Saving for Later Life

Matt Rodda Excerpts

Tuesday 7th February 2023 Westminster Hall

[Matt Rodda (Reading East) (Lab)]

It is a pleasure to serve under your chairmanship, Mr Hosie, and I commend my right hon. Friend the Member for East Ham (Sir Stephen Timms) and the other members of the Work and Pensions Committee for their excellent work and their report.

People who work hard and save all their lives deserve to expect a decent income in retirement. It is vital that the Government support pension saving as well as providing a decent state pension, and I hope that the debate will be a starting point as we discuss some of those issues. First, however, I want to put the debate in context.

We are living through difficult and challenging times with families and pensioners facing a cost of living crisis the like of which has not been seen for 40 years. Food prices are up, fuel prices are up and the cost of living is rising dramatically. That is having an enormous impact on households across the country, and there is, as has been mentioned, a real risk that some people might either stop saving for a pension or dip into their pension savings early and unsustainably, simply because they cannot afford the cost of living.

To make matters worse, the wider economic context is, to say the least, extremely challenging. Last week, the International Monetary Fund reported that the UK faces the worst economic outlook of any major economy. After 12 years of economic mismanagement by the Government, we seem to be stuck in a persistent period of low growth and high inflation. As a result of that mismanagement, the Government are trying to cut public spending. They have reduced spending on the state pension by failing to increase pensions in line with inflation until April, which means that pensioners, for some months, have been trying to keep up with the huge increase in the cost of living. They have been let down by the Government in attempting to do that.

Saving for a pension takes time and regular contributions, and, as we have seen, there is an issue of pensions adequacy. I note that the Committee’s report found that many savers did not realise that they were not on track for the retirement they had envisaged. This, sadly, is a tragedy waiting to happen. I hope the Minister will address that, and I encourage her to focus on it because Ministers must do more to avoid a terrible problem in future and to show they are taking the issue seriously. Sadly, I am not convinced that the point was adequately addressed in the Government response to the report, and I hope the Minister will find time to discuss it more properly.

Saving for the future remains sustainable only if pensions are kept safe, and increased pensions freedoms, which were introduced in 2015, gave many hundreds of thousands of people choice as to how to invest their savings. However, the Government need to do more to help them, including providing better advice, as we heard earlier, and helping to tackle fraud, such as pension scams. I am afraid that the evidence so far is that Ministers, unfortunately, are failing on both counts. As we heard earlier, not enough people are accessing free, impartial advice, and it seems as though those with the largest pension pots might be somewhat more likely to seek such advice, rather than those in greatest need.

On fraud, there are also deeply worrying indications of Government failure. In 2022, there was a 75% increase in online searches for scam help and a large increase in searches for pension scams. In 2018, the Financial Conduct Authority published data showing that hundreds of people had been scammed out of their pensions, losing on average the enormous total of £82,000 per person. Research by the Money Advice Service suggests that there could be as many as eight scam calls every second, and Citizens Advice found that 8.4 million consumers had been offered unsolicited pensions advice between 2015 and 2016.

On a similar note, we need to ensure that the regulator and the ombudsman are given the tools they need to take swift and effective action in cases of mis-selling or unethical behaviour, and the serious ongoing problems with the British Steel pension scheme show the need to improve regulation. Much of the damage in that case could—and indeed should—have been avoided if tougher action had been taken at the time. I am glad to say, however, that steps can be taken. The law was changed in 2020 to ban cold calling from UK numbers, thanks to Labour pressure. The Government should act on our calls to take further steps, such as banning fraudulent online advertisements, which remain an option for scammers.

Let me move on to speak more about the structures to help people save. As was mentioned earlier, auto-enrolment, which was created by the previous Labour Government, has become an undisputed success. We must maintain the ambitions of the previous Labour Government and do more to ensure that everyone benefits, including, as colleagues mentioned earlier, women, low-paid people and minority groups. I remind the Minister that the Government promised to look at expanding auto-enrolment by the mid-2020s. I hope she will address that point when she responds.

There is, as the hon. Member for Amber Valley (Nigel Mills) and others have mentioned, scope for other innovations. I urge the Government to think more creatively about new ways of encouraging saving—for example, by considering pensions sidecars and other ways to address the wider challenge of encouraging saving, which we have heard so much about today.

I am aware that time is limited, so I will finish by urging the Minister to do more. There is scope for pensions to contribute to protecting the future of the planet. I welcome the work of the shadow Chancellor, my right hon. Friend the Member for Leeds West (Rachel Reeves), and her plans to support green start-up companies’ links with pension funds. I look forward to the Minister’s response.

--- Later in debate ---

[Laura Trott]

My hon. Friend makes a typically excellent point. He is right that we have a lower investment in illiquids than many of our European counterparts. We are at 7%, and they are at 15% or 16%. Last week, I announced a change in regulations, which I believe will come to the House in around March. It will mean that the performance charges can be passed on for the first time, which will hopefully take away a barrier to investment in those types of asset. It is of course for the pension trustees to make investments in the best interest of pension savers, but it is important that we do not put any barriers in the way of that. My hon. Friends the Members for Grantham and Stamford (Gareth Davies) and for Amber Valley are right that we need to focus on returns. If we are going to deal with adequacy, we need to ensure that investments in pension schemes return the maximum amount that they can for savers. Illiquids are part of the story in making that happen.

[Matt Rodda]

I was lucky to enjoy a very interesting visit to a solar farm with the Minister’s predecessor, the hon. Member for Hexham (Guy Opperman). One of the issues there—this relates to the point made by the hon. Member for Grantham and Stamford (Gareth Davies)—is that the obstacles to pension funds investing in illiquids are quite considerable. Does the Minister agree that there is an issue with work across Government on that matter? The delays in that case were to do with electricity connectivity to the site, and there may be other similar delays that are holding pension funds back from investing in illiquids in the UK.

[Laura Trott]

If there is a specific issue with that, I am of course happy to talk to the hon. Gentleman about that separately.

I want to give the right hon. Member for East Ham time at the end to sum up, so I will try to get through the rest of my speech quite quickly. On the generation X issue, we have an issue with the people who fell into the gap between the mid-1990s and 2010, when auto-enrolment was introduced. I praise the work of the Work and Pensions Committee, but I hope the right hon. Gentleman and the hon. Member for Reading East (Matt Rodda) would accept that not enough was done between 1997 and 2010. I cannot wave a magic wand and make that right, but I can raise awareness through pension dashboards and help boost returns through value for money, as discussed. In addition, the state pension has been boosted significantly under this Government.

I thank the Committee for all its work on the stronger nudge. It is important to recognise, as my hon. Friends the Members for Amber Valley and for North Norfolk (Duncan Baker), and the hon. Member for Glasgow East (David Linden), have done, that Pension Wise is consistently given very high feedback. About 47% of pots in 2021-22 were accessed for the first time with Pension Wise guidance. It is important to look at the amounts. If the pot is very small, say £100, it is potentially less valuable to have a Pension Wise appointment, than it would be for a pot of multiple thousands. I note that 73% of pots larger than £100,000 were accessed using Pension Wise guidance. It is important to look at that graduation.

[Matt Rodda]

I thank the Minister for giving way again. Does she agree that it is important for people with very modest pension pots to get access to high-quality advice? They are financially vulnerable in some cases. There have been instances of people approaching retirement taking their pension early, when that is not necessarily in their best long-term interests.

[Laura Trott]

It is absolutely the case that people who want or need guidance should get it. As I was coming to, we are seeing a positive impact with stronger nudge, which we should continue to evaluate. I am conscious of time, so I will wrap up. It is vital that we put pension savers at the heart of everything we do. I am grateful for the comprehensive and thoughtful discussion today, which I look forward to continuing in future.