On a point of order, Mrs Main. It is a pleasure to serve under your chairmanship this warm afternoon. I seek clarification from the Minister. We had a discussion this morning about active member discounts, and the Minister quoted a DWP report and said that only 16% of contract schemes practise AMDs.
I want to get this on the record. I went away and looked at that report, which is entitled “Pension landscape and charging”—it is research report 804 from 2012. What the DWP survey actually records is that 141 employers of the 514 surveyed knew that their members were charged anything at all—we all know that pension schemes have charges. Of those, 16% knew they were charged AMDs. That might be evidence that they are not aware of AMDs, not necessarily that AMDs are absent.
The DWP survey is not based on an analysis of the actual contracts; it is a survey of what employers are aware of. Much of our discussion in this Committee has been about information asymmetries in pensions. No quantitative information was required from contract providers. Only 141 of 514 employers surveyed realised that members paid any charges at all as a percentage of the fund. The figure of 16% for AMDs is drawn from the minority of 141 employers who had any knowledge of charges.
I should add—I am sure the Minister is aware of this—that the 141 companies that knew there were charges tended to be bigger employers. The smaller employers in particular were not aware of charges. In the qualitative evidence in the report, one provider revealed that of the schemes written in 2011, 85% opted for the active member discount or the deferred member penalty. That is from the qualitative interviews with providers.
This is tricky stuff, and I am not suggesting the Minister did anything other than give the facts as he was aware of them. However, it highlights the need for the DWP to get real data from providers, and not rely on conjecture and such surveys. This point will also be relevant to clause 35. I thank the Committee for letting me make that point of order.
I was talking about active member discounts before we concluded this morning. The issue is about whether there is a detriment to people, which will not necessarily be cured by the proposed changes.
Which? calculated that increased charges for deferred members could potentially reduce pension income by about 25%, which is very significant. That is not to say it will happen in every case, but any additional charge will have an impact on the pot that people grow and, in turn, the size of annuity they can buy with it. It is an important and significant matter that affects the pensions that people receive.
When this matter was raised before the Select Committee on Work and Pensions, it was significant that many witnesses, including witnesses from the pensions industry, came out strongly against the practice of higher charges. When the Minister gave evidence to the Select Committee, he said that he would not rule out a ban, but the Government had no plans to ban active member discounts. His view was that automatic transfer, which is what we are dealing with in this part of the Bill, should take care of the problem because there would be fewer deferred members. That in part also depends on the decisions that are made about automatic transfers, which we have also been discussing, the discussion about what level automatic transfers should kick in at, and whether there should be only 2,000 as has been suggested, or a higher level. There is also the question of the type of transfer that would take place.
Scottish Life made a statement to the Select Committee. It took the view that if the Government were to allow active member discounts to continue, there was a risk that companies that were still determined to use them in some shape or form, would simply find other ways to recoup the potential loss, possibly by passing the costs on to those deferred people who did not get a transfer or were not part of the automatic transfer process. Scottish Life thought that the Government should act to remove that altogether rather than to rely on the automatic transfer to solve the problem for them.
Based on that evidence, the Select Committee made a strong recommendation. Like all these recommendations it was unanimous, but it was unanimous on the basis of a strong body of evidence. We thought that the use of active member discounts had the potential to reduce significantly the amount of money available to people in retirement and that we had not had any convincing evidence for retaining the charges. The Select Committee recommended:
“Despite the Government’s assertion that its “pot follows member” approach for dealing with small pension pot transfers will take care of the problem of active member discounts, we believe that people who do not have their pots automatically transferred also need to be protected… We recommend that the Government bans the use of active member discounts without delay”.
That is a fairly strong recommendation. The belief that everything will be dealt with by this clause and that automatic transfer will resolve the problem is not the case. I ask the Minister to address the matter again.
Good afternoon, Mrs Main. I recalled earlier on that the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East, like me, used to be an academic. We academics think in 55-minute lectures. So we had a double lecture this morning. It was on amendment 17 which takes out the requirement that the automatic transfer goes to a scheme of which someone is an active member. That was the nub of the issue. The hon. Gentleman’s very full contribution enabled us to tease out a bit more the alternative proposition. The Government, quite properly, must set out what they plan to do. If the Opposition have an alternative model it is sometimes helpful to know what it is. For the first time this afternoon we started to understand what the Opposition proposition is. By the end of the hon. Gentleman’s contribution I was far less convinced of the merits of his case than I was at the start.
The Bill provides that as people change jobs their pot, by default, follows with them as long as it is less than £10,000. As far as I can understand it, his proposition was that the dormant pots of everyone should go to an aggregator with no pot size limit. The model he has in mind which his friends the NAPF supports is a small number of very large providers. The analogy I drew deliberately is with the energy market. We have essentially a very concentrated energy market. If we delete “pensions” and insert “energy” we could make all the same arguments. What we need is a small number of big providers. They will compete vigorously. Costs will be driven down. We do not want it to be small scale. Generating electricity is not a cottage industry, one might say. Would not that be a really good outcome for consumers? I kind of think it would not. Having a market dominated by a small number of very big providers who get on with each other, shall we say, would not necessarily be the best outcome for consumers.
The problem I have with the hon. Gentleman’s model is that he does not just want aggregators, which could themselves unbalance the market, he wants vast swathes of historical pension saving all to be shovelled into these aggregators. His point is that that scale is great but what he does not seem to see is the other end of that which is all the pension schemes from which money is taken which then become sub-scale and bad value for money for the people who are left in them. He sees the scale where the money ends up but he does not see the loss of scale where the money has come from.
There is a lot already in what the Minister says. II will try to be brief. The Minister makes a comparison with the energy market; however, to clarify, when I was talking about scale I meant the scheme side. It is very difficult to compare the energy market to the pensions market, as his hon. Friend the Member for Warrington South (David Mowat) has made clear on numerous occasions. In the energy market the individual buys the energy; with an occupational pension the employer buys the product, or the pension. What I am suggesting is that we have scale on the provider side: there are about a dozen big pensions providers. What we do not have is scale on the member side, given that we have hundreds of thousands of pension schemes.
It is interesting that the Minister mentioned unbalancing. I would say that the market is unbalanced at the moment, because we have a smallish number of big pension providers and hundreds of thousands of schemes that are meant to protect the interest of the member. Does the Minister think that the analogy works, given that in occupational pensions it is not the consumer who buys the pension?
In the hon. Gentleman’s world of a small number of aggregators, people will presumably choose where they put their historic pension pots. I assume that he is not suggesting that my entire lifetime legacy pension pots will just be randomly assigned to some provider, but that I will choose. In that market I am a consumer who has a very small number of places from which to choose; so it is analogous with the electricity market.
Would the model proposed of forcing very large numbers of people to transfer their savings in current private providers into a small number of huge aggregators not have certain attractions, if one intended it as the prelude to nationalisation?
It would certainly be ripe for a future Government that was interested in that approach. I have no idea which wing of the Labour party the hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East comes from, but he does come from Glasgow; I do not know whether that tells us anything. However, I do not imagine that that is where he is coming from—let me put it like that.
We will come back to the £10,000 pot-size limit that we envisage. However, when the hon. Gentleman suggested that we should be interested in all dormant pots, not just smaller ones, he is suggesting that the whole of the dormant pots should end up in aggregators, unless someone opts out of that. We think that by the time we get to 2050, or whenever it is that this has been up and running for a generation, the amount of money in those dormant pension pots will be of the order of £0.75 trillion. That is £0.75 trillion in stranded pension pots in today’s money. Call me old-fashioned, but even though I have been in pensions for a little while now, I still think that £0.75 trillion is soon going to get to serious money. My worry is that, if we have a system whereby all of that ends up in the hands of a relatively small number of aggregators—to use the hon. Gentleman’s phrase—that will not serve the interest of all the other providers.
The hon. Gentleman envisages a situation in which, for instance, I leave a firm; I am in their workplace pension scheme; and by default, the money that I leave behind, no matter how much, goes to some third-party scheme. However, what about the people who remain in the scheme that I have just left? They are now in a smaller pension scheme, given that everybody who leaves takes their money with them. Therefore the firm, particularly if it is in a difficult industrial sector and perhaps is shrinking, is losing scale. Everybody who has left has the same fixed costs of a scheme, but those left behind face higher charges. Scale is great if you benefit from it, but if all we do is shunt all the money to two or three people, how does that benefit the consumer? I am sure that you would love to be one of those two or three people, but what if you are not?
I thank the Minister for giving way again. I was interested to hear him set out how the kind of architecture he is thinking about has developed. I take him up on the point about losing scale as things stand. This is the big point of difference between us. I look at the pensions market and see how fragmented this aggregated market is, with hundreds of thousands of schemes representing employees. I am not talking about the providers, who have scale. The Minister’s argument is that that this would reduce scale in x, y and z. As things stand, does he agree that the UK pensions market is fragmented?
I do, actually. However it is becoming significantly less so. I was not aware of the recent trends until I looked into this. Let me give him a feel of that. In the last three years, from 2009 to 2012, the number of small and medium-sized occupational DC schemes fell by a third. The number of micro-schemes fell by a fifth, from 45,000 to 36,000, whereas the number of large schemes remained relatively stable. So for obvious reasons, consolidation is happening. On the other side of the coin, over half of the active members of private sector occupational DC schemes a couple of years ago were in schemes of 10,000 or more.
This is a classic case of picking the figures depending on what argument you want to make. If you want to say the market is fragmented you say there are lots of schemes. If you want to say that it is concentrated, you say that most people are in big schemes. Of course, both are true.
An hon. Friend quite rightly says: “Mean or median?” As I said, over half—the median person—is in a scheme of more than 10,000 members. There is a long tail on distribution, I do not dispute that for a second. Some of these are what you might call top-hat schemes, very small firms just set up for the director or something like that. I am not sure that these are what we are actually interested in.
Some consolidation is going on, but there is an awfully long way to go. My worry is that the hon. Gentleman actively wants to manage the pensions market down to a very high degree of concentration. That process can go too far.
I will just reiterate this point for the Minister’s benefit. He says that there is a high degree of concentration. We have the provider side and the saver side. I suggest that we need to consolidate the saver side. I am not suggesting it for the provider side. That is already consolidated. We are down to about a dozen major providers. So as the Minister develops the argument and characterises our position, will he bear in mind that when we talk about consolidation, we talk in terms of savers? We need to rebalance in favour of the saver.
It is the case that in the UK the average scheme has around 2,500 members. This is clearly smaller than in other countries, but those trends are changing over time, as I indicated. We are seeing fewer small and medium-sized schemes and fewer micro-schemes, whereas the number of larger schemes stays about the same. So there are trends towards consolidation going on.
To rewind: clause 29 paves the way for our proposed “pot follows member” model. Amendment 17 says that the pot should not follow the member, it should go somewhere else. One word that the hon. Gentleman did not use at all this morning—and there were not many of those—was “engagement”. The paradox of automatic enrolment is that it is built around inertia. By doing nothing, you end up in a pension. Inertia is great, but it is also a problem, because if we do not just want people in pension saving but engaging with their pensions, building more and the rest of it, we want them to engage.
The problem with not doing “pot follows member” is that when you leave a firm, your pension pot goes somewhere else, to a provider with whom you have no relationship and who possibly you did not choose. You then have a pension with your current provider and probably have other legacy pots too, unless you are in the bizarre and extreme version that the hon. Gentleman describes, where every legacy pot is shoved into one place, which is extraordinary. You then end up with more fragmentation than if the money goes with you. You also end up with less engagement.
That is crucial, because if the money goes with you, your pension accumulates where you are, with the firm you are with, which puts money into your pension. You will be far more engaged with a single correspondence from a single pension provider linked to your current employer, which perhaps in some large work forces comes into the workplace. That is engaged pension saving. Shunting things off to some super trust that people have never heard of and never chosen is a different business.
The Minister is beginning to set out the advantages, as he sees them, of pot follows member. Will he comment on the DWP evidence that shows that, under the Government’s proposals, by 2050 86% of people will still have more than one pension pot? He said that he wanted to reduce fragmentation, but is that the case?
It is absolutely the case that our proposals will radically reduce fragmentation, but if there is a pot-size limit of any sort, there will be times when people work for a firm for a long period and build up a pot in excess of that amount. Let me address that issue on two fronts.
First, the hon. Gentleman said that we compared unfairly the £2,000 pot-size limit for the single aggregator with a limit of £10,000 for pot follows member. He seems to be the sort of man who would read impact assessments, so he will have read that we looked at different thresholds: £2,000, £5,000, £10,000 and £20,000 for the pot follows member model. Comparing like with like, with £2,000 on pot follows member and £2,000 on the aggregator, there is still substantially more consolidation with pot follows member.
We compared £2,000 for the single aggregator with £10,000 for pot follows member because we simply do not believe that we could have a single aggregator with a high pot-size limit and I do not think that that is the hon. Gentleman’s policy, either. That is because, to give the Committee a new number—it always likes a new number—owing to the size of transfers, we think that, if there was a single aggregator, once the system is up and running, it would take between £7.5 billion and £10 billion of small pots each year, over and above any other regular business that it had. Imagine that over a decade: there is one provider in the market that, if we had a £10,000 pot-size limit, will suddenly have got £100 billion from everybody else’s pension schemes.
I am listening carefully to the Minister. Am I right in saying that DWP undertook to model an aggregator system on the basis of a single aggregator with a £2,000 limit, rather than a system of several aggregators, and that that was done as opposed to pot follows member with a £10,000 limit? Is that fair?
That is right, except for the last part. We looked at four different thresholds for pot follows member, including £2,000, so we did compare like with like. It is stating the blindingly obvious: if a person goes from their first employer to their second employer, in scenario one, their pot goes with them and they have one pension pot. In the hon. Gentleman’s model, the first pension pot is shunted off to somebody else and they have a pension with their second employer, so they have two pots. Therefore, by definition, pot follows member will reduce the number of pots that people have.
I take it as a compliment that the Minister says that he thinks that I am the kind of man who would read the impact assessments. When he modelled pot follows member at £2,000 versus a single aggregator at £2,000, what was the number of stranded pots for pot follows member? We know the figure for £10,000, but how many pots were there if we fairly apply the £2,000 limit in the modelling?
Obviously, the hon. Gentleman already knows the answer to that question. Pot follows member with a £2,000 pot limit would reduce the number of dormant pots by 19%, whereas the aggregator with the same limit reduces that by only 13%. When comparing like with like, it must be true that we would end up with fewer dormant small pots under pot follows member, because there is a chance that people would end up with only one pension pot, whereas in his model, they would always have at least two.
I will give way, but I am aware that we have the whole of the rest of the Bill to discuss. I do not fully understand why the hon. Gentleman is allocating so much time to this amendment and I would not want him to get to the end of Thursday and feel that he did not get proper scrutiny of the other bits of the Bill that he wanted to scrutinise. I will keep on giving way for as long as he wants to intervene, but that will allow less time for the other issues that he may want to raise.
I thank the Minister for those cautionary words. Does he agree that the difference between 19% and 13% is not enormous, and it might well be that, if aggregators have other advantages, that difference is not as significant as it might otherwise be?
First, whereas we can have a £10,000 pot size limit for pot follows member, and that is an entirely credible thing to do, I simply do not believe that, with a single aggregator, you could have a pot size limit of £10,000. It is fine to say that 6% is not that big a number, but whereas with the one model you need a low limit to avoid a massive concentration on a single aggregator, in our model we can have a much higher limit.
To address the hon. Gentleman’s point about the £10,000 limit and about dates, the £10,000 limit is not on the face of the Bill. We looked at a range and took the view that £10,000 struck the right balance, including getting consolidation. He criticised us for not wanting massive upheaval in the pensions industry. We recognise that this is a time of great change, because of automatic enrolment. The industry tells us that it needs the capacity to take millions of people into workplace pensions.
We are being cautioned against going too fast. I must say to the hon. Gentleman that the criticism of us on automatic transfers is not that we are not being comprehensive enough; it is that we are going too far, too fast. His suggestion that the whole of legacy pensions that everyone has built up across the entire industry should suddenly be available to be shunted into a small number of providers is an earthquake. The disruption that that would cause, in particular to all the pension schemes whose members left, would be on a scale he just does not seem to think about or care about. That baffles me.
Does my hon. Friend agree that there seem to be three fundamental issues here? First, the shadow Minister has a focus on large aggregators, whereas I am yet to be convinced by his argument that the consumer—the future pensioner—will benefit. I am worried that he may have been the victim of lobbying by a big pension provider hoping to benefit from a rapid consolidation.
Secondly, the hon. Gentleman said earlier that he was not sure for how many reviews he had called. Mrs Main, you may be interested to hear that I have done some rapid work on a Chinese abacus, as the shadow Minister recommended. He must have heard that I have just been re-elected chairman of the all-party parliamentary group on China. My abacus shows me that he has called for seven reviews, two of which were for every three years from now on, for ever. Therefore it is actually quite hard on an abacus or, indeed, a calculator, to know quite how many reviews he has called for. This could run and run indefinitely.
Thirdly, in essence, the shadow Minister’s position could be seen by some people, although clearly not by any of us in this room, as aiming to ensure that, if the Bill is a great success, he has played a considerable role in that. However, if, on the other hand, it runs into difficulties, he has positioned himself in such a way as to be able to say that he flagged up the concerns, without making any concrete counter proposals worth their weight.
My hon. Friend is right that new clause 10, which we are also considering, is about yet another review. Just to make sure that I do not fail to deal with that point, the review for which new clause 10 calls is within three years of Royal Assent. Assuming, all being well, that we get Royal Assent in early 2014, he wants a review in 2017. Given that we legislate in 2014, and we then produce and consult on regulations, we would complete that process in 2015. We would then set up some sort of infrastructure to do this, so we could easily be talking 2016 before we even start doing it. The suggestion in new clause 10 that we then have a review within about a year of starting seems extraordinary. He will be aware that the NEST review, envisaged in the Pensions Act 2008, was nine years after that legislation went through. I think that calling for a review before something has even started is going some, even by his standards.
I am a little surprised that the Minister says that, but I will not pick up on that point. I want to go back to his statement that he was told that he was going too fast. Could the Minister elaborate a little on where that point of view comes from? Who is saying that he is going too fast on automatic transfers? He left that hanging enigmatically in the air.
I am quite sure that the hon. Gentleman has told us twice that he is an avid reader of the Financial Times. He reads it on a Monday to see the pensions bit, and he reads it on a Saturday, presumably to read “How To Spend It”. I do not know whether he turns straight to that section. He will know from the pensions press that almost whatever we do, there is always someone saying, “Whoa! Hold on. Do not go so far or so fast. Slow down.” He pointed out that there are always voices saying, “Please don’t change anything; we are quite comfortable with the status quo.” He is accusing us of not wanting to shake things up enough, and he said that the DWP had used the disruptive impact of something as a reason not to do it. He urged us to be disruptive, but with this measure, the principal thing that people are saying to us is that we are doing so much stuff, and we should concentrate on auto-enrolment and single tier and park this measure. Either we are going too fast or too slow; I suspect it is not both.
The Minister tries to ascribe both those views to me, but the argument that he is going too fast is not my view. He has mentioned people in the pensions press, but it is a bit unfair to ascribe two views to me when I have been consistent in putting forward only one. Surely it is up to the Minister—I guess this is his position—to assess the submissions and evidence he gets. His view is to find some sort of middle way, and my view is that he should get cracking. It is unfair to ascribe to me a view about going too slowly, which I have not at any stage articulated.
The point I am trying to make is that the hon. Gentleman said in his contribution that he would urge the Department not to hold back from doing something because of its disruptive impact on the pensions market. I was simply trying to make the point that those who do not necessarily support what we are doing think we are being too disruptive. I do not think there is any evidence for the suggestion that we are ultra conservative and cautious and do not want to shake things up.
Perhaps I should make progress. I am happy to give way to the hon. Gentleman in due course.
Earlier, we were trading some points about, “Who have you got on your side and who have we got on our side in this argument?” As ever, I want to bring in the great British people on my side. The hon. Gentleman rather dissed—along with the hon. Member for Edinburgh East, in a surprisingly unpopulist moment—the views of the great British public. I think that I am paraphrasing only ever so slightly when I say that the hon. Lady said, “Pensions are complicated stuff. If you ask them whether they want their money to go with them, they will probably say yes.” She did not quite say this, but I thought I heard her imply, “But what do they know.”
Sheila Gilmore rose—
The point I was trying to make—I am sure that the Minister would agree that it shows no disrespect to anybody—was that a straightforward survey or opinion poll question may not encompass the issues. I quoted some of the evidence we received, and my point was that, without knowing the risks and benefits, it is difficult to make a judgment.
For the record, I should clarify that “diss” originates from Jamaican vernacular English; the Committee should be aware of that.
On the hon. Lady’s point, if we are interested in engaging members of the public who do not “get” pensions, their views on what they want to happen when they change job are pretty important. To dismiss them—if I might use that phrase—on the basis that it is difficult and they might not have thought it through understates the importance of what the public has to say.
For the avoidance of doubt, the public were asked in a consumer survey which of four options they wanted when they changed job: that the pot automatically follows them to the new job, which is “pot follows member”; that the pot moves to a central scheme and a new pot starts with the new employer, which is the position of hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East; that the pot stays where it is, and it is up to the person to move the pot, which is the status quo; or that the pot is visible with all other pension pots at a central place online, which is known, slightly surreally, as a virtual aggregator. I have to say that the Great British public put in fourth place the Opposition’s position: move to a new central scheme and start a new pot with a new employer. In third place was the status quo. In second place—I feel the tension mounting in the room—with 17%, is the option to have all other pension pots visible at a central place online, which is the virtual aggregator. However, with more votes than all the other options put together was the coalition’s position. Given that 58% of the public chose this position, I reassure my hon. Friends that this is a popular policy—we try to slip them in occasionally when no one is looking.
I am grateful to you, Mrs Main.
Obviously, the Labour party has suggested that because the survey was conducted by the ABI, it is somehow a bit dodgy. However, earlier this year, research published by Aviva found that two thirds of employers and employees are supportive of the DWP’s “pot follows member” plans. In fact, John Lawson, the head of corporate benefits, said that that shows that the DWP’s favoured solution is a “hit with the public”. I do kind of think that we are tapping into what the public want, although I apologise that it is not what the Opposition want.
There was a third survey by the hon. Gentleman’s friends, the NAPF, which sponsored his pamphlet. It saw that the ABI had come out with a survey finding that the public wanted this policy, so it asked some leading questions and managed to get very different answers. The NAPF said things like, “Would you like it to be automatically moved to a central scheme that meets certain standards and has low charges, with the option to bring new pots into the scheme when you leave future jobs?” Funnily enough, people kind of liked the idea of their money in a good scheme with low charges and that slightly tilted the balance.
I think that initial survey asked a straight question, but then another organisation with a rather different view asked questions to get the answer that it wanted. My clear sense is that one can ask somebody in the street, “What do want to happen when you change job? Do you want your money to come with you, do you want it to go off somewhere else, or do you want it just left behind?” It is intuitive that people want their money where it is—with them and where they know what is happening to it. If there are issues around the scheme of which they are a member and they have a sponsoring employer, they can do something about it. If we want engagement, which is a word that the hon. Gentleman did not use, the best way to get that is for people to take the money with them.
I am surprised by the way in which the Minister analyses these surveys. Pension charges and charging structures are far too complicated. I have a double maths A-level, an engineering degree and I am a chartered accountant, and I can just about understand this stuff. The majority of people who will be buying these products struggle to understand exactly what they are purchasing and where their hard-earned savings are going. This is not my observation, nor the observation of the Labour party, but the observation of the hon. Member for Warrington South.
Does not the Minister agree with his hon. Friend the Member for Warrington South? If people are asked in a survey by the ABI—we might call it the Minister’s friend, since he is so keen to ascribe the NAPF as my friend—about “pot follows member”, do they understand the issue of active member discounts, exit charges and the other hidden charges that go along with many pension schemes?
Of course, those issues apply equally to the hon. Gentleman’s preferred model as to mine. People are being given the option of where they want to move their money to, and they have expressed a strong preference for moving their money out to the new scheme that they have joined, rather than some third-party scheme. The terms and conditions of the scheme that they are leaving behind, with deferred member charges perhaps applying, would be equally relevant to both.
In a sense, if we say, “People are too stupid to understand all this stuff, so what they say does not matter,” is that not the problem with pensions? We have made it so complicated and difficult that people need, like my hon. Friend for Warrington South, multiple maths degrees or whatever he has, but they should not need all that.
I respect the Minister’s argument. Of course he has a point, but it is utopian to say that a thing should be something when the facts are as they are. We know that, as things stand, people find it difficult to understand the complexity of a pension statement, and there are reasons for that—that is the world we live in. We might all wish that it was different, but that is the world the Minister is living in. Does he not agree, like the hon. Member for Warrington South, that we have to accept that pensions, as things stand, are complicated, and that we have to legislate on that basis, even if we hope in the future that it will be otherwise?
I think the hon. Gentleman is saying that things are complicated and we have to legislate for a complex world, but I am saying that the views of the people who actually end up with these pensions matter a great deal. They may not know the fine print of how pensions work, but they know what they want.
The Minister uses the terminology “fine print”, but when people are facing active member discounts, exit fees and hidden charges, it is not fine print—it is a rip off. Does he not agree?
Mrs Main, you would not have heard the hon. Gentleman describing this morning the scenario of his friend producing a pensions document in which the active member discount was in the fine print, although I will not quibble with him about terminology.
We are trying to get to a situation in which people are automatically enrolled into good-quality pension schemes; in which, when they change jobs, they move from a good-quality pension scheme to another good-quality pension scheme; in which, by default, the money goes with them; in which they accumulate what I have called a big fat pot; in which that big fat pot provides good value for money when they turn it into an annuity; and in which we end the position whereby people have fragmented pots, are not able to buy good-value annuities and lose pensions. The number of people who lose pensions completely is incredible. I often say to members of the public, “Last time you moved house, did you tell all your pension providers your new address?” A lot of people scurry for their handbags and wallets at that point and start writing down, “Note to self—I must do that.” Ideally we need people’s pensions to be in one place, or in as few places as possible.
On the pot size limit, £10,000 gets us going, but £10,000 need not be the end of the story. We have the power to review that limit, and I would have no problem with it being raised in due course. Clearly, however, we want to get things going.
The hon. Gentleman suggested that we cannot do anything about pots created before Royal Assent, but that is not true. Paragraph 1(4)(e) of schedule 16 allows us to prescribe a date from which rights accrue, and that means that we can bring in older pots. Again, we are trying to walk before we run—we are trying to get a system going. Even at £10,000, the steady state might be about a million transfers a year—if we did them all instantaneously—so we should have a sense of scale.
The hon. Gentleman mentioned the IT infrastructure. He seemed to imply that our proposal needs a big, clunking IT system, and that we do not know what the price of it is, whereas his proposal does not. However, how does somebody’s money get from their old scheme to an aggregator? One model would be a sort of carousel system, meaning that whenever a person leaves a job, whichever aggregator’s turn it is gets the pot. That would avoid one aggregator hogging all the money. That system might be fair, but once someone has been allocated to an aggregator, by definition all their aggregation must happen in the same place, so we would need a database to link each person with the aggregator with which they ended up.
That system would be complicated and messy enough—I suspect that it would involve just as much IT infrastructure as our proposals—but the hon. Gentleman’s system goes far beyond that if he does not have a £10,000 limit, and that would be unadvisable. We envisage automatic transfers involving relatively modest amounts ending up, by default, in one big place. However, if he were to take the whole of people’s legacy pension rights without limit, people will need advice, because this is difficult stuff. We envisage a streamlined and automated process consolidating small amounts of money in a worthwhile place without the need for financial advisers and all that kind of stuff.
The hon. Gentleman, however, has an alternative model, and this morning’s sitting was really interesting because the hour and three quarters that he spent describing it enabled us to hear for the first time what that proposal was. It is astonishingly different from what the Bill proposes, and it does not appear to have been thoroughly thought through. Presumably the hon. Gentleman is suggesting that people take all their previous small pots and big pots, and then somehow consolidate them—I am not quite sure how that mechanism would work—in a single place. I was not clear about whether they would be advised to do that.
The Minister builds his argument on an assessment of what people want. Will he confirm that when the DWP’s consultation on improving transfers and dealing with small pots was undertaken in 2012, there was a significant majority in favour of aggregators? Only 21% of those consulted favoured “pot follows member”, while 61% favoured some sort of aggregator. Is that accurate? Is that not what the people want?
No, unless the hon. Gentleman thinks that members of the public generally respond to DWP consultation documents. The percentages he cites overwhelmingly represent pensions organisations, pension providers and people in the industry. A very modest number of members of the public respond to such surveys. Experts certainly responded to the consultation, and of those who expressed a specific preference—for “pot follows member”, a single aggregator or a multiple aggregator—fewer people explicitly backed a multiple aggregator than backed “pot follows member”.
I think that intervention is rather beneath the hon. Gentleman. We undertake complex, sophisticated, technical consultations to which people who understand the fine print of pensions respond. If he looks at the list of respondents, it would be his friends and mine: pension providers, employers organisations, trade unions and so on. I genuinely do not know how many members of the public responded—I might be just about to remember—but only a handful of members of the public respond to DWP consultations, rip-roaring reads though they are. We therefore complement that technical, sophisticated consultation with finding out what the public think, which is entirely appropriate. The reason why the hon. Gentleman is so defensive is that the public have voted clearly for what they want, but he is trying to suggest that their views do not matter.
I would not say that I am defensive at all. The DWP’s survey on improving transfers and dealing with small pots showed that one in five people—21%—supported “pot follows member”. It seems that the Minister prefers the survey by our friends the ABI, which of course has an interest in the process. Surely the Government’s own survey is the most important and impartial document.
That is an absurd comparison. Mysteriously, I now have the list of respondents, so the Committee may note how many names of members of the public are on the list: Aegon, Age UK, Alexander Forbes financial services, Altus, Aon Hewitt, the ABI, the Association of Consulting Actuaries, the Association of Pension Lawyers, Aviva—that is just the As. I did not notice any members of the public. The idea that the consultation is our opinion poll saying one thing, while the ABI survey says something else, is nonsense. When the public were asked for a simple response to a simple question, their views were quite clear.
The hon. Gentleman is right to say that, in response to our consultation, there was a wide range of views. The choice is not “pot follows member” or aggregator. The aggregator is not one proposition, but many propositions, and I imagine that the hon. Gentleman’s proposition would get 0% support, given that the version he described this morning involved unlimited pot sizes and everyone consolidating into a handful of providers. He and I spend our time talking to a range of what are loosely called stakeholders, and I have never heard anyone advocating his proposal.
This is a little puzzling. We have three surveys. The DWP’s survey shows a fifth of people supporting “pot follows member” and a majority for the aggregator. The NAPF survey shows support for an aggregator. However, the Minister decides to focus entirely on the support for his proposal in the ABI survey. I do not understand why he dismisses his survey and the NAPF’s, but favours the ABI survey.
The hon. Gentleman uses the word “survey” to describe two totally different things. When the Government produce a complex technical document, with lots of analysis, charts, facts and figures, we are not asking the general public to reply to it—although they are welcome to. It is not a survey of the general public.
The hon. Gentleman is right to say that about one in five of the people who replied to our consultation liked “pot follows member”; I accept that. Interestingly, I spoke only this week to a group of senior industry figures, a number of whom said to me, “Actually, to be honest, Steve, we wouldn’t reply the same way now as we did then.” Things are moving on. People are changing their views and realising that this is going to happen; and as a result, recognising the direction of travel, they can see the sense of the approach.
The hon. Gentleman has intervened many times, saying, “You are ignoring this survey and counting that one”; but they are not the same thing. The key point is that the responses to our consultation—not our survey, but our consultation—were fragmented. It is not the case that if one person favours a multiple aggregator and someone else favours a single aggregator, they are both advocating the same thing: they are not. Although the responses were fragmented, the one almost unanimous conclusion that people came to was that the previous Government’s failure to address the issue at all was absolutely what we needed to do something about.
My hon. Friend is absolutely right to highlight the tragic fact that, despite the interesting comments from the shadow Minister, during the 13 years that Labour was in power, with 13 different Pensions Ministers, none of these crucial aspects were tackled, although some ideas were put forward.
New clause 10—a bit like a fund of funds, it is a review of reviews—calls for a review of the entirety of clause 29, and presumably of the other reviews proposed. Does my hon. Friend agree that there are other ways than endless reviews to respond to the imperfections that will inevitably emerge from any Bill, including this one? A good example of one way to tackle those imperfections is precisely my hon. Friend’s response to the call for evidence on the annual contribution limit and transfer restrictions in NEST. That is an excellent example of how Government can respond at short notice, and I hope my hon. Friend will take that point up.
My hon. Friend is quite right: he has given a classic example of preparing a consultation document, listening carefully—not asking solely the public for advice on technical matters—and coming up with a recommendation that has been widely welcomed.
The shadow Minister is asking for a lot more detail in the Bill on “pot follows member” when in fact everyone involved in this process has welcomed the Bill’s flexibility. They do not want us to box ourselves into a specific and narrow model. To be fair, the hon. Gentleman at one point said that it was good that the Bill gives flexibility. However, it does not give the flexibility he thinks it does: it does not provide for an aggregator as an option, and schedule 16 is quite clear on that. His amendment would not do the job: it would be out of kilter with the schedule, which is entirely premised on a “pot follows member” model. The schedule refers to the scheme that passes the money out, the scheme that takes the money in and the sort of transfers that have to happen. The amendment would change only clause 29, which would not deliver his aim. If we accepted it, we would end up with an internally inconsistent Bill. If the hon. Gentleman returns to this issue at a later stage, he will have to do a lot more work.
I will look again at the matter. What the Minister has said is not my understanding, which is that deleting
“of which the person is an active member” from the clause enables a system of automatic transfer into aggregators to proceed. However, to clarify something for the Minister so that we are not talking at cross purposes, the deletion I am proposing would be required to allow the current or a future Secretary of State to use this legislation to move from “pot follows member”—my assumption being that that is what the Minister will legislate for—to an aggregator without a new Bill.
To which my answer is, “But it wouldn’t.” It opens up the scope of clause 29 alone; provisions in schedule 16 relating to the definition of a qualifying member and an automatic transfer scheme would have to be broadened in a similar manner, as they refer to the member being an active member of the scheme. The hon. Gentleman would have to set about schedule 16 as well. For the avoidance of doubt, the Bill does not provide for an aggregator and, as it stands, does not provide the legal framework to allow us to morph one thing into the other.
The regulations that follow from “pot follows member” will be subject to considerable parliamentary scrutiny next year, because we accept that the full details are not in the Bill. By way of analogy, one thing we have found with automatic enrolment is that if too much detail is put in a Bill, when something changes, the system no longer fits, which leads to a lot more trouble. With automatic enrolment, far too much detail was probably put in the Bill at the time. With this Bill, we are trying to give the legal framework; we will then consult on regulations and have Parliament debate them, and then move with some flexibility. That approach has been welcomed.
The hon. Gentleman mentioned Australia. He is a great fan of the Australian pensions system, as, indeed, are many of us: they have done a good job in Australia. The Australians would accept, however, that they got one thing wrong: not dealing with the issue of stranded pots and consolidation. The hon. Gentleman and I met the former senator, Nick Sherry, who is widely respected for his role in the Australian scheme. The Australians are now doing “pot follows member”. They have taken the view that the best way to deal with the problem is to have the money going with people. When it suits the Opposition, they quote the Australians, but when the Australians agree with us, they go quiet.
On 7 November last year, Nick Sherry said of pot follows member:
“It’s the only practical way. It’s better off that it’s in”— the worker’s—
“last account, which is why I think it’s the only practical solution.”
Does the Minister not agree that Australia is in a very different situation? The argument against “pot follows member” is that as things stand, we do not have any clarity on the quality criteria we would need to meet to ensure that someone could not be defaulted into an inferior scheme. The Australians have already undertaken the reforms necessary to ensure that someone cannot be defaulted into an inferior scheme. Is that accurate?
To be clear, the hon. Gentleman mentioned in his speech the consultation document that we published this month: “Quality standards in workplace defined contribution pension schemes”. We will be publishing a similar document once the Office of Fair Trading has concluded its work. It will include measures on charges, including consulting on a charge account. It is absolutely clear to me that we will not do what the previous Government did, which was to put in place auto-enrolment without quality standards.
I would summarise amendments 17 and 9, and various amendments we have yet to come to, as a long list of things that the hon. Gentleman thinks the previous Government should have done but did not, and that we now ought to do. I agree. We need quality standards and action on charging, on scale and on stranded pots. He is absolutely right repeatedly to point out all the gaps the previous Government left on automatic enrolment, and I am proud that this Bill is progressively dealing with them. Quality, which we will come on to substantively in the next group of amendments, is absolutely something that we will deal with.
Amendment 17 proposes that people’s money does not go with them but goes off somewhere else, possibly with very large amounts going to a small number of aggregators, but that is not a model I have heard anybody advocate. We take the view that most people want their money to go with them, which means they get more consolidation. We do not need to review this in 2017, when it has perhaps been up and running for only a year or so, so new clause 10 is a more otiose review than many of the other reviews proposed by the hon. Gentleman. Amendment 17 does not in fact work, because we would need to change schedule 16 as well. On that basis, I urge him to withdraw his amendment.
I listened very carefully to what the Minister said. He began, interestingly, with his criticisms of the aggregator model and why he favoured “pot follows member”. His most striking point was on surveys, of which we have three: the ABI’s, the NAPF’s and his own Department’s. Of those three, only one—the ABI’s—supports the Minister’s position, and that is the one he focuses on. That in itself is striking. He makes references to my “friends” in the NAPF. I am pleased to say that I do consider the people at the NAPF to be friends of mine. I consider the ABI to be a friend—it is a politician’s job to listen to all stakeholders. I am surprised that the Minister comes down on the side of the ABI survey, rather than his own or the NAPF’s.
It is important to make two points. First, the Minister tried to characterise the NAPF survey as having leading questions. It actually explained to people what “pot follows member” and “aggregators” mean. The ABI survey did not do that at all. Secondly, I asked about the modelling on the £2,000 limit for a single aggregator, versus a £10,000 limit for “pot follows member”. The Department has done that modelling, but why did it not model multiple aggregators? Its own survey showed significant support for that within the pensions landscape, yet we have only two sets of figures. One does not need to be a statistician to have a nose for the fact that that will probably lead to an unrepresentative set of numbers. The Minister said that the previous Government should have done x, y and z. That may be so, but he has been in post for three years now and it is in his gift to go down what the Opposition believe is the appropriate route.
The Minister seems to get a little testy during interventions. I am just trying to clarify these points with him. I welcome the fact that he wants to move down the automatic route, and he is right to do so, but it seems that he wants to characterise our position as moving too quickly towards a balanced market. I am happy to say that the pensions market needs significant reform, and I am not alone in saying that. I stand with the Centre for Policy Studies and some of the Minister’s colleagues, particularly the hon. Member for Warrington South. It is not just me and the rest of the Labour party who are saying this.
The Minister wondered in passing what wing of the Labour party I come from, pointing out, however, that I do come from Glasgow; I am not quite sure what wing that places someone on. I repeatedly mentioned the Centre for Policy Studies and the Minister’s colleagues because if he believes in a functioning market and wants people to have a good deal, it is not an issue of left or right; it is an issue of right and wrong. All we are seeking to do is to coax the Minister faster down what we believe is the right route. I therefore intend to press the amendment to a Division.
With this it will be convenient to discuss the following:
‘and to set out quality requirements in relation to such accounts.’.
Amendment 11, in schedule 16, page 88, line 34, leave out ‘may’ and insert ‘shall’.
Amendment 12, in schedule 16, page 88, line 38, at end insert—
‘(c) other aspects relating to the quality and good standing of the scheme.’.
Amendment 13, in schedule 16, page 90, line 20, at end insert—
‘(3A) The regulations must provide for quality requirements in relation to governance, administration and other relevant matters relating to the quality and good standing of the merged account.’.
Well, my favourite part of clause 29. We are getting even more granular.
Our justification for amendment 9 is that clause 29 splits the Secretary of State’s power to require automatic transfer, so that it applies first to cash and then to assets, an issue raised by the hon. Member for Gloucester. The amendment simply requires that the quality requirements apply when cash is transferred. Our amendment would clarify that when the cash equivalent of benefits is transferred, automatic transfer schemes “must” rather than “may” have quality requirements. We are pressing the Government a bit further—it is no more complicated than that.
The justification for the change proposed in amendment 10 is that it would add a quality requirement where assets are automatically transferred. That would tidy things up and make matters straightforward to understand. It would be clear that a quality requirement would apply in those situations.
Amendment 11 would leave out “may” and insert “shall”. We know that people’s savings will be automatically transferred into these schemes. There should be a duty, not an option, on the Secretary of State to establish quality requirements.
Amendment 12 would insert
“(c) other aspects relating to the quality and good standing of the scheme.”
The amendment would allow the Secretary of State to impose higher standards on schemes into which people’s savings automatically default, on issues in addition to governance and administration.
In terms of quality standards, governance and administration are key, but there are other issues relating to quality. For example, the Minister is consulting on a price cap for auto-enrolment schemes. The amendment would give the Secretary of State the power to set a lower more demanding price cap for automatic transfer aggregator schemes than he might do for all qualifying schemes for automatic enrolment.
We think that is possible. As the Minister will be aware, we argue that aggregators will operate with economies of scale and be able to operate at low cost. If the Minister were minded to set a more demanding price cap for automatic transfer aggregator schemes, that would mean that only schemes operating at economies of scale such that they could meet that more demanding price cap could get into that place. That would ensure that default automatic schemes became scale operators with low costs for savers. I would describe amendment 12 as trying to increase the Secretary of State’s and the Minister’s room for manoeuvre regarding quality in automatic transfer schemes.
Amendment 13 would insert
“(3A) The regulations must provide for quality requirements in relation to governance, administration and other relevant matters relating to the quality and good standing of the merged account.”
That would oblige rather than give an option to the Secretary of State to require automatic transfer companies to respect quality requirements when accounts are merged, rather than simply when a money transfer takes place. It would clarify that automatic transfers involving assets other than cash must be in accounts that meet quality requirements.
I will give the Minister a flavour of our general view of the amendments and why we believe they are necessary. As things stand, the Bill would permit the Secretary of State to add quality requirements to schemes into which people’s pension savings will be automatically defaulted when they change jobs. That goes back to our discussion about what the quality requirements will be. The Minister mentioned that he is consulting on the matter and that there will be further consultation after the OFT reports.
We think the Bill should oblige the Secretary of State to require schemes receiving those pension savings to meet high quality requirements in the various ways in which automatic transfers will take place. We are trying to encourage the Government to ensure that every form of automatic transfer possible has to meet these quality requirements.
I think it was just last week that the DWP published its call for evidence on quality standards and workplace defined-contribution pension schemes. I am pleased that the Government are beginning to move in that direction, as it is important. That reflects a debate that has moved quite significantly in the past year. We would be further encouraged if the Government moved faster—a familiar plea—and were less tentative in their ambitions and less inclined to temper measures that are in our view clearly in the interests of savers and saving.
The Minister understandably remained somewhat enigmatic about those who are telling him not to go so fast. The amendments are about giving the Minister and the Secretary of State the power to face down those interests and to ensure that everyone is getting quality.
There is a danger of violent agreement breaking out. We entirely agree that we need quality in workplace pension provision. We entirely agree that people should automatically be enrolled into workplace pension schemes of sufficient quality. We entirely agree that automatic transfers should be between schemes of requisite quality. Governments do many things because they are the right thing to do—not because an Act of Parliament that will have Royal Assent next Easter will make them do them. We are doing such things.
The hon. Gentleman referred to the call for evidence on quality that we published last week. We have already indicated that we will publish a further document in the autumn that will cover the vexed issue of charges, but we want to do that in the light of the OFT’s work. I know that the hon. Gentleman is keen, as am I, to have the OFT look at such matters, but we have to give it time to do its work before pre-empting it with our conclusions. Changing the law to make us do something so that by next April we have a legal duty to do something that we have already begun to do this summer seems rather unnecessary.
I think the hon. Gentleman has slightly misunderstood one or two things, so I will provide some clarification. He is a bit hung up—I do not mean that at all pejoratively—on “cash”. Just to make it clear, standards will apply to all automatic transfer schemes regardless of the type of assets that may be transferred. Cash is the unit of currency that may be used to transfer value, but standards apply to schemes. There is no distinction between cash and other assets.
We already have powers in the Bill to set standards not just on governance administration, on which we have already consulted, but on charging. We want all schemes to meet the requisite standards, not just aggregators. If we do impose a charge cap, for example, we would want the flexibility to be able to reduce it over time as schemes became more efficient. I said earlier that we need flexibility. Putting everything in detail in the Bill is not the place to do it, but that is the direction of travel in which we are clearly going. I accept the hon. Gentleman’s point about quality.
The hon. Gentleman suggested that we had been “tentative”. I point out to him that we have recently banned consultancy charges. We did not choose the quiet life by restricting them and allowing people to justify them; we just said that if the money is not benefiting scheme members, let us get it out of the system. If firms want to pay for advice, that is fine—let them pay for advice. That was clear, decisive action and it has been widely welcomed in the interests of consumers. Where it is necessary to act quickly and firmly, that is what we have done.
The hon. Gentleman referred to my three years or so in this role, and I hope he will observe the sequencing of what we have done, because it could almost have been planned. The first piece of legislation that I signed my name to was the restoration of the earnings link on the state pension. People campaigned for it for 30 years and the coalition delivered it.
Indeed. I am sure that the record will show that I used the word “coalition” in my remark.
Getting the state pension foundation right for those who have already retired was absolutely the first thing that we had to do. The second was to bed in the automatic enrolment process in time for the 2012 start, so we had a review, “Making automatic enrolment work”, in summer 2010 and we acted on its recommendations in the Pensions Act 2011. Auto-enrolment has duly started, and successfully. The third thing we had to do to underpin automatic enrolment was to get the state pension infrastructure right for the next generation of pensioners, hence this Bill, single tier and all that.
Those are clearly first-order issues, as well as making the system more sustainable through state pension age, but we need to move on to small pots, consolidation, quality standards and so on. There is a logical sequence to the whole thing.
I reassure my hon. Friends that, far from being tentative about these matters, we have been remorselessly and brutally systematic in, first, prioritising those who have already retired; secondly, making sure that auto-enrolment got off to a stunning start, which it has; thirdly, having a state pension system that we can be proud of and that works; and, finally, moving on to the next phases of our agenda.
Unlike in many of our discussions, we are not dealing with a complex matter. The hon. Gentleman wants quality, and we want quality. We plan to regulate and legislate for quality. We do not need a law to make us do so, because we have already started.
I thank the Minister for his response to the amendments. It is absolutely right to ban consultancy charging. The Minister will encounter no disagreement on that from the Opposition, because we welcome the fact that the Government have done it. The Minister said that he was working to a plan that is remorselessly, brutally systematic—that is quite a phrase—and suggested that there was a sequence regarding state pension, auto-enrolment and flat rate.
There is another pertinent story here. The amendments are designed to change “may” to “must” to oblige the Government to do certain things, because in the sphere of private pension reform the Government have been a bit slow off the mark, to put it politely. When Labour first began to look at the matter about a year ago, the Minister’s initial response was to say that we were scaremongering.
The hon. Gentleman has said that twice now, so I would like to clarify this. The Leader of the Opposition, who I do not think discovered high pension charges only a year ago, referred to people charging 4% and cited a scheme that was doing so. It turned out that that scheme was providing superb returns to its members, but he presented those very high charges as though they were somehow typical or illustrative. We are saying that if we want people to accept auto-enrolment into workplace pensions, scaremongering by citing extreme examples as though they were typical is not what we need.
That was an important intervention, because it illustrated some of the differences between our approaches. There is no point quibbling over dates, but I think that the incident we are discussing took place about a year ago. The Minister again used the word “scaremongering” to describe our talking about a 4% charge, but over the past year it has become clear that we often do not know the total cost of a pension. I referred to that earlier when the Minister quoted the 2012 survey of employers. Most employers in that survey have no idea whether they are being charged or not.
As things stand, we simply do not know what people are being charged. I assume that is why the ABI—friends of the Minister’s and mine—are creating a voluntary code of conduct, and why the Investment Management Association, which represents fund managers, is bringing in a voluntary code of conduct on costs and charges. The NAPF—the Minister designates it as my friend, but I am perfectly happy to include him in its affections—is doing the same thing.
The hon. Gentleman is quite right to highlight the difficulty of analysing the exact costs of pension provision, the obscurity within which the language is sometimes wrapped, and the fact that many pensioners as well as many employers will not be able to specify with great clarity the exact costs. Is he in danger of missing the value of what is involved, however? There are two sides to the equation: the cost and the value. I am interested in the fact that, earlier, he was recommending consolidation into a small handful of aggregators where costs would probably be lower, but there would be no clarity or confirmation of the value of the performance generated by those aggregators. Is he in danger of repeating the same mistake on the issue under discussion?
I do not accept that I am making a mistake. The hon. Gentleman accepted that there was an issue in respect of the disclosure of costs. It has been said to me before that we focus too much on cost and not enough on value, unless we know the cost to begin with. We simply do not know the cost.
When people know whether their pension has gone up or down and by how much, in a sense the cost of that is less relevant than the value generated. Will the hon. Gentleman accept that there are two different ways in which to look at a financial consequence?
My view is that, before we can work out the value, we have to know the total cost. The hon. Gentleman made a broader point, when he said that value matters, and I do not disagree. For example, the Australian market is now moving into the debate about value. Do we need a more complicated asset allocation and more higher cost actively managed funds, as we move towards a mature book, when people come into retirement under the new system? I do not disagree with that but, until we can actually clarify the total cost and charges of a pension scheme in the pensions market in the United Kingdom, we cannot take part in a value debate.
If the hon. Gentleman had his pension fund invested in units that rose 10% in value last year, he would know the value of the investments of his future pension. Whether he would know the costs beneath that is not necessarily relevant to his understanding of its value. Does he accept that?
If the hon. Gentleman is saying that everyone should not know the total cost and charges on their pension, I disagree. I have no problem with that. It is perfectly legitimate to disagree. We believe that everything has to be disclosed.
When F. E. Smith was giving evidence at a case some time ago, he was asked by the judge to explain his point. At the end of doing so, the judge said, “Mr Smith, I regret that I am none the wiser,” to which Mr Smith replied, “No, m’lud, but you are much better informed.” Can I leave it at that?
I guess so.
Where was I? [Interruption.] Fortunately, that was a rhetorical question. Before the hon. Gentleman intervened, I was saying that we can sum up the Minister’s position on the amendments. The Minister told us to trust him, and said that he had a plan. He used the terms “the direction of travel”, as well as “remorselessly and brutally systemic”. I love that phrase. We are working to a plan, and we are now discussing the next part of the plan. That is a fair assessment of the Government’s position. If the hon. Gentleman is absolutely adamant that they are going down that route, why not accept the amendments?
We are certainly all enjoying the hon. Gentleman’s contribution, as long as it may be. However, we get the feeling that the amendments tabled by the Opposition are somewhat superfluous. I put it to him that amendment 11, which will change schedule 16(12)(1) from
“The regulations may impose requirements” to the regulations “shall” impose requirements. That does not follow through because he does not want to change the words in paragraph 12 (2), which say:
“The requirements may in particular relate to—
(a) the governance of the scheme;
(b) the administration of the scheme.”
That paragraph gives the Government some flexibility. Why, therefore, does he need to impose on the Bill amendment 12, which says:
“other aspects relating to the quality and good standing of the scheme.’.”?
In not wanting to amend paragraph12(2), he appears to be admitting that the schedule has sufficient flexibility to cover off those other quality aspects. He seems to want to impose some amendments, but not others, and it does not seem to follow through.
That is not my understanding of the amendments. Listening to the hon. Gentleman, I appreciate that he has given the matter some thought. The general thrust of the amendments is to try to get the Government to put into law something that they say they want to do. I do not think that that is an unfair thing to propose. As the Minister says, this is step 4 of his plan. I take him at his word. The consulting charges are an example of it, as are the consultations. We have a difference of view over how important this is and how quickly it has to proceed. Generally speaking, our view is that the amendments put into law something that the Minister is remorselessly, brutally and systematically raring to do. As things stand, we intend to push the amendment to a vote. Let me say finally that the Minister refers to violent agreement on this. I am pleased to hear that if that be the case. We all want to see a pensions market that delivers for savers; that is the goal we are all trying to get to. We think that toughening up the Bill will help the Minister to achieve that, so we will push the amendment to a vote.
I will not detain the Committee unduly on this, because most of the meat of the automatic transfer powers is in schedule 16 to which the clause refers. However, it is worth putting on the record a couple of important observations about how we envisage “pot follows member” working. One is that, if we are not careful, we could have 1 million small pots flying all over the place, following people—stalking them. Clearly, there is a cost associated with that. The hon. Member for Cumbernauld, Kilsyth and Kirkintilloch East referred to some of the big providers—NEST, NOW: Pensions, B&CE, the People’s Pension and so on—and the cost that any transfer mechanism would impose on them. We understand that point and do not wish to cause any more difficulties than are necessary for the proposition.
To be clear, one of the models we are looking at would be that pots would not have to instantaneously follow the member. For example, one option would be that perhaps once every year or two, schemes would look for stranded pots of their current members and pool them all in one go. If someone started with NEST, moved to NOW and came back to NEST, in that scenario, if the pooling together happened a couple of years later, they would never have had to put the money from NEST out to NOW and back to NEST. They would have stayed as a NEST member, their NEST entitlement would stay where it was, and all they would have to do is consolidate the one pension that was with another provider.
In some of the oral evidence it was suggested that there would be vast numbers of transfers going on all the time, every day, with huge costs. The Bill contains practical, sensible provisions that would enable us to ensure that pensions got consolidated soon enough, but without creating nugatory work for schemes. It is worth putting that on the record.
Schedule 16 goes into some detail about the parameters of the “pot follows member” system, which we will come to in a moment. However, I wanted briefly to come back to the issue of quality. The hon. Gentleman essentially said of the auto-transfer stuff that on quality we ought to get a move on. It is worth saying that we are less than 12 months into automatic enrolment. The evidence is that that the schemes into which people are currently being automatically enrolled are of high quality, as far as we can tell. People are being auto-enrolled into the employer’s current scheme or into new schemes at charging levels that we have not seen before and, as the hon. Gentleman says, new entrants are coming in. We do not, therefore, think that we currently have a quality problem with auto-enrolment.
But we could have. Clause 29 provides for an auto-transfer mechanism that will have quality standards for the point at which auto-transfers might happen, which is the point at which we might have a problem with quality. In a sense, my remorseless, brutal, systematic approach is in place precisely because we have prioritised the things that we had to do first: state pension reform and getting automatic enrolment up and running. In a sense, in the early phases, quality is looking after itself in automatic enrolment for big employers. They are shopping around and doing due diligence for their employees, so workers are being enrolled into good quality schemes, but we cannot assume that that will happen.
We absolutely want quality, but rushing it would also be a mistake. For example, if we put in a charge cap too low, there is a danger that we would drive some providers out of the market and have excessive consolidation. If we go too high, we might find people drifting up towards a charge cap and it becomes the new normal. Those are delicate balancing acts. The hon. Gentleman mentioned stakeholder pensions this morning. They came in with a cap at 1%, and eventually 1.5% was regarded as an acceptable cap. We would not dream of that being acceptable now.
As the market evolves, what becomes appropriate evolves, which is another reason for taking a bit of time to get things right rather than going hell for leather. The default position of any Opposition is, “Do more, quicker.” However, Governments that have done more quicker have sometimes lived to regret it. We are looking carefully at the market. The hon. Gentleman mentioned the industry-led initiatives on which we have worked with the industry. Our friends the NAPF, our friends the ABI, our friends the IMA and others have been bringing forward their own initiatives, which we very much welcome, but if such initiatives do not take us to where we need to be, legislation may well be necessary.
Clause 29 paves the way for schedule 16, to which we will return. It is essential to ensure that we have the automatic transfer potential, which is an integral part of our solution to the problem of dormant pension pots. I therefore commend the clause to the Committee.
I am interested, again, in what the Minister said. I would like to pick up on two of his points. First, he said, as he has said on the record a number of times, that he does not think there is a quality problem with auto-enrolment, as things stand. I take that to mean that in the early stages, the big employers are getting good deals from providers. That certainly appears to be the case. However, I do not think the Minister will disagree—he will intervene if I am misrepresenting his position—that that does not tell us much about what will happen with the smaller employers. In his response I think he was anticipating that when he said that it is a delicate balancing act and we have time to get it right before it gets to smaller employers. It is worth putting on the record that there is a big difference between the big blue-chip companies that are enrolling their employees in the new workplace pensions as we speak and the small employers, who will be staging between now and 2017, I believe—the Government have moved back the auto-enrolment staging dates. Therefore, it does not tell us very much.
We know from the survey the Minister quoted, which I dug into a bit more to see what was being said, that smaller employers in particular do not have the pensions resources to get the best possible deal from a provider. That goes back to the broader argument about how to rebalance the pensions system so that those representing the saver—the employers in particular—are at the bargaining table with the providers so they are able to get the best possible deal. Our concern is that the Government have had to be encouraged down that road.
The Minister takes a different view, but in the past year the pressure has built up for action on the private pensions market. This morning I mentioned the report of the Royal Society of Arts on what constitutes a charge, and the report of the pensions institute of the Cass business school, “Caveat venditor”, on the hidden charges that can accrue on a pension. There have been various developments in this debate since then. The most significant in recent months has been the recent OFT announcement. The OFT is currently undertaking an investigation into the private defined contribution pensions market, and the Financial Conduct Authority is looking into the annuities market—the Minister mentioned annuities.
I do not think it is unfair for the Minister to set out his direction of travel and to introduce what he describes as building blocks, as he has done. However, the issue goes back to the assessment of how urgent the need to reform the private pensions market is. If it were just me saying that, that would be one thing, but it is a cross-party issue, and a range of organisations have said that the market does not deliver effectively for the consumer. That is a very important point. I appreciate that the Minister is trying hard to move things along, but, in our opinion, he must go faster.
It is that “trust me” thing. For the Minister, I can entirely understand that. He knows what he wants to do and he is keen to do it. Why can people not see that he is doing all the right things? Things are going to happen, and people should not be so impatient. I absolutely understand that psychology. However, he has to deal with significant vested interests in this space. That is just a fact. It is a big industry. We have sought to ensure that the Minister has more tools at his disposal so he can get his way with parts of the industry that want him to go more slowly than he would otherwise proceed.
The clause sets up the power for an automatic transfer mechanism. That is very important. However, we have significant concerns about the Minister’s preferred route of pot follows member—I know hon. Members would like me to elaborate on what I said this morning about that, but I am afraid I will disappoint them. We do not oppose setting up the power for an automatic transfer mechanism, so on that basis we will not oppose the clause standing part of the Bill.