Clause 62
Pensions Bill
5:15 pm
Nigel Waterson (Shadow Minister, Work & Pensions; Eastbourne, Conservative)
My hon. Friend makes an excellent point. Clearly the needs are a matter of judgment for PADA, which hopefully will be stuffed full of the best expertise that money can buy. However, how will members and future members express their preferences? Perhaps the Minister will help us with this point. Can they just write or e-mail in and say, “I would like an emerging economies-based, eastern Caribbean sugar-based, or gold mine-based fund?” How much weight should be attached to such preferences? There might be just a tiny minority of members with an obsession with Bolivian gold or tin mines who try to get a whole fund based on that. However, it is only fair to address their needs because otherwise it puts a kind of brake on their enthusiasm.
I digress slightly, but one of the saddest cases that ever came to my advice surgery was a constituent who had been very badly injured in a car accident. He had been paid compensation through the legal process and had invested every penny in channel tunnel shares, which was a bizarre decision, given that they became worth a fraction of what he paid for them. Obviously, he had not had any advice—not even generic advice.
I was just talking about the support from EHRC. It says:
“The design of a good quality default fund that meets the needs of the majority of the target market is critical.”
We all know in our heart of hearts that the vast majority of funds, and the vast majority of members, will end up in the default fund because, rather like auto-enrolment, it does not involve any conscious decision.
The EHRC goes on to say:
“We think there is a difference between consumers needs and preferences in that an individual may ‘prefer’ to choose a risk averse fund for their saving...but perhaps as a young person with 40 plus years of pension saving ahead of them may ‘need’ to be in a higher risk fund at the beginning of their saving period in order to get the best returns at the end. The structure of the default scheme must reflect these individual needs.”
That is an important point because an element of risk is important. We seem to be turning into a risk-averse society, but high risks often bring high returns. It goes on to say:
“It is also important to have a degree of consumer choice”—
I would agree with that. It says:
“These choices may be based on an individuals’ religion or belief, or their ethical beliefs. A Sharia compliant fund should be part of the basic choice of funds.”
The Minister might wish to give a personal view on that point, but I think that there almost certainly should be a sharia-based compliant fund. Whether that will work out as a good investment in the long term is another matter.
The statement then refers to research carried out by Which?, which
“suggests that consumers could be confused if a large number of funds are available through personal accounts. We believe that managed choice with a limited number of funds, graded by risk is the best option for consumers. If consumers request other options then we believe in order to keep costs down for everyone, they should be expected to pay a fee, as should those who wish to frequently change funds.”
That raises an interesting issue that I will not dwell on now, but although I have not read the PADA consultation on the structure of charging from end to end, I do not think that it touches on that possibility. If people want to go to exotic funds, or to change funds on a regular basis, perhaps they should pay an additional fee.