Fabulous. That makes my job much easier.
The Minister began by setting out what new clause 5 does, and he ended by saying that the difference between this side of the Committee and the Government side is over the approach to money purchase schemes, as reflected in the Bill. I want to make a broad observation. We always talk about pensions being too complex and we always hear from all parts of the pensions industry that there is too much regulation. The Minister had a chance to chop down some of the regulatory forest, but adding new clause 5 complicates matters around collective defined contribution schemes when they could have been made much simpler, vis-à-vis our new clause 14.
I will come in detail to what the Minister said, but let me first set out the fundamentals of the argument around governance. Governance is a key thing in a pension scheme. There are many important things, but governance is critical to ensure that savers—members of the pension scheme—get value for money. Let us not forget what the OFT said in its market study: it could not be confident that savers were getting value for money in a contract-based market. It was very clear about that. That is a pretty strong statement from a competition body and it comes when the Government are automatically enrolling millions of people into workplace pensions for the first time.
The reasons are several, but the fundamental reason why the OFT came to its conclusion, as it made clear in its report, is that shareholder interest in contract-based schemes—the interests of shareholders who hold shares in the big contract-based insurance pension companies providing pensions—was predominating over the interests of savers getting value for money. It is not meant to predominate, because we have the Financial Conduct Authority, formerly the Financial Services Authority, regulation about treating the customer fairly, but, in the end, treating the customer fairly is an abstract—a judgment that contract-based schemes make. Given contract schemes’ legal obligation to deliver for shareholders, and in the absence of pensions savers with a strong voice being able to say, “We want to know what our pension charges are and how to compare them with other pension schemes, and we want to be able to make an informed choice about the costs and outcomes of different pension schemes,” that has not happened historically in the pensions market over a long period.
Bearing down on the tension between shareholder and saver interests is key. In a lot of markets, that works perfectly well, because the consumer shops around. There are many examples, and an obvious one is technology: mobile phones, laptops and, increasingly, tablets. Savers are very price sensitive and they can make decisions based on price and quality. Pension savers have found that very difficult to do, because, historically, pension companies have not published enough information, and also, and equally importantly, because the information that they do publish is very hard for an individual saver to understand, unless one is very knowledgeable about investment.
For example, in a debate on the Budget reforms, the Financial Secretary to the Treasury suggested that it is not the Government’s job to interfere in the investment portfolio decisions that individuals make. That was interesting because it spoke to an approach that sees the public as investors in that professionalised sense. Most people have no experience of engaging with financial markets in that deeper sense and we have to recognise that as a starting point for these discussions. The collective provisions in the Bill recognise it because they say that these decisions can be so complex that they have to be entrusted to a range of professionals to make on an individual’s behalf.
As we take the view that there is no simple or obvious way to reconcile that conflict of interest between shareholders and individual savers without trust-based governance, we take the approach that we do in new clause 14. The Minister referred to Chris Curry’s evidence, and he is right—pushed by the Minister, Chris Curry did say that he could not rule out a very good contract-based scheme, but anyone who was listening to Chris Curry would remember that he said that the international evidence strongly suggests that trust is the better approach. Nothing is absolute and finding 100% proof of anything is difficult, but the international evidence, and common sense at some level, should tell one that we are more likely to get tougher, better governance through trustees.
The Minister raised a couple of objections, both fair to some degree but one fairer than the other. The first was the suggestion that we would need many, many trustees because there are so many pension schemes. Our new clause 13 would initiate a response to that problem, but let us not forget that of the 200,000 pension schemes in the UK the vast majority are group personal pensions under the management of four or five—no more than half a dozen—insurance companies. A governance board properly constituted of trustees attached to each one of those major insurance companies would deal with the vast majority of pension schemes in the UK. That is a very important point. Group personal pension is by far the fastest growing form of pension in the UK and most people in the private sector are being enrolled into such pensions. They are individual contracts, but under the auspices of five or six big insurance companies, so a trustee board attached to each of those companies would govern most of the pension schemes in the UK.