Pension Schemes Bill (First sitting) Debate
Full Debate: Read Full DebateTorsten Bell
Main Page: Torsten Bell (Labour - Swansea West)Department Debates - View all Torsten Bell's debates with the Department for Work and Pensions
(2 days ago)
Public Bill CommitteesOr, indeed, when they first start to work. As somebody once said, compound interest is the eighth wonder of the world.
Q
Patrick Coyne: Over a number of years, we have worked closely with the Financial Conduct Authority to ensure that when we deliver interventions within the pensions landscape, the outcomes are consistent. One way we have done that is through an update to a joint strategy. We also have almost daily calls with one another to ensure that when we consider interventions and how to enable the system to provide value for money and support people at retirement, we do so in a coherent and comprehensive way. We must really understand the different constituents of our marketplace, whether they be workplace versus non-workplace pensions, or, in the People’s Pension space, pensions analogous to the master trust offer.
Charlotte Clark: To add to Patrick’s point, we meet fairly regularly. There are various different forums and working groups. As you say, Minister, there is that sense that it does not matter where you save. Most people are probably saving in both the contract-based side and the master trust side, given that people have pots in lots of different places. It is important not that people understand where the regulation is, but that the regulation is consistent and there is no arbitrage between the two systems.
Q
Charlotte Clark: The level of that process would be something that we would put into secondary legislation and rules. We would really have to think through what that process looks like.
Patrick Coyne: Yes, absolutely. Implementation is critical here. This will be something that is done with wide consultation with the industry.
Q
The question to the witness is to expand a bit more on that point. In reality, this provides a “comply or explain” power. In terms of the point Charlotte was just making there, it is absolutely right about the ability of the trustees to say, “This is not in the interest of our members.” It might be worth talking a bit about how when we move forward the consultation will allow us to set out how that would work in practice.
Charlotte Clark: It is an area that we would need to work through in terms of the road map. At the moment, our focus is very much on getting the value for money framework right. How the mandation would work and the process around it—as the Minister says, first, we would consult on it. We would have to have a look to see what information was given and how we would monitor it in the period from now to 2030 or 2035. We would have to work through all of those aspects of the process. We would do that in conjunction with the industry, making sure that what we were asking for was information that it could readily provide and that we felt confident that we could make a good assessment around.
Patrick Coyne: Our engagement with the marketplace so far already shows that many are considering investment strategies that have significant proportions of diversified investments, so the market is already responding based on some of the Mansion House accord commitments.
Q
Patrick Coyne: I think that fiduciary duty is a powerful force for good. Across the Bill, this is about giving those trustees the tools for the job. I think there are a number of areas where that is true. Within the value for money framework, at the moment, it is very difficult for employers or schemes to effectively compare performance. As an anecdote, I was speaking to a provider recently. They were pitching for new business. They came in and pitched their investment data, and the employer said, “You’re the third provider today that has shown us they are the top-performing provider.” That cannot be right.
Then, when you are looking across the Bill towards the DB space, because of the funding reality that many schemes are facing at the moment, there is choice in end game options—so, “How do I enhance member outcomes at the same time as securing benefits?” Actually providing a statutory framework for super-funds as another option is a good first step, as is allowing the release of surplus, if it is in the members’ best interests to do so.
Q
Christopher Brooks: We do not work on final salary pensions, so I do not take a view on it.
Q
Christopher Brooks: I think they all work together, so I would say it is a combination of them, but scale seems to be one of the main drivers. I am thinking about NEST in particular, which has been leading the way in terms of investing in private assets. It is able to negotiate a good deal, because of its scale. If you can drive that with similar outcomes across the marketplace, it will be really beneficial to members.
Q
Christopher Brooks: NEST has essentially negotiated with the private finance industry, and is not paying the “two and 20” classic fee structure, so it is not paying the performance fees. It has incorporated it all into its existing charges. If the intention is to drive greater investment in private finance, that is the way to go about it. If that scale is replicated across the industry—across the 15 to 20, or however many, schemes remaining at the end of the consolidation process, which I fully support—then hopefully you would be in a position to replicate those types of outcomes for members across the board, in their DC savings.
Jack Jones: I would say something very similar. As a package, on the DC side, it is scale that potentially has the greatest power. It is probably important to look at the factors that would make sure that the scale results in the changes you want. It is interesting to look at NEST; it has scale, but it also has a business model and governance structure that incentivise it to go and build up its experience in investing in those markets, and to have an understanding of what its fiduciary duty is, which very clearly includes looking at the widest range of assets possible and investing in them. So I think it is scale, as long as you have everything else in place there to make sure that schemes are using that scale in ways that benefit members.
Can I ask for short answers now, please, because we need to move on to other Members.
Colin Clarke: It is an interesting question. It is not something I am a huge expert on, to be honest, and it needs careful thought, because there could potentially be some unforeseen consequences that I have not considered. If there were going to be any suggestions to change any rules in that regard, there would have to be evidence gathered to understand what the potential implications of that would be.
Q
Dale Critchley: Obviously, this is dependent on regulations, but DWP people have been very open in conversations. That has been really welcome, and we have a good picture of where we are headed. We launched a “flex first, fix later” solution called guided retirement. We are now looking at flexing that guided retirement solution to offer different flavours to fit the different cohorts and the amount of risk people can take in terms of fluctuations in their income, dependent upon guaranteed income from elsewhere, or the level of their fund. At one end, you might have a cohort of people who almost need a guarantee. We could go down the route of an annuity, but we are reluctant to do that, because we think that an immediate annuity purchase might put people off. We need to ease people into the idea of an annuity purchase, and that is where we are going. For those people who want more of a guarantee, it might be lower-risk investments and in a drawdown phase for a shorter amount of time. For people who can take more risk, it may be higher-risk investments in the drawdown phase and in drawdown for longer, with an annuity purchase later. That is where our thinking is at the moment.
Q
Dale Critchley: It is the ability to take risk.
Your metric for that is just other income sources plus size of pot?
Dale Critchley: It is those main two at the moment. We are also working with a guy called Shlomo Benartzi, who is a behavioural science expert, to look at the whole concept of defaults in retirement. It is one thing defaulting people into taking £120 a month from their salary; it is a very different thing to say, “I am now going to take the biggest amount of money you have ever seen in your life and use that to purchase an income.” That is what we want to test, because if the default is strong and if inertia works, we will get people moving away from the poor solutions they are choosing at the moment, but if people still think, “Well, I do not like the look of that,” they will go on to make the same poor decisions they are making now, and we will not achieve the policy aim. So we think we need to deliver what is right for customers and members, but also what is attractive to them—so looking at their wants as well as their needs.
Could we have shorter questions and answers? Does Mr Clarke have anything to add?
Colin Clarke: We have been working a lot on the FCA’s targeted support proposals, which are very supportive of the measures proposed in the Bill. We have been doing a lot of research around member segmentation and looking at the different scenarios and outcomes, so potentially going a little bit further than looking just at age and pot value, and also looking at what sort of questions we need to ask people to ensure that they are guided to the solution that is appropriate for them.
I agree with Dale that decumulation defaults and accumulation defaults are completely different things. In accumulation, there is more of a “one size fits all” approach, because it is all about delivering the best returns for members, whereas when you get to decumulation, it is very personalised, and you do not want to put people into something where they cannot change their mind. It needs to be flexible; people have a wide variety of different needs, and we are doing a lot of research on member needs at the moment.