Clause 119

Pension Schemes Bill [Lords] – in a Public Bill Committee am 3:15 pm ar 3 Tachwedd 2020.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Inspection of premises

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment) 3:30, 3 Tachwedd 2020

I beg to move amendment 11, in clause 119, page 108, line 20, after “scheme,” insert—

“(iva) the total cost of charges incurred for the administration of the scheme”

This amendment would add information about the total cost of charges incurred for the administration and management of occupational pension schemes to the list of information displayed on the dashboard.

Photo of Laurence Robertson Laurence Robertson Ceidwadwyr, Tewkesbury

With this it will be convenient to discuss

Clause stand part.

Clause 120 stand part.

Amendment 13, in schedule 9, page 179, line 14, after “scheme,” insert—

“(iva) the total cost of charges incurred for the administration of the scheme”

This amendment would add information about the total cost of charges incurred for the administration and management of occupational pension schemes in Northern Ireland to the list of information displayed on the dashboard.

That schedule 9 be the Ninth schedule to the Bill.

Amendment 12, in clause 121, page 112, line 45, after “scheme,” insert—

“(iva) the total cost of charges incurred for the administration of the scheme”

This amendment would add information about the total cost of charges incurred for the administration and management of personal and stakeholder pension schemes to the list of information displayed on the dashboard.

Clause 121 stand part.

Photo of Seema Malhotra Seema Malhotra Shadow Minister (Work and Pensions) (Employment)

I am grateful for the opportunity to speak to amendments 11, 12 and 13, all of which make the same point: that the total cost of charges incurred for the administration of the scheme should be displayed on the dashboard. We believe that this issue is important because the creation of a pensions dashboard creates a real opportunity to introduce much-needed transparency on pensions costs and charges.

Pensions charges can be very difficult to understand or to compare and the lack of transparency can lead to people paying excessive charges without realising it, eroding their hard-earned savings. Improving disclosure in this way is essential for consumers, who need to understand the risks attached to their investments. In a study by Which? carried out in 2019, 300 people were asked for their thoughts on a pensions dashboard. Some 77% said they would be likely to use one. State pension entitlement was the information that 74% of people most wanted to be included. That was followed by projections of total retirement income, 62%; current pension value, 55%; and charges, 54%. Clearly the inclusion of that type of information would be popular with dashboard users and would help people to use their pensions freedoms to protect their savings rather than fall victim to disproportionate charges.

Information about costs and charges is vital if consumers are to use dashboards to understand which pensions they could use to make additional contributions, whether any of their pensions have excessive charges and when making decisions about how to access their pensions using pensions freedoms. Research by PensionBee found that more than 70% of non-advised drawdown customers accessing their pensions paid more than 0.75% in charges, costing them £40 million to £50 million a year extra – more than £175 million since pensions freedoms were introduced. The long-term impact of high costs and charges for income drawdown can be significant and result in people being able to take less income out of their pensions or running out of money more quickly.

Transparency of charges is a particular concern because the DWP appears to have agreed with the arguments of some in the industry that putting costs and charges on the simpler annual statement would confuse people. The result is that instead of being provided with specific information about how they are paid, people would be signposted towards what could be pages and pages of information on charges. Which? has noted that an approach that believes that consumers are best served by not knowing how much they pay for pension scheme services is irreconcilable with the objectives of the pensions freedoms and the expectations placed on consumers in retirement.

It clearly may not be in the interests of commercial providers to make that information transparent, so I end with a question to the Minister. If the Government do not intend to support Labour’s amendment, which at this stage we plan to press to a vote, how will they ensure that people have the information that they need to avoid excessive charges and avoid making decisions that they may come to regret because they did not know about those charges in the first place?

Photo of Angela Eagle Angela Eagle Llafur, Wallasey

I want to briefly add some emphasis to the points made by my hon. Friend the Member for Feltham and Heston from the Front Bench. This is really a battle between those who like to add horrendously high charges, in very small print, and transparency so that people can make decisions in possession of the right kind of information. Surely enabling that transparency is at the heart of what the pensions dashboard is all about. Financial services, particularly things like pensions, have always featured a uniquely complex, difficult and opaque pricing system, which can often eat away significantly at the money that people who are investing can expect to live on when they retire.

Thankfully, trail commission has now been abolished, at least to my knowledge, but it has been replaced with other opaque pricing systems that take people’s money away. The hon. Member for Delyn was right to say that pots that are very small are being eaten away by charges. Most people who put money into pots would have had no real knowledge or understanding of the price of keeping that money there, because it would not have been up front in the information; it would have been hidden away in hundreds or perhaps thousands of pages of tiny print.

The amendments, which I fully support, are all about getting price and cost transparency on the dashboard, which was clearly created to include such information. I will not understand it at all if the Minister has reasons for not doing so.

Photo of Rob Roberts Rob Roberts Ceidwadwyr, Delyn

I rise to speak briefly to amendments 11, 12 and 13. I did not mention it earlier, but the general problem with small pots being eroded away by charges, especially in the auto-enrolment phase, is that many of them have set charges in pounds rather than percentage-based charges. If someone has 10 pots of £1,000 and they all have the same percentage charging structure, the charges will be exactly the same as one scheme with £10,000 in it; what causes the problem is that some schemes have a set charge in pounds per year.

Unfortunately, an awful lot of the time we focus too much on the cost of plans and the impact of charges: the principal-based tail is wagging the outcome-based dog. It is the outcome that is most important, because people cannot spend the principal; they spend the outcome. That is easily illustrated: if scheme A has a 0.5% charge and a return of 5% a year, and scheme B has a 1% charge and a return of 7% a year, scheme B is a better scheme despite having a higher charge. It is not the charging that is important.

The hon. Member for Wallasey mentioned people who will be put off from investing in schemes that are looted and abused in such ways. She was 100% correct; there were many nods on both sides of the Committee Room at the idea that that would put people off. Focusing too much on charges also potentially puts people off. It is worrying and scary, and potentially angers the consumer, who would not understand the figure for the total charges if it is expressed in a significant way. If we say, “Over the lifetime of your plan, you will incur £30,000-worth of charges,” without some kind of explanation or context showing what that relates to, people will see that as excessive and ridiculous.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions)

I do not think it is fair to characterise this as a focus just on charges. New clause 11 contains an idea for how small pots can be managed, in terms of the unintended consequences of automatic enrolment. I struggle to understand the rationale of the hon. Gentlemen’s argument about the lack of transparency being provided to consumers and enabling them to take informed decisions about the plans they enter into. I do not see the logic of suggesting that hiding that or allowing schemes to continue putting it in the small print is beneficial to consumers.

Photo of Rob Roberts Rob Roberts Ceidwadwyr, Delyn

I am not necessarily advocating a lack of transparency; I am advocating a focus on the outcome, rather than on every element of the journey along the way. There are lots of things that we currently do not talk about, in terms of the costs and charges. We look at the costs and charges of the scheme in general, and it is not necessarily a requirement for the costs and charges of the individual funds that make up the scheme to be included in those calculations. There are lots of things that could be included in there, but it is the outcome that is important, not necessarily the minute detail of every element along the way.

Photo of Richard Thomson Richard Thomson Shadow SNP Spokesperson (Business and Industry)

I do not think anyone would disagree that overall it is the outcome that is important, but historically the trouble is that consumers have often been encouraged to look at outcomes that may or may not have been realistic over an extended period of investment, and have not had the full awareness that they ought to have had of the charges. Surely as part of educating the consumer we should be drawing their attention to the charges and helping them to understand them in the context of everything that is important. If we want engaged, informed consumers, surely we should not be telling them not to worry their little heads about the charges; we should be making it transparent and open.

Photo of Rob Roberts Rob Roberts Ceidwadwyr, Delyn

I understand the hon. Gentleman’s point, but it is for the regulator to determine how projections are shown and what information the individual requires to make an informed decision. It does not necessarily belong in primary legislation. It should come later, and the regulator should implement it. I understand that point, but amendments 11, 12 and 13 would all do exactly the same thing: they all focus on the wrong things, when I believe we should be focusing on the outcomes.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

I hope to be able to bring some agreed consensus on this. Colleagues will be aware, because they have read the Bill in great detail, that subsection (2)(a)(iii) on page 108 sets out what pensions information should be provided. It includes

“the rights and obligations that arise or may arise under the scheme”.

It is very much the case that individual costs are already envisaged as being part of the clause and the scheme.

I will explain why I will resist this amendment. First, the context is that it is already in the Bill. Secondly, if I have not made it sufficiently clear in the past, I am happy to make it clear today that we anticipate that costs and charges should be a part of dashboards in the future, but the question is when and how? There is common ground that in the longer term, there should be an understanding of what individuals are being charged for the service they are being provided. There is a much wider debate, which we have tried to have to the best of our ability, about how it is that a pension is run and then the individual is burdened with individual costs, depending on the nature of the different schemes.

I am very clear that, first, I consider the provision otiose because it is already within the confines of the Bill. Secondly, it is the Government’s intention that costs and charges should be part of dashboards in the future. Thirdly, we value transparency. Lord knows I started this morning with the point that simpler statements are being introduced. Contrary to what the hon. Member for Wallasey said, simpler statements will include costs and charges.

The difficulty, however, goes to the fundamental point that we are talking about: the ability to give the precise amount of information on every pension scheme in a standardised format that is accessible and understandable within the amount of space that exists. There is a wider matter that—he will forgive me if I breach a minor confidence—the right hon. Member for East Ham and I have discussed. How do we take a mixed landscape with a variety of small pots and bigger pots—my hon. Friend the Member for Delyn spoke eloquently about different charges resulting from different management of different schemes—and produce a standardised format that is sufficiently comprehensible to all, still allowing a diverse portfolio of different types of pension provision but reducing it all so that it can be understood, whether in a simpler written statement or in the pensions dashboard?

That is a job, I accept, that the Government and/or the regulators, and/or the pensions dashboard delivery group, need to do. There is no dispute that that needs to be done. On the proposal regarding the total cost of charges incurred for the administration of the scheme, my hon. Friend attempted to make the point that administration can mean different things for different pension schemes, which is entirely right. In that context, it is already envisaged within the Bill that we wish to do this, and I do not want such a provision in the Bill at present.

It is also very much the case that there is pre-existing legislation, and ongoing consultations and reviews that are going ahead, on those exact points, which will then drive forward the ultimate determination that the dashboard delivery group will make. For example, we have consulted on the case for standardising the format of cost disclosure information for automatic enrolment schemes, and we will publish our response to that consultation by, I hope, the end of the year.

There is a possibility of delay, because at the same stage we have the costs and charges review, and my Department and the Work and Pensions Committee are looking at small pots. It would seem entirely appropriate to bring those three pieces of work together to try to bring some standardisation and harmonisation to the process—I accept that successive Governments may not have had a brilliant record on this—through which simpler statements and/or dashboards will be much easier to comprehend. I advise the Committee that that process is ongoing.

Photo of Angela Eagle Angela Eagle Llafur, Wallasey 3:45, 3 Tachwedd 2020

I thank the Minister for his full explanation of some of the work that is ongoing, and I appreciate that it is a difficult issue. First, will he give the Committee some idea of the timescale for when we could get that important information into the dashboards? Could he be a bit more specific? Secondly, does he not accept that if standardisation is mandated by the Government, people will adjust and change in order to standardise and be in competition with other providers? It will bring some coherence to what is at the moment an extremely complex and confusing area.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

To answer the second point first, there is already standardisation. There is already the charge cap, which allows a certain limit above which an individual cannot charge any more. That charge cap provides a certain percentage that can be incurred for the work provided. There is an ongoing discussion regarding automatic enrolment. If I have a tiny pot of £100 and that has been eaten away on an ongoing basis, then clearly the charges on an annual basis will slowly eat away into that small pot. If I have a much larger pot and I have a small standardised charged capped price that I am being charged, then it is clearly much easier for the pot to be preserved. How one approaches that going forward is extraordinarily difficult.

There is also the diversity of the products being provided—the point made by my hon. Friend the Member for Delyn—and ensuring that there is that diversity is appropriate. How does one try to balance those two things? That is what we are trying to do, with due respect. When will we do this? It seems to me that there are two answers. It is hoped—I use the word “hoped” given that we are now on 3 November—that by the end of this year, or the beginning of next year, these various pieces of work will come together and the Government will publish their views on them. I have been a little preoccupied with this and there are other things that are going on. The small pots review does not report back to the Department until 23 November.

In addition, the dashboard delivery group is at the same stage looking at this precise point about how it will provide this on an ongoing basis. It published its updated programme a week ago—I will have to do this off the top of my head, and if I have got it wrong I will correct it at a later stage—and its expectation is that it will provide more detail at the beginning of next year as part of what the dashboard will look like.

I come back to one final point. The original dashboard was proposed to be a simple find and view system; it is not proposed that this will have complex overlay at the start.

Photo of Neil Gray Neil Gray Shadow SNP Spokesperson (Work and Pensions)

That is all the more reason why allowing these amendments to be made is so important, to ensure that eventually it is mandatory to provide information and transparency about fees and charges. I do not think that anything the Minister has just said would preclude the amendments being accepted. It is a competitive market, there will be different elements within the market that will offer administrations and charges for different products, and that is their whim and their right. I go back to the point I made to the hon. Member for Delyn. I do not see how we are benefiting the consumer by denying them access to that information at that point of access, which is going to be crucial, and I am yet to hear from the Minister why that cannot happen.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

I should have pointed out that we already have legislation within the occupational pension scheme regulations 2018, which already require trustees to publish detailed information on costs and charges on a publicly available website. Members are told where this information can be found on their annual benefit statements. Obviously, we are doing it on simpler statements as well.

On the specific point raised, the hon. Member for Airdrie and Shotts keeps coming back to different charging structures that exist across the pensions landscape, and information about costs and charges are not often directly comparable between schemes. There is a risk that we fail to engage people with their pensions by presenting too much information of a differing nature, or worse, that misunderstanding of costs and charges presented without proper explanations of value for money results in poor financial decisions. It seems to me that the way it is drafted as well, speaking specifically to the administration of the scheme, hides a much wider problem: how does one address the individual nature of differing schemes and the individual costs that apply? With respect, although I have great sympathy for the amendment, I invite the hon. Gentleman not to press it.

Photo of Angela Eagle Angela Eagle Llafur, Wallasey

Before we leave this point, what the Minister has described is a pensions landscape that is so complex that he is saying it is almost impossible to make proper price comparisons across the piece. If a consumer wants to make a decision on where to invest their money, what the Minister is saying is that at the moment we have a system that is so complex, and where comparisons are so hard to make, that it is impossible. What does that say about the landscape we are presiding over, and what have we got wrong? I have some ideas of my own, but now is not the time to talk about them, Mr Robertson. I appreciate that. It is an astonishing admission from the Minister that that is the situation we are in.

Photo of Guy Opperman Guy Opperman The Parliamentary Under-Secretary of State for Work and Pensions

I had ended my speech, but I do not think that is a fair characterisation. There is a charge cap that applies already. It is a standardised charge cap. The difficulty is that there are different types of schemes charging different things and that is perfectly permissible. The flip side of the argument made by the hon. Member for Wallasey would be to have only one type of pension scheme—which, by the way, is what the Labour Government introduced. Automatic enrolment is one type of pension scheme. Yet, within the one type of pension scheme, which we all adore and agree is the greatest thing, there are problems on the charging of the individual, which is exactly why we are trying to improve the matter by doing the small pots review.

I take the point that the hon. Lady is passionate to try to improve the situation. My door is always open to hear her views but, with great respect, this is a simplified system that can get better, which is why we are doing the dashboard and why we are doing simpler statements.

Question put, That the amendment be made.

Rhif adran 5 Pension Schemes Bill [Lords] — Clause 119

Ie: 7 MPs

Na: 9 MPs

Ie: A-Z fesul cyfenw

Na: A-Z fesul cyfenw

The Committee divided: Ayes 7, Noes 9.

Question accordingly negatived.

Clause 119 ordered to stand part of the Bill.

Clause 120 ordered to stand part of the Bill.