New Clause 5 - Duty to act in the best interests of members

Part of Pension Schemes Bill – in a Public Bill Committee at 2:30 pm on 4th November 2014.

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Photo of Gregg McClymont Gregg McClymont Shadow Minister (Work and Pensions) 2:30 pm, 4th November 2014

Let us be clear about what is not disclosed, as that is part of the problem. As the hon. Gentleman said himself, let us not get too technical. However, part of the reason why this has not been  resolved over the years—whoever has held the reins of office—is that it is technical. As I mentioned to the Minister the other day, interest in cash balances held is not disclosed, nor are the costs around foreign exchange trading. Bid-offer spreads are not disclosed and it certainly is not a statutory requirement to do so. [ Interruption. ] If the hon. Gentleman wants to intervene I am delighted to give way.

There is a problem and, as the hon. Gentleman said, it is technical: very few people understand it. It reminds me of the banks. The things that banks were doing were so complex that it was hard to work out whether even the people doing them understood them. There is a need for politicians and regulators to understand what fund management does in managing our pension assets. That is fundamental to this issue. My argument is that the only way to do the best job possible and to get that disclosure in the most efficient form is through trustee governance, because it takes out that conflict of interest. Even then it will not be easy; there are small trust-based schemes that have been overpaying for fund management for a long time. John Gapper and journalists at the Financial Times did a report on that six or seven months ago. Given that it is a very big job, the question is: what is the right way to try to get that information on the balance of the evidence? It seems to me overwhelmingly the case that, while conceding that 100% proof of anything can be hard to get, the balance of evidence internationally and also working from first principles is that trust-based is more likely to do that.

That is the basis for our new clause. We do not think that the duty to treat customers fairly has been delivered over time. There is ample evidence of that, not least in the flurry of official reports on pensions. There is no doubt that things have improved with the newer pensions, but we must bear in mind the fact that we are starting from a low base. Finally, let me put it on record that that is not because people in the contract-based schemes do not want to do the best job possible; it is just that, faced with working in that space, with a priority to maximise shareholder value, and in the absence of competing pressure from the pension saver, inevitably shareholder value is prioritised.

As should be clear from what I have said, our view is that the answer is not to try, wishful thinking-wise, and assume that the individual saver is going to be able to do that. That is why governance is key. It has to be people acting in the saver’s best interests. One of the positive things about this Bill is that it recognises that, in the form of collective pension schemes. That is very important.

We think there is a significant difference of view. We think that trustee governance is simpler—in the context of simplifying the legislation—and overwhelmingly, when one looks at the evidence, more likely to deliver the governance necessary in collective defined contribution schemes. On that basis, we intend to test the opinion of the Committee.