will therefore be on the new auto-enrolment pensions to deliver the necessary additional income. We believe that the Minister still needs to do a significant amount of work on this, either by using effectively the powers he has given himself or by bringing further proposals to the House.
In taking forward the Bill, the Minister has taken significant steps forward in the state pension sphere. There will be losers, however, and he has not said much about them. He has inevitably focused on the winners in the flat rate state pension reforms. However, we do not oppose the Bill. We believe that the principle of a flat rate state pension is sensible, but if the Minister really wants both parts of the pension system to interact cohesively and effectively, he will need to act fast to reform the dysfunctional private pensions market.