Pensions Bill

Gregg McClymont Excerpts

Monday 17th March 2014 Commons Chamber

[Steve Webb]

We envisage updating our own estimates by the summer and would be very happy to do that, and bringing together experts and trawling through the related literature in the latter part of this year. We do not want to kick this into the long grass. If we concluded that further data-gathering was needed, and it was qualitative rather than quantitative, that would take some time, but well-informed evidence-based policy making sometimes does take time, frustrating though it may be, and that is the approach the Government wish to take.

I urge the House to disagree with the Lords in their amendment 1.

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

I shall of course be disagreeing with the Government’s disagreement with Lords amendment 1.

Let me begin by putting the amendment and the labour market issues it pertains to into some context. Since 2008, only one quarter of the jobs created in this country have been permanent. There are hundreds of thousands of short-hours contracts and, according to some figures, approximately 1 million zero-hours contracts, in addition to other non-standard job patterns. Some 40% of all jobs are not the permanent, full-time positions that we traditionally associate with the UK labour market. That context is important to bear in mind: the Minister rightly referred to the need for the pensions system to keep up to date with changes in the labour market, and that is the reality of the labour market we are now all living with and working in.

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[Steve Webb]

For the avoidance of doubt, I think the hon. Gentleman will find that the record shows that I did not say there were 17 logical flaws in the amendment. I said that there were 17 logical flaws in leaping from the assertion that there are lots of zero-hours jobs nowadays, to this amendment. My point was that it takes an awful lot of logical assumptions, all of which are false, to get to the amendment.

[Gregg McClymont]

Of course Hansard will tell this story, but it was a short quote and I think I managed to get it down correctly. If the Minister is saying that it was not that there were 17 flaws in the amendment, I am sure the whole House is delighted to have that clarification.

Let us probe a little further into the Minister’s argument. He says that on the Government’s estimates only about 50,000 people are affected, that there should be no “rush to solutions” and that the amendment is flawed technically for many reasons—but perhaps not 17. He says that the Government need to build their evidence base on the issue. Interestingly, he said that the Office for National Statistics has urged caution about the notion of an upsurge in zero-hours contracts. His point was, and the ONS’s point is, that it might be that individuals are more aware that they are on such a contract than that the upsurge has been so great. If that is the case, it does not negate the point that there are a significant number of these sorts of contracts around, and that has significant implications for a state pension system based on contribution.

I asked the Minister about the 17 logical flaws, but his argument also was that we do not know enough to go forward with an amendment to solve the problem. However, he also said he understands that the average zero-hours contract gives an individual between 15 and 20 hours of work a week. Is that his estimate or is it based on research? In a world where we are not precisely aware of the figures involved, there is a danger of bandying around our own figures without a relevant citation.

What situation are we trying to deal with through this amendment? As I said, we have an increasingly fractured and insecure labour market, and the question is whether individuals in that labour market and the pension system relating to that market are appropriately structured and linked. The amendment, introduced effectively in the other place by Baroness Hollis, seeks to deal with what is, on any measure, a significant problem. We welcome the fact that the Bill brings 4 million self-employed individuals into the state pension without an employer’s contribution, and of course those self-employed people pay £2.70 a week. The amendment’s thrust is that we need a similar approach for short-hours workers. The Minister rightly said that this is not just about zero-hours contracts; it is about the insecurity of short-hours working in the labour market more broadly and matching that up effectively with a universal state pension—the Minister is keen on that.

[Susan Elan Jones (Clwyd South) (Lab)]

I have been listening to my hon. Friend and to the Minister, and I was alarmed by the Minister’s statement that people on zero-hours contracts “could” be okay, be that to do with their working arrangements in other areas or the fact that they may work a sufficient number of hours. That implies that they also might not be okay.

[Gregg McClymont]

As usual, my hon. Friend makes a pertinent intervention.

There is an issue to address and the question is how to do it. The Minister suggested that Baroness Hollis’s amendment, which my colleagues and I agree with, prescribes a specific solution, but of course it does not; it is a permissive amendment. As the Minister, using that fertile mind of his, started to think about different solutions, one could see the point of the amendment even more: to give him and his colleagues in the Department for Work and Pensions the authority to think carefully about how to solve this problem. He gave a number of ideas as to how it might be solved, which was when we particularly saw the function of this amendment. It would bring the best minds in the DWP together to deliver a solution, and it would remove the need for subsequent primary legislation. So, by his own words, the Minister gives succour to the amendment.

The amendment has a clear purpose: it is a permissive amendment to enable the Government more finely to match the state pension reform that the Minister is introducing with the nature of the modern labour market. He talked about estimates of the number of individuals involved. As he will know, Baroness Hollis has come to a different conclusion about the number affected and is very clear that the universal credit, which he mentioned, will not help the largest group—single people—nor, usually, will it help women without younger children or households where the joint income, including the man’s income, floats them off universal credit altogether. She calculates the number of individuals affected as being 250,000, which is a very different figure from the one the Minister gives. Universal credit, which he said would ameliorate the problem, will not help single people, women without younger children or households where the joint income, including the male income, floats them off universal credit. It is important to put that on the record. If a significant number of people are affected by this and if the Minister wants to make the state pension as universal as possible, as the Opposition believe he does, it would seem sensible for him to accept a permissive amendment allowing him to go forward on the basis of his thoughts about the various ways in which this might be taken up by the Government and to get cracking on it. The fundamental point is: why should those who, through no fault of their own, are in short-hours working or zero-hours contracts—those various kinds of flexible employment contracts—be denied the benefits of a full state pension?

The Minister said that the problem is not as significant as Baroness Hollis has suggested and that someone would need only 35 of 50 years in the labour market to qualify, but the issue is that where people spend significant parts of their life on these contracts, what is meant to be a universal state pension does not necessarily become one.

[Steve Webb]

I sense that the hon. Gentleman is concluding. The amendment is flawed in a number of respects. For example, it refers to a lower earnings level, but there is no such thing. Does he not have any qualms about the fact that if his vote were to succeed, he would be putting flawed legislation on to the statute book?

[Gregg McClymont]

The Opposition’s view is clear: the issue of job insecurity, of short-hours working and of zero-hours contracts is a significant problem for the pensions market and, specifically, for the state pension. In that context, it seems wise to us to allow the Minister to crack on with solving this problem. I have confidence that he will ensure that this amendment, if agreed to by the House, provides the basis for matching up the state pension with people on these insecure and flexible employment contracts. On that basis, we disagree with the Minister’s disagreement, and we intend to support the Lords amendment.

[Sheila Gilmore]

Having been with this Bill from the outset, I remain disappointed, given the answers that the Minister gave to my interventions, that we have not made any substantial progress on resolving this issue. It will be predominantly women, although not necessarily entirely so, who will be disadvantaged. In other aspects of the Pensions Bill, the Minister has said how important it is that people will now build up their own entitlements for their own individual pensions. Being able to get a derived pension from a spouse, a deceased spouse or an ex-spouse will disappear from the system. We discussed that issue at considerable length during the passage of the Bill. Indeed the Minister has majored on this whole issue of people having their own individual entitlement.

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[Steve Webb]

Let me respond briefly to the debate. On the issue about the typical number of hours worked by someone on a zero-hours contract, I said 15 to 20 from memory, but the exact figure is 20 hours. The ONS estimates that the average number of hours worked by people on zero-hours contracts in 2013 was more than 20 hours. There is a danger that when we hear the words “zero hours” we assume that it means there is no money coming in. However, it simply refers to the number of hours guaranteed under the contract. Lots of people with zero-hours contracts are building up full qualifying years.

[Gregg McClymont]

Of course the Minister will be more than aware that averages can hide a multitude of sins; I am sure he accepts that.

[Steve Webb]

Yes, I do. The point is that 20 hours on a minimum wage would get someone above the lower earnings limit. If half of everyone on zero-hours contracts are doing more than 20 hours, we can immediately say that they will qualify, and those doing slightly fewer hours will also qualify. The link between zero-hours contracts and multi mini-jobs, which is the subject of the amendment, is, at best, unclear. In extremis, it could be that no one on a zero-hours contract is even covered by this amendment, if they have only one job at a time and no other job. We do not know and nor does the hon. Gentleman. Our sequencing is evidence first and policy next; the Opposition’s is the other way around.

The hon. Gentleman refers to the emerging labour market, and chose 2008 as his base because that enabled him to get a figure that worked for him. However, let me bring him right up to date. In the past year, the number of women working full-time increased by 270,000 while the number of women in two jobs, which is germane to the amendment, decreased by 25,000. The suggestion that there is some sort of inexorable rise might be wrong. If we were to update our figures, we might find that the number has continued to go down. There is a whole raft of statistics I could give the hon. Gentleman, but to assume that this is a vast issue and that the numbers are inexorably rising is far from the case.

The case of the hon. Member for Edinburgh East (Sheila Gilmore) is that even if only one person were in this situation, we should fix it, but there is an issue of proportionality here. To set up the lightest touch crediting regime based on past precedent would probably cost about £1 million and more than £1 million to run. One must always ask the question—as least we do on the Government Benches—about value for money. That is why we need to know how many people are affected, who is affected and the best way to deal with the issue.

Finally, when the hon. Gentleman was asked whether he cared about putting flawed amendments in the Bill, he essentially said that he did not; he simply wanted to make a political point. That is regrettable. As legislators, we are voting today on legislation. This is not an Opposition day debate where he can make a point. This is deciding what goes into the law of the land. I am rather disappointed that he feels that it does not matter if an ambiguous and unclear amendment, which uses terms that have no meaning in reality, should just go in the Bill, so that he has the chance to have a vote and put out a press release. That is obviously where he is coming from. I regret that, and urge the House to disagree with the Lords amendment.

Question put, That this House disagrees with Lords amendment 1.

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[Gregg McClymont]

I do not intend to detain the House too long on this group. On Lords amendment 2, I welcome the Government’s decision. The issue of individuals with protected status in pension schemes that were nationalised has been significant, both for the House and for the people concerned. Those with protected status are a group of approximately 60,000 individuals employed on the railways, including by Transport for London, and in the electricity, nuclear waste and decommissioning and coal industries. They are protected because they were given guarantees by the Government of the day when the industries were privatised. On Report, the official Opposition made clear their view, and tabled an amendment that aimed to remove these protected schemes from the scope of the provisions on the statutory override as it pertains to the new flat-rate state pension and the end of contracting out.

I welcome the Government’s decision on the continued protection of these schemes. I pay tribute to my hon. Friends, the trade unions, and others with whom Members have worked closely to make the case. It is a good example of how a case properly made, and a Government prepared to listen to the detail and the reality, can produce an outcome that we all welcome.

[Grahame M. Morris (Easington) (Lab)]

My hon. Friend is making excellent points, and I thank him for his efforts to prosecute the case. Does he agree that the principle of trustee consent is an important one that we should honour?

[Gregg McClymont]

I thank my hon. Friend for his intervention and for his work on the issue. As he knows, we tabled an amendment to clause 24 in Committee on this issue. We welcome the decision to accept Lords amendment 2, a concessionary Government amendment moved on Report.

Let me say a little about Lords amendment 21, another concessionary Government amendment moved on Report, which will place a duty on the Secretary of State to make regulations to allow service spouses and civil partners who are due to reach state pension age from 6 April 2016 to apply for national insurance credits for periods during which they accompanied their spouse abroad. I agree with the Minister that the amendment will strengthen the armed forces covenant and remove some of the disadvantages that the armed forces community may face in comparison with other citizens. I add to the Minister’s tribute to Baroness Hollis for her work in ensuring that the provision was included in the Bill.

I look forward to the provisions in Lords amendment 3 being taken forward by the Government. I look forward also to the pricing of those provisions. It will be striking to see what take-up there is of the offer to procure more state pension for people who retire before the new flat-rate state pension is brought in. On that note of consensus, we welcome this group of amendments.

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Under Lords amendment 9, the duty is placed on both the Secretary of State and the FCA, which reflects the dual regulation of pensions and means that the FCA will consult on how and what to disclose, but not if costs should be disclosed. One of the many problems with the Opposition’s amendment (a) is that it would remove that duty from the FCA. I do not know whether that is accidental or deliberate. The amendment would leave the power solely with the Secretary of State, but with none of the sanctions available to the FCA. Just to be clear, amendment (a) would take the duty to consult on how and what to disclose away from the FCA and give it to the Secretary of State, but the Secretary of State does not have the powers that the FCA has. To be frank, that is a muddle. I know the Opposition will vote for their amendment because they tabled it and they want to make a point and tweet about it, but the substance of the amendment, even in terms of what the Opposition want to achieve, is deeply flawed, because it would take a duty away from a body that has a power and give it to the Secretary of State, who does not have that power.

[Gregg McClymont]

I know the Minister believes that God is a Liberal, but does he really have to be so pious?

[Steve Webb]

I usually sound grateful to the hon. Gentleman for his interventions, but I am not sure I am for that one. There is a bit of a pattern here. Labour has already called one vote on an amendment that was flawed, but it decided to vote for it anyway in order to make a point. I am explaining why amendment (a) is flawed, even according to the terms of what the Opposition want it to achieve, and it is obvious that the message has hit home, given the tenor of the hon. Gentleman’s response.

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[Gregg McClymont]

I rise to speak to amendment (a), but let me start with Lords amendment 4. In Committee, the Opposition argued strongly that clause 37, as drafted, was far too widely drawn and left a possibility that those with an agenda to exempt smaller businesses from auto-enrolment could do so. We therefore welcome the Government’s concession. Among the Minister’s rather curious language, he said that I “got very excited” and that there was “almost universal cynicism” from the Opposition, but within that odd framing he has actually accepted what we said in Committee. That is very welcome, because it makes the Bill better.

Let us think about amendment (a) in the context of the wider debate. The issue of costs and charges for pensions has shot up the political agenda for obvious reasons. If the Government are enrolling millions of people into a pension scheme for the first time, they had better make sure that the schemes are all value for money.

[Steve Webb]

I agree that the Government had better make sure that the schemes are value for money. Why, therefore, did Labour not legislate for that when it could have done so?

[Gregg McClymont]

The Minister made that point in his speech, as he has done repeatedly, and he has now put it on the record again. Let me pick him up on something he said. In what has become his quite common style, he suggested that it was rather peculiar to give the Secretary of State powers to ensure that transaction costs are disclosed. However, he must be aware—in fact, he alluded to this—that the FCA already has powers to require transparency of transaction costs, but has never exercised them. Making the Secretary of State responsible does not mean that the Government should not use the FCA’s expertise. Indeed, the Government’s amendment states that the Secretary of State must consult the FCA when setting transaction costs for those pensions over which he wishes to retain responsibility, so why could the same model not be maintained for contract-based pensions? Of course it could be so maintained.

On the Minister’s suggestion that it is somehow peculiar in his world to list the transaction costs that must be disclosed in amendment (a), I have to tell him that we used Lord Lawson’s amendment in the House of Lords, where it was commended by Members on all sides, including by the Government spokesman, Lord Freud. [Interruption.] The Minister is mumbling, but he suggested that the amendment was peculiar, although Lord Lawson’s amendment was along exactly the same lines. I am afraid that the Minister is disagreeing not just with the Opposition, but with Government Members.

Let me say a little about our additions to Lord Lawson’s list. I make it very clear that our list of transaction costs is the same as that tabled by Lord Lawson in the Lords, with two additions—transaction costs in underlying funds; and interest on client cash balances or profits from stock lending retained by the fund manager. The reason for including such additional transaction costs is that it needs to be strongly signalled to the body setting the rule—whether the FCA or the Secretary of State—that those items should be declared.

Let us remember that the Investment Management Association has deliberately failed to include those items in its draft statement of recommended practice. Amendment (a) should be discussed in that context, not the diversionary trail thrown up by the Minister. It is important that transaction costs in underlying schemes are disclosed because a transparency regime can otherwise easily be bypassed by any fund manager that operates multiple funds. The fund receiving moneys can simply use them to purchase units in another house fund. The IMA SORP recognises that the fixed charges in underlying funds should be reported, but it fails to apply the same principle to transaction costs, which is why they are laid down in the amendment.

The House should be aware of the wider context. The Government have previously left it to the fund managers’ trade association to decide what, if any, transaction costs should be declared. The IMA has put forward a draft statement of recommended practice, which would require fund managers to declare some transaction costs in their annual accounts. The SORP must be agreed by a Government quango called the Financial Reporting Council. The concern that the SORP failed to include significant types of transaction costs led a cross-party group of MPs and peers to write to the FRC to say that it would be inappropriate for it to agree to a statement of transaction costs that omits significant types of transaction costs. That was widely reported at the time. It is common knowledge that a number of critical submissions were made to the FRC. Unusually, those submissions were not released at the end of the consultation period, and we still await them.

[Richard Graham]

Will the hon. Gentleman give way?

[Gregg McClymont]

I am always delighted to hear from the hon. Gentleman, but I must make progress.

It is worth adding that the FCA sits on the working group that reviews the IMA’s SORP.

To put the SORP of the IMA—the fund managers’ trade association—in context, the Government refused to accept Labour amendments in Committee and on Report that specified a non-exhaustive list of transaction costs that needed to be made transparent. The noble Lord Lawson then made it clear that the Government’s position was not acceptable. He said that it was like putting the fox in charge of the hen coop. He added that there is a reason why fund managers meet in Monte Carlo and pension fund trustees meet in Manchester. That was the context in which Lords amendment 9 appeared. Lord Lawson, who sits on the Government Benches, made it clear that he agreed with the Opposition, rather than the Minister, who has failed to get to grips with the disclosure of transaction costs. That is the context in which this debate has been taking place for the past year and a half.

Lords amendment 9 does not state which transaction costs will be included. It gives the Secretary of State the right to include

“some or all of the transaction costs”.

It also allows the Secretary of State to not require full transparency in contract-based defined contribution schemes—those that are provided by insurance companies —if the transparency regime is “equivalent”. Lord Freud, speaking for the Government, emphasised that those words were intended to ensure that no costs were missed and that they were not an attempt to water down the regime for contract-based DC pensions.

Lords amendment 9 removes the responsibility to set transparency rules for workplace DC pension schemes from the Secretary of State and gives that power to the FCA. The FCA does not currently require the publication of transaction costs for workplace pension schemes. Its view is that any transparency requirements should be identical to those for retail investment products.

[Richard Graham]

Is not the key point that is under discussion whether the list of charges to be covered should be included in the Bill? We agree that there are many issues of detail, especially on the transaction side, that should be consulted on. The Minister has said that that will happen. The hon. Gentleman has not answered the central question of why the list should be included in primary legislation.

[Gregg McClymont]

The answer to the hon. Gentleman’s question is that nobody who looks at this matter reasonably can have confidence that the Government will deliver the disclosure of any transaction costs. The only reason we have the inadequate Lords amendment 9 is that there was a rebellion among Conservatives in the House of Lords that was supported by Cross Benchers. Before that, the Government had no intention of disclosing transaction costs, as far as one could see. To answer his question, amendment (a) is a way of ensuring that the Government deliver what they say they want to deliver.

To sum up, the Government have brought forward in the Bill a hard, fast, rapid wind-up of the state second pension. If that is to be successful for those who can no longer accrue into the state second pension, there must be similarly speedy action to ensure that there is an adequate, meaningful pensions cap as quickly as possible. Alongside that pensions cap, all transaction costs must be disclosed. Before the campaign by the Opposition and, more recently, Lord Lawson, the Government had been very slow to get to grips with the disclosure of transaction costs, never mind the pensions cap. The intervention of Lord Lawson has led the Government some of the way down the necessary path towards ensuring that there is disclosure of transaction costs, but they have got to that stage only because of the threat of a rebellion in the other place.

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[Steve Webb]

I will respond briefly to the hon. Gentleman. However, I suspect that he decided to press for a vote on amendment (a) a good deal earlier this afternoon, so I do not think that anything that I say will have the power to change his view.

For the record, the hon. Gentleman seems to be confusing a power and a duty. He says that the FCA has the power to require transparency, but it has not done so. If he reads Lords amendment 9, which I encourage him to do, he will see that it states in subsection (2):

“The FCA must make”.

That is the bit that he wants to take out—the bit that requires the FCA to do the thing that he wants it to do—so his amendment (a) is incoherent. Instead, he would give the duty to the Secretary of State, but the Secretary of State does not have the same powers as the FCA over the schemes that it regulates. The hon. Gentleman wants to take the duty away from the body that has the sanctions and give it to somebody who does not have the sanctions. That would not achieve what he wants to achieve.

[Gregg McClymont]

Will the Minister confirm that the Government’s amendment states only that

“some or all of the transaction costs”

should be disclosed? Will he put that clearly on the record?

[Steve Webb]

The text of Lords amendment 9 is before the House. The whole point is that we want all sorts of pension schemes—those that are regulated by the Pensions Regulator and those that are regulated by the FCA—to ensure that there is effective disclosure. His amendment (a) is defective because it would take the duty away from the FCA, which regulates one category of schemes, and give it to the Secretary of State, who does not have the sanctions to enforce the very thing that he wants to happen. I know that he does not care that his amendment is flawed, because he wants to make a point, rather than to pass good law, but for the record, his amendment would fail to achieve what he says he wants.

The hon. Gentleman said that the noble Lord Lawson, who has made a valuable contribution to this debate, came up with a list and that we should therefore have a list. Of course, the noble Lord Lawson did not pursue his amendment because he accepted that we did not need all the detail in primary legislation. If the hon. Gentleman lists the name of a charge in primary legislation, all it would take is for the ever-inventive investment industry to give it another name and we would need regulations anyway. Including a list would achieve nothing.

The hon. Gentleman asked about the words “some or all”. To clarify, the intention is to require full disclosure of all costs and charges. The reason for that wording is that it will future-proof the legislation—something that he has called for—by providing the flexibility to deal with new costs as they arise. That is all that we are trying to do by using that wording.

[Gregg McClymont]

I thank the Minister for that clarification. Has he spoken to the FCA and asked what its view is about the disclosure of all transaction costs? Does it support that?

[Steve Webb]

The hon. Gentleman will know that the FCA is regulated by Ministers from the Treasury, rather than the Department for Work and Pensions. However, I have met the FCA on a number of occasions, as have my Treasury colleagues, and we have corresponded on these matters. We are agreed that there should be full disclosure, as under the terms of the Bill, of all categories of pension scheme that are covered by the legislation.

The hon. Gentleman avoided the question I asked on an intervention. His amendment (a) appears to contradict what he has said in the past, and it brings transaction costs into the scope of any potential charge cap. That was not his policy this morning, but it appears to be his policy this afternoon. Quite how he would set such a cap when we do not have the data on transparency is beyond me. Clearly, amendment (a) is not about how the law of the land should be written; it is simply about making a political point and doing so rather badly. On that basis, I urge the House to reject amendment (a), and to agree with Lords amendment 9.

Lords amendment 4 agreed to.

Lords amendments 5 to 8 agreed to.

Amendment (a) proposed to Lords amendment 9.—(Gregg McClymont.)

Question put, That the amendment be made.