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So I suppose, Mr Deputy Speaker, that you do not want me to mention the fact that we do not have clarity on the state pension age, either. The Government have already said that they do not have a long-term commitment to the triple lock; we would like to know what their plans are, both on that and, more importantly, for many of our people who work in the most demanding physical jobs, and suffer ill health much earlier in life than those who spend their life behind a desk.
I will not test your patience any further, Mr Deputy Speaker, but we have drifted away from the principles of an effective pension scheme to a muddled view of saving for retirement. Indeed, such is the political hostility towards pensions that they do not get a mention in the latest leaflet produced by the Treasury, “Ways to save in 2017”. There are lots of mentions of different types of individual savings account—cash, junior, help to buy, lifetime and stocks and shares—but not one mention of the word “pension”, or of auto-enrolment.
Although this narrow Bill needs improvement, it is much needed, and we will work with the Government in Committee to help make it fully fit for purpose. Labour is proud of its achievements with auto-enrolment, but we are a long way from finishing the job. The sluggish response of this Government and the last to the development of a regulatory framework for auto-enrolment has left people’s savings at risk for too long. Given what the shadow Secretary of State, my hon. Friend Debbie Abrahams, said, our priorities for improving the Bill should be fairly obvious. There should be transparency: members must know what choices they are making, and how much those choices cost—and I mean all the costs in the investment chain. There seem to be conciliatory thoughts on that on both sides of the Chamber.
We also need improved governance and a pension system in which members are more engaged. I am glad to read in the media and published reports that in many cases the regulators and the Government agree with the Opposition. As I said on
I repeat that members must know how much things cost—they must know how much each investment costs and how much transactions cost. It is not good enough simply to say that a default fund is capped at 0.75% and that people should be content. The industry tells us that it is moving towards greater transparency across all its platforms. We will be pleased to see what it comes up with. I have no doubt that we need to help the industry with appropriate legislation.
In the past, pension fund providers and others involved in fund management have often tried to dodge the issues when asked direct questions about costs, including by saying, “You should be happy to reward performance,” when we know that lower costs give a better net performance. Other hon. Members have spoken about that in the debate. They also say, “We are incentivised to manage costs, so when your funds do well, we get a bigger pay-off,” but we know that 80% of asset manager fees are based on just holding members’ money rather than making it perform well. When people realise that the average compensation of an asset manager, from the most junior to the most senior employee, is £225,000, people have the right to know how they are using the scheme’s money.
The Opposition favour a change in reporting to ensure that pension schemes must report to members on the three headings: administration, investment costs and transaction costs.
I know that the Minister values the cost-collection template, which has been negotiated with the Investment Association by the Local Government Pension Scheme Advisory Board. We must encourage its use by all pension providers. I hope the Minister will confirm his support for such an approach for master trusts.
On member governance, all the investment risk lies with the member and not with the sponsor or the provider. There is an argument to be made that, since the pot belongs to the member and the scheme-sponsoring employer bears no investment risk, governance by scheme members should prevail in number over employers. Some companies choose to operate a trust-based defined-contribution scheme, but most newer auto-enrolled members will not find themselves saving into one. Instead, the vast majority of people will find themselves saving into a master trust or a group personal pension arrangement. In such schemes, member representation on governance boards is far more rare.
We are in a new landscape—we have lost member-nominated trustees, which we had believed to be a clear fiduciary principle. A member perspective adds diversity, which prevents the risk of group-think within boards. Ian Pittaway, chair of the Association of Professional Pension Trustees, has said:
“They’re brilliant in so many areas, they ask difficult questions that other people might be frightened to ask, they’re great on member issues, whether it’s changing benefits of a death-in-service case or something like that.”
In the defined-benefit world, as long as the scheme was well governed and well administered, the member would end up with a reasonable replacement ratio, but in the defined-contribution world, a member’s outcome depends on a host of factors that are currently beyond their control.
There may be resistance to member representation from master trusts, with tens of thousands of schemes and hundreds of thousands or even millions of members, but the industry has proved that it is possible. We will address that more in Committee. Whatever the route to better representation, most in the sector agree that it can only be beneficial for the defined-contribution landscape. There is a clear argument and there are clear demands that the Bill is the best place to start. We look forward to working with the Minister to make it happen.
Yes, we could have debated equally if not more important measures in the Bill, but sadly we are not. It could be many years before we get a chance to pass legislation in those areas. The Bill can both protect and empower the people whose money is being invested on their behalf. The Opposition are therefore happy to see the Bill progress to Committee, where we hope the Minister will be open to the improvements I am sure we can make to the Bill.