Pension Schemes Bill [Lords]

Richard Graham Excerpts

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

[Richard Graham (Gloucester) (Con)]

This is an important point and the Minister will know that there are open schemes with considerable assets which could be deployed to the advantage of this nation in investing in means of growth for the future. Where they are funded, being open, it gives them a huge advantage and of course the current situation on bond yields makes it even less helpful for them purely to invest in gilts and so on. So I strongly support what the hon. Lady is saying. Does she agree that it would be helpful if the Minister could refer to this again in winding up?

[Wendy Chamberlain]

I thank the hon. Gentleman for his endorsement of my remarks. I hope the Minister will comment on this in winding up.

Open and closed schemes are on a continuum. A scheme opens, it matures, it becomes closed, it reaches the absolute end of the range of maturity, and the risk profile varies with that maturity. However, parts of the consultation document do not seem to recognise this, which is concerning. There is an understandable desire from employers and employees for this to be clarified. There is real concern that the regulator wants open schemes to be considered as if they were on the brink of forced closure, but that means effectively crystallising their investment structure into a closed structure and preventing them from acting as they need to, as the hon. Gentleman suggested. So I ask the Minister to recommit to the House that this will not happen, otherwise our concerns will remain, and Baroness Bowles and her colleagues in the Lords will continue to press the Government on this when amendments return to the other place.

There is a huge risk to getting this wrong. Members highlighted on Second Reading the issue of railway pensions. Their campaigning has been very important in raising the potential impact of this Bill on defined-benefit schemes. I also want to highlight the charitable sector and many large charities that rely on DB schemes: Oxfam, Age UK, Cancer Research, the National Trust and the Royal National Lifeboat Institution, to name but a few. My amendment 6 would require the Government to carry out an economic impact assessment on the effect of changes to DB schemes on that important sector. We have already heard that open schemes will end up with deficits of £120 billion to £160 billion if they are treated in the same way as closed schemes.

6.15 pm

We are in the midst of a pandemic and huge economic shocks, the impact of which we cannot fully predict at this time. Is now the time to saddle companies and charities with that extra debt, and for what purpose? What of individual savers themselves? Can we reasonably expect people potentially to double their personal contributions? Surely a more likely outcome from that requirement is that people will simply cease to contribute, and that will apply further pressure to the viability of that scheme.

There is a real danger that as a result of the deficits, charities—some of which I have mentioned—will go bust, and that is not a policy that any Government should be promoting, particularly given the support that the Government have put into the sector during the course of the pandemic. That would surely be a bad policy at any time. As I said earlier, I am encouraged by the Minister’s statements in Committee, and I thank him for recommitting to those in his intervention, but I hope he appreciates that we urgently need further reassurances. I do not see why such provision could not be made in the Bill, as indeed it was when it came from the other place. It would make sure that the regulator was acting in a sensible way. I look forward to hearing the Minister’s response.

My first contribution when taking on the role of DWP spokesperson for my party was on ensuring the triple lock for the state pension. In that debate, I highlighted the need to ensure a sustainable state pension, particularly given the intergenerational divide emerging for young people in this country. We should not, through this Bill, be potentially driving more people into reliance on the state pension by making personal pension provision unaffordable for individuals or institutions.

--- Later in debate ---

[Gareth Davies]

I am grateful to the Minister for his generous remarks and I thank him for his support of my campaign to bring about green gilts in this country. I agree that it is a way in which pension funds can contribute to the climate change effort in a meaningful way, moving billions of pounds of capital towards the goals that everybody across this House really wants to achieve, so I thank him for that intervention.

Finally, I fear that, although the amendment is well-intentioned, it is poorly focused. In my experience, trustees want to invest with purpose and according to their values. Likewise, fund managers have, over the past several years, moved great mountains, a lot of money and a lot of effort to incorporate ESG risk into most of their investment processes, and I do not believe that any asset manager in the future will be able to survive unless they integrate ESG climate risk as part of their investment process.

[Richard Graham]

As a trustee of the parliamentary pension fund, may I highlight that the changes on page 118 of the Bill on climate change risk are incredibly important and will help encourage trustees and pension funds in general to make investments that are pro-environment, pro-green and pro-climate change? I am absolutely in agreement with my hon. Friend that the proposed additional new clause 16, which would require pension funds to align with the Paris agreement goal, is a step too far. Does he agree that the Minister should focus on that in his summing up as well?

[Gareth Davies]

I am very grateful to my hon. Friend for his intervention. I agree that the Bill is sufficient in its current form to be able to achieve what we all want to achieve, which is to get pension funds to invest in a climate-aware way.

The last point that I will make in concluding is around this point on focus. In my experience, it is not the fund managers or the trustees whom we need to persuade or to make do anything, but the middle men and women—the gatekeepers, the investment consultants —who typically require a five-year track record and £100 million in assets held by fund managers and managed by fund managers. In my experience, that was always the issue. We were running money in a way that was really pushing things forward in terms of our climate targets. We knew that the pension clients really wanted to invest with us, but, because we could not meet the requirements of the investment consultants, we could not marry the two together. If we use the combined intellect, passion and energy of this House, from all parties, to come up with a solution to that, we could make great progress.

--- Later in debate ---

[Richard Graham]

The hon. Gentleman is making a point that a number of us made earlier. I notice that in the Committee, on which the hon. Gentleman served, the Minister responded pretty clearly by saying:

“Open schemes with a strong sponsoring employer that are immature and have managed their risk appropriately should not be forced into an inappropriate de-risking journey.”––[Official Report, Pension Schemes Bill [Lords] Public Bill Committee, 5 November 2020; c. 80.]

I found that quite reassuring; what does the hon. Gentleman think?

[Neil Gray]

I was just coming on to quote that very passage from the Minister in Committee—