Pensions Bill

Richard Graham Excerpts

Tuesday 29th October 2013 Commons Chamber

[Gregg McClymont]

Thank you for that wise advice, Madam Deputy Speaker. I was somewhat sidetracked by the excellent intervention—[Interruption.] That is another intervention from the Parliamentary Private Secretary. If Members want to stand up and say something, I am happy to take an intervention. If they want to heckle from the back row, I will continue to respond to those heckles.

Where are we? The Minister wants to be seen to be taking decisive action on pension charges but today he has called for yet another consultation. He has moved on during the past year, as he had said that Labour was scaremongering and he could see no need for a cap. The consultation is a development, but we need action now. Our amendment (a) to new clause 1 would ensure full disclosure of all costs and charges and our other proposals would ensure a private pension system that would mean that everyone who was auto-enrolled would get value for money. The Minister is right that auto-enrolment started well, but he knows as well as I do that the key is the smaller employers. We are determined that everyone should get a good deal from auto-enrolment and I therefore commend our new clauses and amendments to the House.

[Richard Graham (Gloucester) (Con)]

This is the first time I have made a speech while you have been in the Chair, Madam Deputy Speaker, so let me add my warm congratulations to the many that you have already been given.

Our debate today has been a pretty specialist affair so far, in a different language from that which many of our constituents speak. It has no doubt been a struggle for many in the Public Gallery to remain awake throughout. As we dive into the detail, let us not forget the goal: the Bill’s aims are simplicity, clarity, a reduction in the flaws in means-testing and, above all, to ensure that it always pays to save. Some of that was rather lost in the 85 minutes for which the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East (Gregg McClymont) spoke, so let me try to bring us swiftly back to the main points of detail.

Earlier we tackled auto-enrolment, small pots, aggregators, charges, scale and annuities. No doubt that would be enough to put many people off listening to any more, but let me add my thoughts briefly on each in turn. First, on auto-enrolment, the Minister outlined the success so far—1.7 million people already enrolled and 90% of them staying in. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East said that he was cautious and that that percentage might not be sustainable as we started enrolling those in smaller firms across the country. He may well be right about that. The Minister will be acutely aware of that, which is why he is right to tackle some of the detail now, ahead of the smallest companies enrolling.

The important thing in the section on auto-enrolment was the changes outlined today—two opt-outs: one for those who have already given notice of leaving their employer and one for those who would suffer negative tax penalties because they had already accumulated more than the maximum allowed for tax-free savings. The Minister confirmed that there is absolutely no intention of excluding small and medium-sized enterprises, the lifeblood of every Member’s constituency. That is important, and he rightly summarised Labour’s amendment 53 as unnecessary, unclear and ineffectual.

The discussion of small pots, importantly, covered the differences between the pot follows member approach recommended by the coalition Government and the aggregator approach proposed by the Opposition. The precedent of Australia is relevant. Those 5 million lost accounts worth some 20 billion Australian dollars are not a small matter. Millions of our constituents are affected. Those of us who have accumulated small pots at different periods in our life know that it is extremely hard to keep track of them and to have any idea of what our savings really are. The whole business of pensions is ultimately about savings. It is about accumulating a pot of money which will see us safely through retirement, ensuring that we can live after retirement without having to fall back on savings.

[Mr Donohoe]

Does the hon. Gentleman also consider that a pension pot is a deferred income and should be treated as such? The problem is that not many people do so.

[Richard Graham]

The hon. Gentleman is right in the sense that all savings are ultimately deferred income. If he is trying to differentiate capital and income from investments, which I do not think he is, that is a separate issue. I accept his point that ultimately everything is deferred income, though I would prefer the word “savings”, as we will all need savings at some point. There is no significant difference between us on that.

The Opposition approach is towards an aggregator, which is an uncomfortable world where there is no choice and our savings pot is shunted off in a Thomas the tank engine-like way to God knows where. We will not get into alluding to the names of the engines in “Thomas the Tank Engine”. That would be unfortunate and arguably inappropriate. The important thing, as the Minister rightly said, is that we must not have small pots that follow the member into a bad scheme. We must focus on all schemes being good. That is why it is important to legislate for quality schemes, as the coalition Government are doing.

I welcome the amendment that the Minister mentioned whereby those who have been in a scheme for less than 30 days will get a refund, but it is important that the practice which has grown up over time of people being in schemes for less than two years and being bought out for a not very significant sum comes to an end. I welcome that, as will many people across the land.

After small pots and aggregators, we come to the rub of the issue—charges. The Minister rightly observed that 1% compounded over time amounts to a huge amount of money paid out in charges to fund managers and administrators, and that it is important to follow the recommendations of the Office of Fair Trading report, which noted that pension savings is one of the worst sectors for charges, that the demand side is weak and that there is the contradiction between the employer choosing the manager, but the member effectively paying for that choice.

I welcome, and many Members across the House and others outside this place should welcome, the opportunity to look objectively and constructively at the issue of charges through a consultation. The option of 0.7% is no doubt at the lower end of options out there. That gives this Government and Members a chance to see what might be the most practical options, bearing in mind always that we do not want to limit the management of those funds to a handful of very large providers—the equivalent of supermarkets in a world where sometimes a delicatessen tailoring their investment to what members need can be an attractive and practical option.

The process of a consultation on charges clearly needs to include a definition of those charges. I was disappointed to hear so little of substance from the shadow Minister on the subject of charges. He did not even mention the total expense ratio or any of the other aspects and acronyms that comprise charges, which are beloved of my hon. Friend the Member for Warrington South (David Mowat) and others of us who have previously worked in the sector. There was no detail at all from the Opposition spokesman and, at the end of his 85 minutes of speaking, I am none the wiser about the charge that the Opposition are recommending

On charges generally, I think I can summarise the shadow Minister’s speech for Members and especially for those in the Gallery, whose concentration may understandably have wandered during those 85 minutes. There were four messages that he wanted to get out: first, highlight the fact that the coalition will do nothing for living standards; secondly, accuse the Government of sticking up for big business, not small pensioners; thirdly, sound as if the Opposition are offering an energy price freeze; and fourthly, do not give a precise figure. The approach behind all that is not to let the facts get in the way of the narrative. That, in about 12 seconds, broadly covers what the shadow Minister said in 85 minutes on the issue of charges.

The approach of the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East to the Government’s recommendation of a consultation amounted to a simple slogan: consultation, not action. This, I thought, was a curious approach by the shadow Minister. He earlier intimated that he is very cautious about the implementation of auto-enrolment—the results might not be as good as they have started out to be and it was too early to celebrate. He gave the impression of being a very cautious driver, one who was unwilling to take unnecessary risks and who wanted the Minister to make sure that he keeps the car on the road.

Such analogies were built into the hon. Gentleman’s approach, but caution is precisely why, after 13 years of the previous Government, auto-enrolment had not been implemented. It is precisely why they did not pursue universal credit. As the former Chancellor of the Exchequer, the right hon. Member for Edinburgh South West (Mr Darling), admitted, it was too difficult. It is precisely why the previous Government were unable to make decisions—no nuclear power stations, no changes to the schools funding formula, no privatisation of Royal Mail, too little stimulus to apprenticeships, very little impact on manufacturing. It was all too difficult.

The approach of the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East today is to try to take credit for his party for the idea of auto-enrolment, and then to snipe at the detail offered by the Minister. The hon. Gentleman coupled that with something close to an apology for the previous Government not having done enough in the world of pensions, but it was a little like the policemen on Plebgate recently—it was not a wholehearted apology, but rather a nudge towards an apology. That was disappointing, because the central issue of charges is precisely what the debate is likely to focus on.

The shadow Minister alluded seven times, I think—I tried to keep count—to what he called the policy paper, “40 Policy Ideas from the 40”. He wrote me a charming letter about it:

‘Dear Richard… The policy paper entitled “40 ideas from the 40”, to which you were a contributor’—

I was not a contributor. I fear that he might not have read it in sufficient detail to understand who was and who was not a contributor. However, he was absolutely right that my hon. Friend the Member for Warrington South was a contributor and that he mentioned the lack of transparency in costs and charges in almost exactly the same language, as he confirmed today, as the Minister used when he called for the consultation on charges, which I think we all welcome and look forward to.

--- Later in debate ---

[Gregg McClymont]

There is a joke in that somewhere, but I will not go there. I was just struck that the hon. Gentleman—we have debated this in Committee—said that he was not a member of the Forty Group. I have in front of me a copy of “40 Policy Ideas from the 40”, which states that the group

“consists of the forty most marginal Conservative seats”,

and he is one of the Members listed.

[Richard Graham]

The shadow Minister must learn to be more precise in what he says. His letter referred to

‘“40 ideas from the 40”, to which you were a contributor’

but I did not contribute. When I have good ideas, which is rarely, I either keep them to myself or share them with colleagues verbally. I do not put them down on pieces of paper for him to read, or not read as the case may be. I hope that he will take on board that correction. I am a member of the Forty Group, but I was not a contributor, and there is a difference.

[Gregg McClymont]

This is all very curious, because the front cover of the document refers to “40 Policy Ideas from the 40”, and its states:

“The Forty Group consists of the forty most marginal Conservative seats”.

One of the MPs listed is the hon. Gentleman—

[Madam Deputy Speaker (Mrs Laing)]

Order. We are straying somewhat from the amendments and new clauses before us. If there is a difference of opinion, it will have to remain as such. I urge hon. Gentlemen on both sides of the Chamber please to stick to the points before us on private pensions.

[Richard Graham]

I welcome your advice, Madam Deputy Speaker.

Before the shadow Minister intervened, I had been referring to scale. I touched briefly on the fact that size is not everything when it comes to the management of pension funds, as with so much else in life, Madam Deputy Speaker. In order not to delay you further on that point, I will move swiftly on to annuities.

Annuities matter. We are in a new world, as the Minister said, because we are living longer and we need more options. There is more to annuities than simply a need for more competition, choice and help, although that is important and the code of conduct from the Association of British Insurers is a promising start. I agree with the Minister, though, that we should go further. At the heart of the matter is transferability—being able to trade annuities at different periods of life when different circumstances crop up and when there is different pricing in the marketplace. What we certainly do not want is a single product solution. I was lobbied heavily at the Conservative party conference by an annuity provider who was keen to impress on me the importance and relevance of their single product solution, but my instinct—I hope that the Minister is with me on this—is that such solutions are precisely what we do not need in the world of annuities.

Those were the six main points I wanted to cover—auto-enrolment, small pots, aggregators, charges, scale and annuities—and I have done so in about seven minutes. There is no need to go on for much longer, but I will try to bring my speech to some sort of rounded conclusion by asking the Minister to note three queries that constituents have raised with me.

The first query, which I think is important for Members across the House, relates to bereavement support payment. It is clearly an emotional issue, as all families who have had to deal with tragedy will understand, particularly when it comes to bereaved children. Winston’s Wish is a charity headquartered in the constituency of the hon. Member for Cheltenham (Martin Horwood), but it has a significant presence in mine. It has made a number of points, not all of which I agree with, but one is that the tax status of bereavement support payment is slightly unclear. I would be grateful if the Minister could say more about that and whether it will be tax-free, because that would be hugely appreciated. Given that the trend of his proposals on bereavement support payment is effectively to increase the amount of money but have it paid for a shorter time, having that payment tax-free would be hugely helpful for families affected. There is a second point from Winston’s Wish that I want to raise with the Minister. I understand that unmarried partners are currently ineligible for BSP, so perhaps he will confirm whether people in civil partnerships are eligible.

The second query from a constituent relates to changes to occupational schemes, which my constituent believes can be done under the Bill without agreement from either members or trustees; currently trustees would have to approve it. My instinct is that long-standing defined benefit schemes, such as that of the major nuclear power operator headquartered in Barnwood in my constituency—formerly British Energy but now EDF Energy—are most unlikely to close without any form of consultation or discussion with members or trustees, but I would be grateful if the Minister would comment on that.

[Steve Webb]

It might benefit the House to know that the measure in the Bill to which my hon. Friend refers is the statutory override, which simply allows employers to recoup the loss of national insurance rebate. The state pension changes imply a change to the national insurance regime, so his constituency employer would lose some money. The Bill simply allows them to recoup that cash and nothing else, for example by changing the accrual rates in the scheme. It is designed to help employers cushion the blow of the loss of the rebates.

[Richard Graham]

I am grateful to the Minister for that clarification. If I understand it correctly, the employer will recoup the cost of the national insurance but nothing else.

[Steve Webb]

indicated assent.

[Richard Graham]

I am glad to see the Minister nodding on that.

[Katy Clark]

Like the hon. Gentleman, I have nuclear power stations in my constituency—Hunterston A, which is being decommissioned, and Hunterston B. Has he, like me, been contacted by numerous employees who are incredibly concerned about the protections that will be taken away from them by this Bill?

[Richard Graham]

That is an interesting point. The answer is yes, but they are not in the hundreds. They come in two types. One type number those who are either still working there and are concerned about possible changes to the defined benefit scheme and exactly the issue I have just gone through with the Minister. I hope that that will be reassuring to the hon. Lady’s constituents as well as to mine.

The second type of person who has been in touch relates to the third constituency query I was going to raise: those members who are covered by the Electricity (Protected Persons) (England and Wales) Pension Regulations 1990. I see the hon. Member for North Ayrshire and Arran (Katy Clark) nodding and suspect that she has been contacted by people in a similar situation. The issue is that their pensions might be affected by changes to their pension schemes to reflect these higher national insurance costs. I understand that the Government have still not responded to their own consultation on whether to exempt protected persons from these changes. The Minister might care to comment on that later. It might be something that the Treasury is involved in, alongside the Department for Work and Pensions, but I think that it would be right to express concern on behalf of some of the pensioners involved. However, I understand that there is an argument that both existing pensioners and current members of a pension scheme should be treated with consistency on that. I raise the issue so that the Minister can respond. Those were the three queries on bereavement, change of occupational schemes—which has been answered—and the protected persons scheme.

In conclusion, what the Government are proposing in the Pensions Bill is important and will make a difference. The changes will enable people to save and that saving will pay. The technical details, which the Minister covered earlier, are important for smoothing out some of the small but niggly details that will affect our constituents in due course.

At the risk of repeating myself, I am disappointed by the approach taken by the shadow Minister, the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East. For him and his party to fall back on a slogan of “consultation not action” really was disappointing; after 86 minutes we would have hoped for a great deal more clarity on his precise proposals. What exactly does he intend to do on charges? In the absence of such clarity, I hope that he and Members from all parties will make substantive contributions to the consultation so that we can agree on the charges, make changes to the annuity details and say with pride to all our constituents that this Pensions Bill will make a difference to all our lives in retirement.

[Caroline Lucas]

I have tabled new clause 12 and amendments 54 and 55 to highlight the need for the Department for Work and Pensions to address the systemic risks posed by climate change and natural resource depletion to pension schemes as a whole, and to suggest some positive solutions.

The Minister has already mentioned the report launched today as part of the new green light campaign by ShareAction, in partnership with the trade unions and environmental groups, which highlights the urgent need for reforms to the pension industry to ensure that it takes greater account of climate and environmental risks. I am glad that the Minister was able to be present to launch it.

Obviously, pension funds use the money paid into them every month to make investments in shares of companies, bonds, properties and other assets, which makes them enormously powerful players in shaping the economy, especially as they have significant investments in fossil fuel companies. However, if we want to keep climate change below dangerous levels, we need pension funds to fund and support a low-carbon economy by, for example, investing in clean technologies and low-carbon infrastructure projects. Moreover, today’s report shows that the UK pension funds have £3 trillion at risk from so-called unusable fossil fuel investments—fossil fuels which, if we are serious about keeping to our climate change commitments, we simply cannot afford to burn. That is a huge threat to the incomes of future pensioners.

In the UK an increasing number of voices are speaking out about the need for pension funds and others to divest themselves of fossil fuel assets. Operation Noah has launched “Bright Now”, a church divestment campaign whose first success came early this month when Quakers in Britain announced that they will disinvest from companies engaged in extracting fossil fuels, which made them the first UK Christian denomination to do so.

UK university students are increasingly engaged in divestment campaigns, as evidenced by the work undertaken by People & Planet. To date, there are 19 active divestment campaigns across the UK, including universities with large endowments: Cambridge, Oxford and Edinburgh.

Looking further afield, 70 of the largest pension funds in the US and the world issued a statement last week setting out their view that major fossil fuel companies may not be as profitable in the future, precisely because of efforts to limit climate change. They are asking for details on how the firms will manage a long-term shift to cleaner energy sources.

Here at Westminster, the recent Business, Innovation and Skills Committee report on the Kay review of the UK equity market and long-term decision making, which was produced earlier this year, recommended that the stewardship code should do more to address environmental, social and governance factors and systemic financial risks, as well as calling for more robust reporting on conflicts of interest.

I agree with the Minister’s comments this morning about the need for a fiduciary duty to consider climate and environmental risks to our pension system and for this to be in the mainstream, first, because that is important to reduce the risks to pension holders themselves, and secondly, in order to harness the huge contribution that pension funds can make to the massive investment that we need in clean energy infrastructure. New clause 12 and amendments 54 and 55 make modest proposals of ways in which the Department could make that happen.

New clause 12 would require the Secretary of State to

“commission an independent review of the implications of climate change and natural resource constraints for the sustainability of private pensions.”

The review should

“consider the implications for long-term investment outcomes for members of work-based pension schemes of potential…systemic risks posed by high levels of exposure to fossil fuels and other carbon-intensive assets…economic and physical impacts of climate change under various climate mitigation scenarios; and…constraints on the availability of non-renewable resources”,

such as food, land and water resources.

That proposal builds on a landmark paper by the actuarial profession that modelled the implication of resource constraints for private pensions and found that, even in the best-case scenario, pension outcomes are likely to be worse than predicted because the industry is not factoring in risks associated with those constraints on food, water and land. In the worst-case scenario, savers in the model of a defined-contribution pension scheme were only half as well off, while the defined-benefit pension scheme became insolvent. The new clause also builds on work by Carbon Tracker on unburnable carbon, which shows that if the aim is to secure long-term returns, divesting from fossil fuel assets would be a pretty sensible thing to do.