Pensions Bill

Debate between Gregg McClymont and Brian H. Donohoe

Tuesday 29th October 2013 Commons Chamber

[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.