Pension Schemes

Thérèse Coffey Excerpts

Thursday 2nd May 2024 Commons Chamber

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

It is a pleasure to speak in this debate, and I congratulate the right hon. Member for Orkney and Shetland (Mr Carmichael) on securing it and the Backbench Business Committee on granting it.

This is an important matter, no matter what age people are. I appreciate that today we are not talking particularly about state pensions, but I call on those on the shadow Front Bench to please desist from this scaremongering about what may be happening with state pensions. All parties have committed to having the triple lock in their election manifestos, and it has worked well. There has been a big uplift in the state pension since 2010. We worked on that with the Liberal Democrats when we were first in coalition and have continued with it, with a couple of exceptional reasons in the pandemic—once when we used primary legislation to ensure that people could get the triple lock, and again when we recognised the unusual situation with covid earnings. We know that pensioners have welcomed the significant increase in their first state pension payment of this tax year, with most of them seeing that significant uplift in the week just gone.

[Stephen Doughty]

The former Secretary of State says we should not be scaremongering, but there are some serious concerns. Does she accept that the Pensions Regulator report said that the mini-Budget of the former Prime Minister, the right hon. Member for South West Norfolk (Elizabeth Truss), contributed to a £425 billion drop in pension fund assets, which has affected every pensioner and every potential pensioner in this country? Will the former Secretary of State not at least accept some responsibility for that?

[Dr Coffey]

I certainly will not accept responsibility for that. I am conscious of the arrangement with the Pension Regulator, but also the situation that happened with liability-driven investments. The Bank of England saw that as a risk in 2018 and did nothing about it. I come back to the fact that the state pension is well trusted and well regarded, and it is scaremongering to suggest anything otherwise.

I am conscious that today we are talking about private pension schemes. In my short time as Secretary of State for Health and Social Care, what came up time and again—this Government addressed it—was the reduction in the lifetime allowance to about £1 million, which the Conservatives had introduced. I appreciate that for many people, it would be a mountain to climb to get to that kind of pension pot, but for doctors, consultants and some nurses, the lifetime allowance was proving a barrier to them continuing to work within the NHS. A sensible approach was taken, and I am pleased we have done that.

One thing that has been constant is the generous tax elements for private pensions. It is why we have had such a successful industry and why there is a difference between us and many other countries around the world in what comes from the state directly and what comes through private pensions. I recognise that the previous Labour Administration put in place the building blocks for auto-enrolment and the creation of the National Employment Savings Trust, and that was a good thing to do. I am pleased that we started that journey just over a decade ago.

Contrary to the predictions, it was good to see how many young people did not opt out. That is a huge success story, and it is why I share with the Chairman of the Select Committee, the right hon. Member for East Ham (Sir Stephen Timms), a keenness to make sure we get on with the consultation to which he referred. I am sure the Minister will answer that point. I appreciate that there will always be concerns about the possible impact on jobs. I get it, and it may be that we need a two-stage consultation: one stage about age and one considering a lower earnings level. It would be good to get on, because everybody realises that the sooner people start, the more they benefit. That is an important part of why auto-enrolment has been such a success.

Another recent change in legislation is the creation of collective defined contribution schemes. Clearly, there is still some interest in those, and Royal Mail is potentially closest to starting one. We should see what we can do to advocate for that model for many institutions. This is a brave comment to make in this speech, but I wonder whether Parliament should lead by example and see whether the Members of Parliament pension scheme should move to this approach. I am conscious that the taxpayer pays for our contributions through the Government and so on, and we have an uncertain career path by becoming Members of Parliament, but where something is good enough for others and we are creating legislation for it, we should consider leading by example and giving some impetus to that new legislative vehicle. I may not be popular for saying that, and I am conscious of how some of the issues with the McCloud judgment and similar matters led to a two-tier system, which has now been rectified. However, that scheme undoubtedly need not be as complex.

I am pleased about the changes that happened in the Treasury, responding to calls from Departments such as the DWP, which led to an opening up through the Mansion House reforms of the consolidation of funds and aspects of super-funds. What we need from pension investment is good returns so that our pensioners will be prosperous—that is ultimately what this is about—and we need to galvanise what we are doing to ensure that.

I am not one of those people who believes that we will be retiring at 75 or whatever—far from it. There is a rational end to that approach. It will not necessarily take courage but it will require some imagination, co-ordination and collaboration to ensure that we have sustainable pension outcomes for the future. That is where we can start to learn from other countries. When I was in the Department for Work and Pensions, I was interested in what is done in Japan. Dare I say, if I end up doing another PhD in the future, it will probably be on how pensions are part-funded in Japan, recognising its ageing demographics? We should recognise that that is the situation in our country, too. We should not be all doom and gloom about this issue. We need to innovate, but we can also look at what others have done to address it.

There is another really important thing. I started work in 1997 for a company called Mars Inc. where—it was little known to me; I did not realise how beneficial this was—I was on a final salary defined-benefit pension scheme with zero contribution. I did not have to contribute a penny. Over time, that did not stay affordable for Mars. I had not appreciated that benefit—I think to some extent that is why auto-enrolment is so successful—but in that job I learned the importance of making sure that employers are careful with how they manage pensions on behalf of employees and the role of the trustees.

We can think back to Robert Maxwell raiding pensions. I know that Mars sold a business to his company, and that went wrong in terms of the pensions. People may not be aware that pensions are not included as part of the TUPE process—they are specifically excluded, recognising how they could limit sensible company mergers and acquisitions—but I am conscious of how people may not really think about that until much later in life.

To return to the reforms and why they are necessary, the trustee is so important. I had hoped that we would have a “year of the trustee” campaign. Although being a trustee is an interesting role to have—I admit that I have never been one, although I have expressed interest in the past—it means being heavily involved in regulation. That could be overwhelming at times for people who may want to be a trustee because they believe in the people they work with and those who worked there before them, as well as being mindful of the future, but who are not necessarily well versed in all the ins and outs.

I know that the fiduciary duty is really drummed into trustees. For defined-contribution schemes in particular—where, candidly, there is no expectation of what the outcome will be—the hammering home of that fiduciary duty has led to a low-risk approach, which has been very low-cost but with very low returns. That is not what we should want. No wonder people are buying other homes and becoming landlords: they see a fixed asset, which they know they can sell in the future and on which they can make a reasonable expectation, whereas people putting money into their pension pots have no huge sense of what that could buy them in the future. We have changed the laws so that people do not have to put everything into an annuity, but it still is a matter of concern. I am conscious that there have been issues with the pensions dashboard, and I hope that the Money and Pensions Service will solve that. Perhaps the Minister can update us on progress in that regard. It is vital that people start to look at that now, not just as they are about to retire.

What are the benefits of the reforms, and why should there be sufficient professional advice? Those intermediary advisers often get significant fees, but still recommend that people go for gilts and pretty low returns. There is a different way. I hope that the reforms will start to be taken up by the industry, which asked for them, in order to take full advantage and recognise the issues ahead. We need to see the impact of the changes in legislation and the variety of consultations. We made the changes to improve prosperity for pensioners now and in future. I would be keen to hear from the Minister if there is any news on market trends in that regard. The local government pension scheme should lead by example. The Government have put greater demand on local government through levelling up, but is vital that we see that change.

There is a second part of pension schemes that is worth raising. I wonder whether Members know just how many trillions of assets there are in UK pensions alone. The answer is about £3 trillion. Organisations such as Make My Money Matter are trying to encourage people to use their future pension pot to ensure we have a thriving planet. I do not agree with the divestment approach, but it is important that companies invested in the energy of today are invested in the energy of the future. Without the support of pension funds, we will not get that necessary investment.

Pensions are a superpower for the prosperity of people and the planet. I was pleased when we introduced the regulations on disclosure of alignment to the Paris agreement. I would like to go further and encourage the Secretary of State to bring forward similar regulations to apply to nature. Work has already started—the Task Force on Climate-related Financial Disclosures made it happen for carbon. I think we were the first in the world to do that, by the way. We can do the same for nature. The Taskforce for Nature-related Financial Disclosures is a good comparison. The International Sustainability Standards Board is looking at that, and we are close to getting that outcome. I appreciate that the Minister may not have considered that recently and he may not be able to respond, but I encourage him to do that. We only have a certain amount of time, although I hope that as science allows us to live longer, we will claim our pensions for longer, so we want to ensure a prosperous future.

On the superpower element, I praise Nest, which has done a great job. It was set up just over a decade ago, and now manages a huge amount of money. There is even room for it to expand through consolidation, which the Pension Protection Fund could also look at. Nest is leading by example. As a pension firm that is starting to invest in the energy of the future with a substantial proportion of its funds, rather than rely on gilts and similar, Nest should be truly celebrated.

Although fiduciary duty must be the No. 1 priority, let us try to get more trustees to recognise that they are responsible for ensuring that the returns from DC schemes are as good as the benefits for members of defined benefit schemes. We need to release the market and protect people as we have done. Pensions being a superpower is not necessarily the sexiest thing to say in this Chamber, but it is one of the most important decisions that we have made in legislation in recent years. We need to continue that momentum.