Pension Schemes Bill [Lords]

Lindsay Hoyle Excerpts

2nd reading: House of Commons
Monday 30th January 2017 Commons Chamber

[Alex Cunningham (Stockton North) (Lab)]

We have had a good, almost conciliatory debate, but we have also rightly focused on the opportunity that the Government have missed to bring forward an appropriate Bill that addresses the issues surrounding pensions. The Chamber again heard from my hon. Friend the Member for Swansea East (Carolyn Harris) on the plight of the thousands of WASPI women left stranded by this Tory Government, who selfishly and needlessly accelerated the state pension age, leaving many women no time to make alternative provision for themselves in their 60s. If one line was added to the Bill to extend pension credit to the WASPI women—that is our policy—it would have gone a long way to pacifying us this evening.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

The hon. Gentleman has got his mention in; let’s stick to the Bill.

[Alex Cunningham]

So I suppose, Mr Deputy Speaker, that you do not want me to mention the fact that we do not have clarity on the state pension age, either. The Government have already said that they do not have a long-term commitment to the triple lock; we would like to know what their plans are, both on that and, more importantly, for many of our people who work in the most demanding physical jobs, and suffer ill health much earlier in life than those who spend their life behind a desk.

I will not test your patience any further, Mr Deputy Speaker, but we have drifted away from the principles of an effective pension scheme to a muddled view of saving for retirement. Indeed, such is the political hostility towards pensions that they do not get a mention in the latest leaflet produced by the Treasury, “Ways to save in 2017”. There are lots of mentions of different types of individual savings account—cash, junior, help to buy, lifetime and stocks and shares—but not one mention of the word “pension”, or of auto-enrolment.

Although this narrow Bill needs improvement, it is much needed, and we will work with the Government in Committee to help make it fully fit for purpose. Labour is proud of its achievements with auto-enrolment, but we are a long way from finishing the job. The sluggish response of this Government and the last to the development of a regulatory framework for auto-enrolment has left people’s savings at risk for too long. Given what the shadow Secretary of State, my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams), said, our priorities for improving the Bill should be fairly obvious. There should be transparency: members must know what choices they are making, and how much those choices cost—and I mean all the costs in the investment chain. There seem to be conciliatory thoughts on that on both sides of the Chamber.

We also need improved governance and a pension system in which members are more engaged. I am glad to read in the media and published reports that in many cases the regulators and the Government agree with the Opposition. As I said on 9 January, I welcome the one-word commitment from the Under-Secretary of State for Pensions to implement the FCA recommendations to improve transparency in the pensions industry. We will hold them to account for that.

I repeat that members must know how much things cost—they must know how much each investment costs and how much transactions cost. It is not good enough simply to say that a default fund is capped at 0.75% and that people should be content. The industry tells us that it is moving towards greater transparency across all its platforms. We will be pleased to see what it comes up with. I have no doubt that we need to help the industry with appropriate legislation.

In the past, pension fund providers and others involved in fund management have often tried to dodge the issues when asked direct questions about costs, including by saying, “You should be happy to reward performance,” when we know that lower costs give a better net performance. Other hon. Members have spoken about that in the debate. They also say, “We are incentivised to manage costs, so when your funds do well, we get a bigger pay-off,” but we know that 80% of asset manager fees are based on just holding members’ money rather than making it perform well. When people realise that the average compensation of an asset manager, from the most junior to the most senior employee, is £225,000, people have the right to know how they are using the scheme’s money.

The Opposition favour a change in reporting to ensure that pension schemes must report to members on the three headings: administration, investment costs and transaction costs.

I know that the Minister values the cost-collection template, which has been negotiated with the Investment Association by the Local Government Pension Scheme Advisory Board. We must encourage its use by all pension providers. I hope the Minister will confirm his support for such an approach for master trusts.

On member governance, all the investment risk lies with the member and not with the sponsor or the provider. There is an argument to be made that, since the pot belongs to the member and the scheme-sponsoring employer bears no investment risk, governance by scheme members should prevail in number over employers. Some companies choose to operate a trust-based defined-contribution scheme, but most newer auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare.

We are in a new landscape—we have lost member-nominated trustees, which we had believed to be a clear fiduciary principle. A member perspective adds diversity, which prevents the risk of group-think within boards. Ian Pittaway, chair of the Association of Professional Pension Trustees, has said:

“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits of a death-in-service case or something like that.”

In the defined-benefit world, as long as the scheme was well governed and well administered, the member would end up with a reasonable replacement ratio, but in the defined-contribution world, a member’s outcome depends on a host of factors that are currently beyond their control.

There may be resistance to member representation from master trusts, with tens of thousands of schemes and hundreds of thousands or even millions of members, but the industry has proved that it is possible. We will address that more in Committee. Whatever the route to better representation, most in the sector agree that it can only be beneficial for the defined-contribution landscape. There is a clear argument and there are clear demands that the Bill is the best place to start. We look forward to working with the Minister to make it happen.

Yes, we could have debated equally if not more important measures in the Bill, but sadly we are not. It could be many years before we get a chance to pass legislation in those areas. The Bill can both protect and empower the people whose money is being invested on their behalf. The Opposition are therefore happy to see the Bill progress to Committee, where we hope the Minister will be open to the improvements I am sure we can make to the Bill.

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

I should point out to you, Mr Deputy Speaker, that your predecessor in the Chair, the hon. Member for North East Derbyshire (Natascha Engel), was very robust in her attempts to reduce the content of Members’ speeches to that which is relevant to the Bill. I will do my best to continue with that tradition.

I was expecting some excellent contributions to this debate and I have not been disappointed. I thank hon. Members on both sides of the House for the general spirit of consensus on the basics of the Bill. A number of hon. Members raised issues that go beyond the authorisation of master trust pension schemes and administration charges, the two issues covered in the Bill, and I am itching to rebut them. However, I realise, Mr Deputy Speaker, that I would be deemed to be out of order as they are out of the scope of the Bill, so I shall not do that. The Government were criticised by Opposition Members on the grounds that the Bill’s scope was not wide enough. I will address two points in particular.

On the scope of auto-enrolment, we will announce shortly a statutory review in 2017. It is my intention to make that review wider than the limited definition within the Bill. That will report by the end of the year. It is not in the Bill, which regulates master trusts, but it has not been ignored by the Government and it will not be.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I think I do need to help you, Mr Harrington. We all said Members would get one hit and then they would have to get to the Bill. Both Front Benchers have had one hit. Now we can really get into the meat of the Bill.

[Richard Harrington]

I congratulate you, Mr Deputy Speaker, on continuing so well the leadership and robustness started by your predecessor in the Chair. I apologise for any offence caused to the Chair. I actually thought I was speaking within the scope of the Bill, but I will of course be led by the Chair and move on to the substance of the Bill.

As I said, the points raised in the debate by Members on both sides of the House have been broadly complimentary. The whole purpose of the Bill is for the Government to be able to respond very quickly to the phenomenal and exponential growth in master trusts over the past two years. That growth was not predicted by the Opposition, who take credit for auto-enrolment—in fact, there was cross-party consensus—and it was not predicted by either the coalition Government or this Government. It happened very quickly and I believe the Government are doing the right thing by responding quickly. I do not accept that the Government have acted too slowly.

I was very glad to receive the support of the shadow Secretary of State, and she made a very relevant point when she explained her view about the expansion of master trusts. We are not allowed to mention the “w” word, as the hon. Member for Bootle (Peter Dowd) calls it from a sedentary position, because that would be outside the scope of the Bill. The regulation has been very considered. Both Labour Front-Bench spokesmen and the SNP spokesman commented on the large amount of secondary legislation. The reason is very clear: we want to consult very quickly with industry and responsible parties on the detail, but this process will not take a long time. We have to get the detail absolutely right, because this is a one-off chance to regulate. There will be a chance for scrutiny by both Houses, because in the first instance the regulations will be subject to affirmative procedure.

Many Government Members, including my hon. Friend the Member for Tonbridge and Malling (Tom Tugendhat), spoke about transparency. We take this very seriously and we are consulting on it. It is not in the Bill, but it is in the spirit of the Bill, because the regulator will be provided with many powers that will help to enforce transparency and members’ rights, which have been discussed.