Pension Schemes Bill [Lords]

Nigel Mills Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020 Commons Chamber

Implementation of the pensions freedoms without the intended safeguards has caused a great deal of harm. We must now put those safeguards in place. I welcome the assurances that the Minister has given, and I welcome the fact that the Department will consult widely on the regulations to be drawn up in parallel with the Select Committee inquiry. I hope we can make speedy progress. Drastically increasing the take-up of Pension Wise guidance, as proposed in new clause 1, is a key part of the solution.

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate, to follow the right hon. Member for East Ham (Stephen Timms), the Chair of the Select Committee and to speak to the amendments that he has tabled and I have signed. I will start where he did, with the issue of mandatory guidance—or as near mandatory as we could make it, as I raised on Second Reading.

The right hon. Gentleman quoted the key statistics, which show that the take-up of this excellent, high-quality service—it attracts brilliantly good feedback from those who use it, and the people who provide that service accept that it changes the mind of 70-something per cent. of those who actually use it—is feebly low. Trials showed that the figure was somewhere around 3%, before the nudge was implemented. That is not what this Parliament envisaged when, five or so years ago, we introduced the pension freedoms. The safeguard we put in place at that time was to create the Pension Wise service: free guidance so that people would have the chance to check what they were doing was the right thing for them in exercising choices they did not used to have. Those choices are incredibly complicated. In many cases, they are a once-and-for-all: once they have done something, they cannot reverse out of it.

That is why, as a Parliament, we were so keen for people to have that chance of a warning and to understand how this all works. They save up all their money for 40 or so years at work and get to the very end point. In many cases, they do not understand all the options. They do not know what they are being sold and they buy the wrong thing. The data in the FCA’s own retirement outcomes review from about three years ago shows that a high proportion of people are just defaulting into a drawdown scheme with their existing pension provider. They are not shopping around and looking at the other options.

[Ms Angela Eagle]

Does the hon. Gentleman agree that at the moment the decumulation pension industry is unregulated, so there is no transparency on costs or on the kind of charges that may be applied to drawdown schemes? That is another area where people might be being scammed.

[Nigel Mills]

I am grateful to the hon. Lady. If only she was on the Select Committee, because that is an issue I have raised on a few occasions. Over the past decade or so, we have very effectively regulated the accumulation phase, but we have not yet got the decumulation phase in quite the same position, with charge caps. The default pathways are a great step forward that will help people, but there is a real danger even with that that people will end up on a default pathway with their default provider, rather than looking around to see whether there are any better options in the market.

We desperately need to find ways to get more people to access the free high-quality guidance. There is no reason for them not to do so. They do not have to pay a huge fee or wait a long time, and it is not a painful experience. It can be a relatively short phone call just to alert them to the situation and provide information. We need to get those numbers up. Last time we had a pensions Bill we had amendments calling for default guidance. We accepted a compromise that the FCA would do some work and find a way of increasing take-up so we would not need to legislate. The problem is that the FCA, I am afraid, took quite a long time to get round to starting the process. It did studies with some larger pension providers, showing that if they used the nudge with an extra reminder and gave them the information that Pension Wise exists, they could get take-up up to about 14%, or one in seven people.

I accept that we do not want or need 100% of people approaching retirement to take pension guidance. Some will be on such large pensions they will take advice that they pay for. In that situation, there is not much need for them to have simpler guidance. The irony is that the data shows a lot of people use pension guidance as a first step towards advice. They use guidance to work out what their options are and what they might need advice on, and then they go and get advice. That is a perfectly sensible use of guidance. I am not standing here saying let us have 100% of people, no matter if they have a tiny pension pot and there really is not much they can do with it, or if they have such huge ones they should be taking paid-for advice, but the right answer cannot be 14%. Even if we manage to roll out the nudge across every pension scheme in the country, we can only get to 14% of people. That cannot be the extent of our aspiration. That is why there have been various proposals on how we send people an appointment. If they do not take it, they can rearrange it, but until they have taken that appointment, or until they have signed to say that they understand they could have one but that they really, really do not want it, they cannot access their pension pot. I appreciate that some people will be rather angry when they pick up the phone to their pension scheme and are told they have to wait three weeks for a Pension Wise appointment before they can do that, but that, I think, is a price worth paying for them not to make a terrible mistake that they cannot reverse.

There is a real danger if people only get the nudge from their existing provider. We have all heard or taken part in those phone calls where we are told, “Now I’m going to have to switch the recorder on and read out some regulatory messages, but don’t worry, it’s all a bit of nonsense. It’s just one of those things we have to tell you. You don’t really need to listen. At the end just say yes.” Then they record the phone call and in that long spiel of “nonsense” there are the words, “and you have agreed to opt out of your Pension Wise appointment” and that is sufficient. That is the situation we are trying to avoid: people relying on one provider for their information.

I can accept that, as with all Back-Bench amendments, this proposal is not perfect. Is five years the right time? Are we going to end up spending far more than we need to? If, for some reason, the Minister will not accept this and has not come forward with alternative ways of doing this in law, I hope that he will at least accept that, even if we could roll out the nudge to all the providers that are as good as the ones the FCA used, a 14% aspiration is not sufficient. We could all work together, with the Select Committee and other key players, to work out what we think the right percentage take-up of Pension Wise would be, set that as a target for the FCA and if in two or three years it cannot get to that target, we can come back with legislation and put a default position in place. This would be a final warning to the FCA.

[Guy Opperman]

I am conscious of interrupting my hon. Friend’s flow, but that is clearly what the Government are seeking to do. Anyone who reads the 28 October report will see that it specifically states that there should be engagement with the Select Committee and various organisations. It also says that the product of the behavioural tests was limited, but there are many other ways that one can extend this as far as is practically possible.

[Nigel Mills]

I am grateful to the Minister. That document came out on my birthday, so it was a very happy present in some ways. When we read it, however, we have to remember that the process the FCA went through was with some of the largest, most reputable and most capable pension schemes, and even then it got only an 11% increase from the derisory 3% to a 14% take-up. It is not clear to me that, when trying to roll that out over the whole sector, we could even get that high if we were relying on smaller pension schemes or those that did not have the same resources. I hope the Minister will accept that we want to set a target that is much higher than 14%. Whether it needs to be 50% or some other figure is something that we could work on. Perhaps he could tell us in his closing remarks whether he agrees that the Government should set the FCA a much higher target. Would he at least accept the principle that, if we cannot get there by his preferred route of a nudge, we would have to look again at some kind of default system? Perhaps he will come back to that when he wraps up the debate.

One argument that is often used on this issue is that a lot more appointments would cost a lot more and that the levy would therefore go up. Yes, but I think that when we created this structure, we assumed there would be a lot more appointments and that the costs would be a lot higher. The benefits of a retiring person not making a catastrophic mistake with their 40 years’ lifetime savings outweigh the relatively small cost per person of providing the guidance. I know the Minister is very keen, as I would be, on the idea of a midlife MOT, but I do not think that that should replace this proposal. Giving someone a session in the middle of their working life, so that they know what their financial position is and what they can do about it, is not the same as giving someone help as they are about to start decumulating their pension so that they understand their options at that very important time. I am not sure that, if we told most people at the age of 45 what their options would be when they retired at 68, they would still have them in mind when they came to make those decisions. Pension Wise is not a substitute for a midlife MOT. We should have them both, and they should be as widely used as possible.

I personally would prefer a default guidance appointment, with someone having to sign in blood if they really did not want this free, excellent quality guidance before they could access their money. If the Government are not proposing that, I propose the compromise of setting a much higher target and if we cannot get there any other way, we will come back to this yet again.

The other amendments that I have signed cover scam prevention, which I think the Chair of the Select Committee and the Minister have dealt with pretty well. I accept there has to be a balance. If we have freedom of choice, people have to be free to do what they want with their own savings, and if some of the things they choose to do are ill advised or crazy, that is their choice. However, I want them to be able to make an informed choice so that they know the risks of what they are doing and will not be tricked by a heavy sell from a scam provider who is selling something totally unsuitable for someone of that level of means.

It must be right that when trustees have evidence or suspect that what they are being asked to do is clearly not in the best interests of the saver, they can refuse to make the transfer if those red flags appear. If there is other evidence that it just looks to be a rather stupid idea, they should at least be able to slow down the transaction, perhaps delaying it by a month. Perhaps they could refuse to do it unless the person took Pension Wise guidance, or at any rate find some way of slowing it down. One of the things that scammers need is momentum—they rush people into making a decision. The more we can build in delay, the more chance a person has to think again, take better advice, discuss it with a member of their family, take Pension Wise guidance and not want to go ahead with the aggressive step that has been proposed to them. The Minister has come up with a way forward that does not need primary legislation, so I am glad that we are bringing the amendments forward only as probing amendments.

--- Later in debate ---

[Anna McMorrin (Cardiff North) (Lab)]

Is the hon. Member saying that climate really is not very important because that is what I hear him saying on this? He is giving the trustees no confidence in having to make those decisions. How does he expect us to reach zero carbon by 2050 if that is the case?

[Nigel Mills]

I was coming on to say that there are better ways we could do this. I accept that we should encourage funds as strongly as we can to use the vast sums at their disposal to support investment in climate goals and other socially positive activities, but that should be done in part through member choice. There should be eco-friendly pension schemes and socially responsible ones, but they should allow their members to choose to opt into those schemes, and not have them as the default, if they are going to have a lower pension at the end of it.

[Aaron Bell (Newcastle-under-Lyme) (Con)]

Does my hon. Friend agree that an unintended effect of amendment 16 might be that pension funds feel they have to divest themselves from oil giants and so on? Those are the companies we need to address climate change—we cannot get to net zero without working with them—and divestment is not the right approach.

[Nigel Mills]

I agree, and I was coming on to that argument. I am not sure that achieving net zero can be pushed down to individual pension schemes and individual investment advisers. I suspect we will have to accept that between now and 2050, there will be some businesses out there that are bad for the environment but we are still going to need their products and services. We will need some of those even after 2050. We will achieve net zero by having other businesses that are more positive for the environment, with some still being bad for it. I am not sure that we can require every individual pension scheme to be a net zero investor. Otherwise, there will be a load of things that they just cannot invest in, as they cannot achieve that strategy.

I fully agree with the sentiment and agree that the industry needs to do more. I said on Second Reading that what we do not need are posh written documents that sit there with nice-sounding promises that never get implemented. We need pension schemes and their investment managers to be much more—

[Jonathan Reynolds (Stalybridge and Hyde) (Lab/Co-op)]

I will not address this in detail because I will have my own opportunity to do so, but I make it very clear that the amendment does not enforce or mandate pension funds to be net zero. It would ensure that they have an investment strategy, including a stewardship strategy, that is consistent with those objectives. It is drafted specifically to address those concerns and hon. Members have nothing to worry about in that regard.

[Nigel Mills]

I am grateful to the hon. Member, but I am not sure what the amendment would achieve then. If we say to a pension scheme, “You need to make sure that your overall investments are consistent with the nationwide net zero strategy”, they can just say, “Of course we are because there is a nationwide net zero strategy and we are just investing in legal businesses”, which we would presumably put taxes or carbon levies on to make sure we push this. It becomes a circle that would presumably mean only that the trustees have to produce a strategy and occasionally review it. It would not actually drive a great deal of different behaviour. I think I would want to see much more activist investment from pension schemes and their investment advisers to ensure that the businesses that they are investing in are sticking to their obligations and strategies on how they can reduce their impact on the environment, making sure that those promises are being kept on a management level rather than setting trustees an impossible target, which I am not sure would even mean what hon. Members seek to make it mean.

[Guy Opperman]

I endorse my hon. Friend’s comments, but surely the key point about clause 124 is that it does set out what we are trying to do on that issue, and it deals with the consultation that we issued in August specifically on the point that the hon. Member for Cardiff North (Anna McMorrin) raised, taking action on climate risk and improving governance and reporting by occupational pension schemes. That is the measure that we should be focusing on.

[Nigel Mills]

I am grateful to the Minister and I agree. The measures in the Bill are very sensible steps forward that will make a great difference. What is proposed in amendment 16 would just create a horrible mess for the pensions industry without really achieving anything further, so I will not support it if it is pushed to a vote.

[Wendy Chamberlain (North East Fife) (LD)]

I would like to speak to amendments 1 and 6, which have been tabled in my name and the names of other Liberal Democrat Members, and in favour of the cross-party amendment 7, tabled in the name of the hon. Member for Airdrie and Shotts (Neil Gray), as well as to his new clauses 4 and 5. I was very pleased to see new clauses 4 and 5 tabled and I pay tribute to the work of the all-party group on plumbers’ pensions—chaired by the hon. Member for Perth and North Perthshire (Pete Wishart)—of which I am a vice-chair.

I have a constituent who was a member of the plumbers’ pension scheme, and the trustees failed to notify him and others that, were they to leave the scheme, he would find himself liable under section 75. He had been a responsible small business employer, enabling all his employees to be part of a pension scheme and to save for their retirement. When he retired and wound up the business, he was not made aware of the consequences by the trustees from a pensions perspective of doing so. That means that through no fault of his own, he is now in a position where, because his business is no longer operating, he cannot apply for current easement schemes and, because his business was not incorporated, he is personally liable for the debt. He is now an elderly man and is being pursued by the trustees. They are threatening to repossess his house and his life savings are at risk. Were that to happen, the sums recovered from him would not even pay off half the outstanding debt.

My constituent told me:

“We are now in the third year of this, and it is taking a toll on my health, and also on the health of my wife.”

If passed, new clause 4 would turn my constituent’s life around. The safeguards are there. His total debt is only a tiny proportion of the total liabilities, and the trustees have determined that the majority of cessation events will be too costly or lengthy to seek recovery. That is one of the issues here: there is an injustice going on that has not received the attention it deserves because relatively few people have been affected by it, but that also presents the opportunity that something can be done and I hope that the Minister will comment accordingly on new clause 4 and look further at this plumbers’ pension issue. It is causing hardship and anxiety for, arguably, an increasingly vulnerable group of people.

I shall now address part 5 and schedule 10 and, in particular, clause 123 on defined-benefit schemes. My colleague in the Lords, Baroness Bowles, tabled the original amendment to clause 123 that would ensure that defined-benefit schemes are treated differently, depending on whether they are open or closed. I pay tribute to Baroness Bowles. Her amendment had cross-party support in the Lords, so it was disappointing that the Government removed it in Committee two weeks ago.

My amendment 1 would reinstate Baroness Bowles’s amendment, and amendment 7 in the name of the hon. Member for Airdrie and Shotts is a revised version of it, which I have also signed. I did not have the chance to sit on the Bill Committee, but I did follow proceedings and I was encouraged by the Minister’s comments during Committee on open defined-benefit schemes. He said:

“We acknowledge that if such schemes do continue to admit new entrants and do not mature then the scheme will not actually reach significant maturity. We are content that such a scheme retains the same flexibility in its funding and investment strategies that all immature schemes have.”––[Official Report, Pension Schemes Public Bill Committee, 5 November 2020; c. 81.]

I welcome those comments, which imply that open schemes should, and will, be treated differently from closed schemes, in accordance with different investment, liquidity and maturity, and I hope the Minister will be able to recommit to that statement on the Floor of the House today. I urge him to accept either amendment 1 or amendment 7, which would put that commitment on the face of the Bill and provide much needed reassurance for open schemes that have contacted me, and, I am sure, have contacted other Members, in advance of this debate.

We need that reassurance because there is real concern about the regulator’s consultation. Looking at the consultation document, there are places where it looks like the regulator is making the right noises on DB schemes.