Pension Schemes Bill [ Lords ] (Second sitting)

Debate between Neil Gray and Rob Roberts

Committee stage & Committee Debate: 2nd sitting: House of Commons
Tuesday 3rd November 2020 Public Bill Committees

[Rob Roberts]

I rise to speak briefly to amendments 11, 12 and 13. I did not mention it earlier, but the general problem with small pots being eroded away by charges, especially in the auto-enrolment phase, is that many of them have set charges in pounds rather than percentage-based charges. If someone has 10 pots of £1,000 and they all have the same percentage charging structure, the charges will be exactly the same as one scheme with £10,000 in it; what causes the problem is that some schemes have a set charge in pounds per year.

Unfortunately, an awful lot of the time we focus too much on the cost of plans and the impact of charges: the principal-based tail is wagging the outcome-based dog. It is the outcome that is most important, because people cannot spend the principal; they spend the outcome. That is easily illustrated: if scheme A has a 0.5% charge and a return of 5% a year, and scheme B has a 1% charge and a return of 7% a year, scheme B is a better scheme despite having a higher charge. It is not the charging that is important.

The hon. Member for Wallasey mentioned people who will be put off from investing in schemes that are looted and abused in such ways. She was 100% correct; there were many nods on both sides of the Committee Room at the idea that that would put people off. Focusing too much on charges also potentially puts people off. It is worrying and scary, and potentially angers the consumer, who would not understand the figure for the total charges if it is expressed in a significant way. If we say, “Over the lifetime of your plan, you will incur £30,000-worth of charges,” without some kind of explanation or context showing what that relates to, people will see that as excessive and ridiculous.

[Neil Gray]

I do not think it is fair to characterise this as a focus just on charges. New clause 11 contains an idea for how small pots can be managed, in terms of the unintended consequences of automatic enrolment. I struggle to understand the rationale of the hon. Gentlemen’s argument about the lack of transparency being provided to consumers and enabling them to take informed decisions about the plans they enter into. I do not see the logic of suggesting that hiding that or allowing schemes to continue putting it in the small print is beneficial to consumers.

[Rob Roberts]

I am not necessarily advocating a lack of transparency; I am advocating a focus on the outcome, rather than on every element of the journey along the way. There are lots of things that we currently do not talk about, in terms of the costs and charges. We look at the costs and charges of the scheme in general, and it is not necessarily a requirement for the costs and charges of the individual funds that make up the scheme to be included in those calculations. There are lots of things that could be included in there, but it is the outcome that is important, not necessarily the minute detail of every element along the way.