Oral Answers to Questions

Debate between Nigel Mills and Guy Opperman

Monday 13th November 2023 Commons Chamber

[Guy Opperman]

The hon. Member will be aware that there has been £94 billion of cost of living support over and above the 10.1% increase in benefit rates. That support is over 2022-23 and 2023-24. For example, the winter fuel payment will be paid to the tune of £600 or £500 over the next few weeks.

[Nigel Mills (Amber Valley) (Con)]

Would the Minister agree that the journey we have been on with benefit rates for the last decade and a half has perhaps been a little haphazard, and it is pretty unclear to most people exactly what basket of goods and services benefits are actually meant to buy? If the Minister does not agree with the case for an essentials guarantee, will the Government commission their own study to work out if benefits are at the right level?

[Guy Opperman]

My hon. Friend makes an interesting point, which is clearly a matter for the Secretary of State and the Chancellor when they make their decisions on uprating, and I am sure they will take that on board. There are always ongoing discussions about how one assesses this process but, with respect, this is the system we have had for some considerable period of time.

Pensions Guidance and Advice

Debate between Nigel Mills and Guy Opperman

Tuesday 1st March 2022 Westminster Hall

[Nigel Mills (Amber Valley) (Con)]

I beg to move,

That this House has considered take-up of pensions guidance and advice.

It is a pleasure to serve under your chairmanship, Mrs Cummins. I thank colleagues for turning up after we had a late night last night. We have picked a day when pensions are topical, as we have a tube strike over the very issue that we are talking about.

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

Not my fault.

[Nigel Mills]

It is not the Minister’s fault on this occasion.

I do not think the main topic that I am proposing today is one that divides us. I think we would all accept that the problem is that we have a hugely complex pension system. Most people do not really have any understanding of how it works or what their options are, and far too few end up receiving advice or guidance before taking difficult decisions, having probably saved for 30, 40 or more years. They get to the end point and, sadly, do not always understand what they are doing. The huge risk of that situation is that they make a terrible mistake that they could have avoided, which has a detrimental impact on their retirement and reduces their quality of life in their last few years. The real question is what we can do to improve that situation.

We are not here today to talk about the level of pension saving, which is a hugely important topic but one for a different day. We are talking about what we can do to help people who get to the end of their saving journey to get the outcome that they want—the best outcome that they can have with the money that they have. I am not here to criticise auto-enrolment, which has been a huge success. It has hugely improved the situation for many people in work and at least gives them something to worry about when they get to retirement, whereas that would not have been a problem a decade ago. Millions of people would not even have had a pension pot to be thinking about.

Equally, I am not here to criticise the pension freedoms reforms that took place almost exactly seven years ago, which have been a huge success and are hugely welcome. In its recent report, the Works and Pensions Committee accepted that they should stay in place. However, we have to accept that we have a contradiction between the two systems and that we have chosen a way to get people to save pensions by almost tricking them into it, so that they do not realise. They just get defaulted in and do not have to engage, although we wish they would. At the end of that, we now have a hugely complicated system with lots of choices that people are not prepared for, and we need to find a way to prepare them for that, either at some point in their saving journey or when they get to retirement.

This is a problem that is actually getting worse. Statistics show that fewer people than before have taken advice over the last years, and the problem is getting worse because we have more and more people reaching retirement who will not have any defined benefit pension that can provide the majority of their retirement income. In order to ensure their quality of life in retirement, more and more people will be relying on their defined contribution savings and on the decision they make when they hit the age of 50 and get the chance to take a lump sum. It looks like a hugely attractive way to solve their present financial woes, but they do not realise that it makes their future woes a lot worse, having lost a quarter of what they had, which probably was not enough in the first place.

During the pandemic, a lot more working people over a certain age have now decided that they actually quite like being furloughed and have wondered whether they can eke out their retirement savings over a longer period by using the lump sum and not going back to work. It may be a terribly bad decision that they are making. I think the Government are now waking up to the fact that we have lost hundreds of thousands of people from the workforce who could come back but who would quite like not to do so. I am sure we would all like to be able to afford to retire early, but not if that gives us huge financial problems in later life.

[Nigel Mills]

Yes, I think that is right: employment has grown, but participation has reduced. I have spent many years arguing about whether people are in fake self-employment—not really self-employed but being made to be, or pretending to be, because their employers are being unscrupulous or trying to get a tax advantage. Shifting people who were not really self-employed into thinking that they are employed is quite a good outcome—it makes the data more reasonable. The hon. Gentleman is right: we have lost hundreds of thousands of people who could still be working. When there is a workforce shortage, any measure that could get people from those cohorts back into work would probably be good for the majority of them and for the economy as a whole.

To return to today’s topic, Her Majesty’s Revenue and Customs data tells us that £45 billion was taken from pension pots in the first six years of the pension freedoms policy. Some 3.7 million defined-contribution pensions were accessed in that period, and over 2 million of those pots were cashed in full. This is not a problem for the future when defined-benefit pensions start to run off. It is a situation we have seen over the first five years of pension freedoms. It is happening now. Hundreds of thousands of people are accessing their pension pots without knowing what they are really trying to do.

It is worth quickly noting that we still have a problem with the data. The data that we have shows pots being accessed, not pots being accessed by individuals. We do not know whether the data shows one individual accessing 15 different pension pots from 15 different jobs, or 15 different individuals accessing one pension pot each. If we are to have a proper understanding of the situation, we need better data, so that we know what people are doing and what outcomes they are facing. We raised that as a Select Committee on multiple occasions, but we still cannot seem to get that data to be gathered.

The reason for asking for this debate—and what I would quite like the Minister to recognise when he wraps up—is that we have a large problem here. I am sure that the Minister does recognise that; he has said so on many occasions. I would also like the Minister to set out a direction of travel for the regulators and industry. We know that the take-up of pension advice and guidance is far too low—I will come on to the data in a little while. The Minister has made some welcome steps, which will come into force in a few months’ time, but even those steps will not fix the problem or take us to anything like the level that we need. I know that we do not like targets or benchmarks, but perhaps the Government could set an aspiration, an indication of what good practice is, or what the level should be. We need to set an aspiration for the regulators as to what the level of take-up of advice and guidance should be, and we need a plan for how we get there. I will talk through a few ideas about how we could bridge that gap.

If Parliament does not set the regulators a target, benchmark or aspiration—call it what you will—they will flounder, flap around and go round in circles. We need to be clear: “Here is where you need to get to, and here is how long you have to get there; if you do not get there, we will have to take some different measures of our own.” We had a problem during the debate on the Pension Schemes Bill last year or the year before. Amendments were tabled that called for various solutions, and the fact that they were not adopted means that people think that Parliament does not actually want them, whereas that is not how parliamentary debates work. We move amendments to float ideas, and we debate them. The fact that they are not voted on does not mean that we did not want them; it just means that we think that there may be other ways to achieve them. I hope that we can send a strong message today.

[Guy Opperman]

I did warn my hon. Friend that I would quote back to him his exact words from debate on the Pension Schemes Bill. His speech on Second Reading genuinely struck me, and to try to beef up the process I revised the specific guidance largely on the back of what he and the Chair of the Select Committee, the right hon. Member for East Ham (Stephen Timms), said. My hon. Friend said:

“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.”—[Official Report, 16 November 2020; Vol. 684, c. 69.]

With respect, that is exactly what the stronger nudge is. We have taken on board the exact comments he made on Second Reading of the Pension Schemes Bill.

[Nigel Mills]

I am grateful to the Minister. He did say that he wanted the take-up of pension guidance to be the norm. Even with his changes, which I welcome, the take-up of Pension Wise will increase from a totally inadequate 14% to a really quite unacceptable 22%. I do not know how he defines a norm. I am not sure if there is a written definition of a norm, but I have a feeling that less than a quarter does not count as a norm. In that speech, which I stand by, I said that before they access their pension pot, I want the clear majority of people who have any level of pension savings to have taken guidance or advice.

However, I do not agree that such advice should be mandatory. We cannot put a gun to people’s heads and say, “You cannot have your money unless you sit through this. If you refuse to do it, no matter how long it takes, we’re not giving you your money.” Clearly, we cannot do that, but we can get pretty close to that situation. We need to find processes, techniques and measures that get that percentage up to somewhere much nearer the norm, so that people are not suffering the harm of doing this without understanding the whole landscape of what they are trying to do.

My big concern is not necessarily that people cannot understand the subject, although it is complicated, but that people do not know that there are all manner of uncertainties out there that they have not thought about. It is the “unknown unknowns” that are the problem here.

The beauty of a pension guidance appointment is that it gives people the chance to understand what they do not know, and then gives them the chance to go and find out what they do want to know so that they can make an informed decision. I am not suggesting that we can fix every problem of engagement through an hour or an hour and a half’s pension guidance appointment, but it would give people the tools to get the best possible outcome in their situation.

--- Later in debate ---

[Nigel Mills]

I would not use that word. It is a little unfair on the Minister, who has put in place some measures that have not yet come into force, to say that he is being complacent. I urge the Government to see those measures as part of the set of solutions we need.

The Government’s role is to set the aspiration for the level of take-up that we need, so we can then judge the success of their policies. It is a slightly strange situation and we had some rather baffling evidence sessions with the regulators during the recent Work and Pensions Committee inquiry. Everybody accepts that the take-up is not high enough and we should do more, but when asked, “What ought take-up to be?” they say that they do not know and do not have a number. So we know that what we have now is not good enough, but we do not know what is good enough, and therefore we cannot tell when we are going to get to good enough.

It is a slightly strange way of running a strategy, an organisation or a service to not know what is good and what you are aiming for, but to start trying to aim for it in the hope that you might get there by luck. We need a direction of travel, and someone to say, “We think the right target is 60%.” That is the number we had in our Select Committee finding and it seems quite reasonable. We are not asking for 100%, which would not be practical or useful, but we could set that kind of guide.

[Guy Opperman]

My hon. Friend is talking about guidance on its own, but 55% of pots over £10,000 are accessed after taking guidance or advice, and above £100,000 the figure is 74%. Surely on those two, the stats are better, with respect, than he is purporting to suggest, and we must look at this in the context of some people taking advice as well.

[Nigel Mills]

Absolutely. We hope that more people will take advice and have a properly informed situation, rather than just relying on guidance, and I accept that we want to look at those two things in aggregate. The problem on the numbers the Minister is quoting is that there is still a huge gap in respect of the, I think, 45% of people who have not had advice or guidance. My fear is that they are the people about whom we are most concerned: those with some retirement savings—not a huge amount, although not a very small amount—for whom, if they do not make the right decision and understand all the parameters they are dealing with, there could be a material impact on their retirement.

Should we worry so much about those with a £1 million pension pot? They are probably the ones who are taking advice in the first place. For people who have really a very small amount, there is probably not much that they will be able to do differently after they have had the guidance than take it as a lump sum. Are we to think it is okay that we have 45% of people who in the scheme of things have a relatively small amount and who could, by getting this wrong, materially harm their retirement, and that we do not have a plan for how to close that gap? I am not sure that that is a position I would want to take.

This shows that we have a problem here, and we need to find ways to try to fix it. The Minister is getting defensive, but I hope that when he speaks later he will accept that we need to close that gap and that the measures that will come into force in a few months will not be sufficient to close it. We need to look at different ways—

[Guy Opperman]

I am not being defensive; it is just that I do not think that we can look at this matter solely in the context of stronger nudge. We have to look at it in the context of, obviously, the work done with the pension schemes legislation, with the dashboard coming next year; the accumulation pathway, with collective defined contributions coming in; the awareness campaigns, which we are beginning to boost; simpler statements and so much more. Stronger nudge is just one element of about six to eight measures that we are taking to address the problem that my hon. Friend raises, and I accept that he is right to raise it.

[Nigel Mills]

I am grateful to the Minister. There is a danger, or there will be if we are not careful, of us starting to disagree on the fundamentals, whereas I thought we had a broad consensus of agreement that we needed to find a way to go further on the issue. Sir Hector Sants chairs the Money and Pensions Service, whose job it is to deliver financial advice and support to people around the country, and even he agrees. Sir Hector said that

“the vast majority of people, left to their own devices, will probably make a poor decision.”

The problem we have is that a large number of people—unless we are able to convince them to take some kind of guidance or input—are at risk of making a very poor decision that they will not be able to reverse. This is not like taking out the wrong mortgage, which people can change after two years. If people take out the wrong pension, they are stuck with it for the rest of their life. It is not fixable if someone has bought the wrong product.

I accept that all manner of other moving fields around the pension situation all have to come together, but if the Minister was saying—I am sure he was not—that the combination of a slightly-easier-to-read statement that gets sent out once a year, and which might or might not get sent out at the same point and that has some advantages, and the creation of a dashboard, which we hope people will engage with and look at regularly, will fix the fundamental problem of our having a pensions system that is hugely complicated and that people do not engage with or understand, even though they will have to make a difficult decision at some point, I am not that optimistic that we will get such a level of engagement through people’s saving journey that they will not need some input before they make their decision.

When we introduced these freedoms—I was on the Select Committee seven or eight years ago—we said yes to providing those freedoms, but the big ask was, “Are we going to help people on that journey?” I am perhaps a little disappointed that the solution that the then Government came up with was the Pension Wise service. At that point, the Government and the regulators expected huge take-up, and we were worried about the service being swamped and unable to cope, but we have found that Pension Wise has exceeded all expectations—except one. The feedback from people who use the scheme is hugely positive, as is its impact on their understanding of the pension landscape and on the decisions they go on to make. The one expectation it has not met has to do with take-up, which is nothing like what it was. In evidence sessions on pension schemes, people were saying that we might get 75% take-up, but we are stuck in the low teens, and the figure has been falling in recent years.

It is slightly incongruous: we introduced a policy of pension freedoms, recognised at the time that the situation would be difficult for people, and put in place a new guidance system to help them. We thought there would be huge take-up, and said that its use should be the norm. A few years on, the position has got worse, and we have more people retiring with only DC pensions—people who need this input. We have this huge gap in take-up, but think that is probably okay, because there are a few things online that people can find. That is a challenge. We need a sense of urgency and direction, so that we can hold the regulators to account for achievement.

I am grateful to all who helped me prepare for this debate and sent me useful briefings, particularly the House of Commons Chamber Engagement Team, which conducted an online survey of people’s lived experience. That chimed with what we see in our constituency casework and in evidence to the Select Committees. It is clear that people do not understand the situation and do not feel well informed during their saving journey, and then have problems over time.

One quote is from Charlotte:

“Guidance and advice is not provided in my workplace, unless you are almost at retirement age, which is way too late.”

Carole said:

“I have tried researching the information online but I find it very confusing.”

Anne, a constituent of mine, said:

“The Government should arrange pension roadshows to assist people with enquiries etc. Employers should hold pension surgeries and ensure guidance is available. There isn’t enough signposting and guidance in place.”

The evidence is pretty clear: there is a gap, and we need to fix that. What are the solutions? The Minister dragged me into talking about solutions earlier than I had planned; I was articulating the problem. Data on the size of the problem shows that HMRC received about £2 billion more than forecast in the early years of pension freedom as a result of people accessing their pensions. That is likely because people took the whole of their pension, as they now can, and became higher-rate taxpayers for the only time in their working life. That was a hugely foolish decision, giving the taxman 20% of their pension. That would not have happened if the pension had been taken out in a smooth way over years.

I am sure the Government do not want that benefit, but that £2 billion was a third more than was forecast. That suggests that something has gone wrong, and that people have not been making the wisest decisions. A Nobel- prize-winning economist has described working out what to do with a pension as

“the nastiest, hardest problem in finance”.

Nobody knows how long they will live, and many people assume they will live fewer years than they do, and end up with the horrible risk of running out of money.

I will move on to the argument the Minister was keen for us to have about how to improve the take-up of Pension Wise advice, and issuing appointments automatically or by default. I am asking for what the Select Committee asked for in its recent report: for the regulator to undertake trials on how to improve the take-up of pension guidance. We are not asking for tens of hundreds and thousands more appointments, and huge costs. We accept that, even with a stronger nudge, we will not get the figure high enough. We could give people an even stronger nudge and look at some of the options. Those include writing to people when they turn 50 or are approaching state pension age to say, “We have made you an appointment with Pension Wise at half-past three on such a date,” and giving them the chance to change the appointment. Or we could go back one step and say, “In six months’ time, you’ll hit state pension age. Before you can access your pension, you need a Pension Wise appointment. Here is the booking number.” There could be other combinations; for example, the pension provider could make planned appointments.

Whatever the trials and the options we look at, we are trying to work out whether giving people an appointment —a real kick—increases take-up, especially in the hard-to-reach groups that are not using the guidance service. I would have thought there were enough good-quality pension schemes out there that are keen to help their members and that would be willing to participate in a trial with the regulator, who could agree the rules and set the parameters. We could do that for a few thousand people on a representative basis.

Pension Schemes Bill [Lords]

Debate between Nigel Mills and Guy Opperman

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

[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 ---

[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.

Pension Schemes Bill [Lords]

Debate between Nigel Mills and Guy Opperman

2nd reading & 2nd reading: House of Commons & Money resolution & Money resolution: House of Commons & Programme motion & Programme motion: House of Commons
Wednesday 7th October 2020 Commons Chamber

[Nigel Mills (Amber Valley) (Con)]

It is a pleasure to speak in the debate on this excellent Bill, and I think that I echo most of the remarks we have heard so far by saying that there is nothing in the Bill really to oppose. It leaves most of us looking for things we would like to add to the Bill, rather than being upset with anything that is already in it.

Much as the Opposition spokesman said, there are some key challenges for pensions, and I will address how the Bill tackles those challenges. The three challenges I generally look at are how we can increase people’s engagement with what their pension means, how much they need and what they are likely to have in their retirement; how we can increase the number of people who get a decent pension in retirement, rather than just some small amount of money; and how we can protect what people have actually saved. The Bill makes progress on all three, but the key thing is engagement.

If we can get engagement right, people will understand how important the issue is, what it means and what some of the risks, consequences and benefits are. Through that, we can probably get people saving more, and we can help stop them being a victim of a scam or making a bad choice when they get to retirement.

It is tempting to think, because we have 10 million more people saving for pensions through the great success of auto-enrolment, that we have fixed the engagement problem, but the opposite is true. Auto-enrolment has not been such a success because people have engaged; they just have not chosen to opt out, and that was the whole basis for the inertia that was the reason for the adoption of auto-enrolment. We need to do more to engage people to make them understand exactly what all this means and what their retirement will look like if they carry on saving as they are.

The pensions dashboard is a key component. If we can get that right and people can go on to something and find out how much they have saved, find out what pension they would get from that, find out perhaps what ideally they would have saved by now and what their shortfall is, and then get some ideas for what action they should take over the rest of their working life and how to close that, then we can genuinely improve the outcome people will have from their saving.

The challenge we have with the pensions dashboard is that we will get those improvements in behaviour and the outcomes we want only if people actually go on the dashboard on a regular basis and find the information they need. I would be more sceptical about how advantageous a stand-alone MaPS dashboard would be, because I have a horrible feeling that if we write to people and say, “Here’s your logon and here’s your password,” some people might log on the first day and think, “This is great—it’s really useful,” but would they remember it existed next year, the year after, when they get to their mid-life MOT time and when they get to their retirement? For a whole load of people, that envelope will never get opened, or would go in a drawer and basically just be gathering virtual dust.

We need to get that information to where people are managing their finances—whether their banking app or whatever else people are using. I am not too precious about whether there is a one-year gap before we open up that data, but I think for this to work and to get the advantages we seek, we need to get it further than just one dashboard that people might look at if they remember it exists and they can find their password and their username. That is not how this will really work.

I would not support having two-way functionality. The dashboard has be about sucking out data, not a transactional dashboard. I would hate the idea that someone could go on the dashboard, click a button and do something to their pension after a few beers on Friday night. That would be a crazy thing to get into. The model we have of a dashboard that sucks out data when it is asked for it is the right one. However, we need to get people using it, not just have it gathering real or virtual dust.

The challenge we do really need to address on pensions is how we get people from saving a pretty small amount of money, which will not get them the quality of retirement that they think it will, to saving the amount that they need. That is where collective defined contribution schemes can play a really important part, if they are used as an improvement to DC, not as a weakening of final salary schemes. I think that we would all encourage employers who do want to give their staff the best possible pension to think about whether they can move from a DC to a CDC to give their staff a far better outcome.

The Secretary of State called my hon. Friend the best Pensions Minister in living memory, and I think here that is indeed true. Steve Webb may claim that prize, as perhaps the longest-serving Pensions Minister in living history, but this Minister will not just bring on to the statute book a dream of defined ambition or a third way, but actually see schemes in this space, and it will be a real achievement if we can get these schemes operating.

My only caution is that it when we are selling the advantages, we should be clear that there is no magic. There is no employer guarantee here. The reason why someone gets a much higher pension from this is that the people who, sadly, die earlier in their retirement will in effect be paying for those who have a longer life to have a higher pension. That has always been a feature of defined benefit schemes and it is a feature of annuities, but we should not let people think that somehow this extra pension comes from nowhere. People should understand that they will not have their own pots to pass on to their family if they are one of the ones who, sadly, dies young. At times, the marketing of these has been a little bit over-optimistic about what the benefits of the improved investing strategy or the reduced costs are, when most of the increased pension actually comes from the collective risk sharing.

It is a pity that the Bill has not looked at how we can expand the scope and rates of auto-enrolment. I understand why that has been done, and I know that we have set a mid-2020s timetable for further increases to the rate and changes to the age or the scope of earnings. However, the fact that we have seen opt-outs be far lower than we thought does create the scope to bring forward some of those changes in trying to get people much higher than the 8% savings ratio and nearer to the 12% that we think they really need, or to at least the 12% that we think they really need.

My final area of remarks is on how we protect people and protect what they have saved in relation to scams. There are clearly welcome measures in the Bill, but we possibly could look at how we can go further to make sure that we are putting every tool out there that can possibly be there. We heard evidence at the Work and Pensions Committee this morning from pension scheme administrators, and there is the awful situation where they suspect that the transfer being asked for might be a scam, but they cannot be absolutely sure. They have a duty to make such a transfer, but can we find a way to allow them to delay the transfer a little while so the member can have some more information and a bit of time to reflect and make absolutely sure that that is what they want to do before they go ahead? That sort of change in emphasis in relation to the powers would be really helpful in this situation.

We also need to go further in ensuring that, if people cannot afford advice, they at least take guidance from Pension Wise before they take fundamental decisions. Last time a pensions Bill came before the House—there is one every few years—amendments were tabled to try to make accessing pension guidance if not compulsory, as close to compulsory as we could get. It was suggested that before money was moved, there should be a release code from Pension Wise, to say that the person had taken guidance. The compromise at that point was to get the regulator to go away, do some work, and put measures in place to try to include that nearly mandatory use of guidance. Regrettably, however, the regulator has been incredibly slow, and three years have gone by without us seeing a great deal of action. I hope that this Bill will be clear that that is what we expect the industry to do, and the regulator should put that in place and monitor it.

We want everyone who has saved for decades not to make a horrible mistake at the last minute, and to take that free guidance. Such guidance has huge support and receives overwhelmingly positive feedback, and there is no reason for someone not to take high quality free guidance before risking thousands of pounds that they have saved. I accept that we cannot make that compulsory, but it should be as close to that as possible.

On pension consolidators, the idea of consolidation for weaker, smaller defined benefit schemes is attractive, and I welcome the market moving in that direction and the regulator’s approach so far. However, given that pensions Bills do not come before the House that often, I wonder whether we have missed an opportunity to put some of those rules on a statutory footing. Normally, I would not want the Government to include a clause that allows them to make secondary legislation, as that is not great for parliamentary scrutiny, but I wonder whether the power to introduce such rules could have been included in the Bill, should the regulator start to believe that regulation alone does not have the force or impact that we need. We would not want one of those consolidators to get any kind of market share if we are not sure that it is improving the situation for members, rather than making it worse.

Finally—I asked the Secretary of State about this—the pensions industry can be a huge force for good, and thanks to auto-enrolment it is investing billions of pounds every year. However, it should not invest passively, or just put money in, leave it there, and see what happens. When we have scandals, or corporate failures or disasters, we frequently see that large investors in some companies have not been playing an active role in ensuring the high standards that they should have expected. We must send out a loud and clear message that, where pension schemes and their asset managers are sizeable investors in some of the largest and most significant businesses in our country, we expect them to play an active role in the stewardship of those companies, and not just leave it to others. That is essential if the climate change measures in the Bill are to work. We should not just expect a report every couple of years.

[The Parliamentary Under-Secretary of State for Work and Pensions (Guy Opperman)]

I hesitate to interrupt my hon. Friend’s flow, but there is an ongoing consultation on illiquids and consolidation. I endorse what he says about stewardship. He will no doubt be aware of the consultation that closes this week, which specifically encourages active stewardship regarding the management of large funds as he describes.

[Nigel Mills]

I am grateful to the Minister—perhaps he will submit my views to those consultations. This is about a behaviour change. It is not enough for us to just put rules in place; we need such behaviours to become the norm for large pension schemes that are investing huge amounts. That needs to be part of the behaviour; otherwise, we will have yet another report that gathers dust and that nobody really reads. Members and savers expect such measures. They want their money to be invested well—ethically, and in businesses that will improve the climate outcome. That would be good for pension schemes and their members, and companies need to take such measures seriously.