Pensions Bill

Lord Lawson of Blaby Excerpts

Wednesday 26th February 2014 Lords Chamber

This Government are committed to ensuring that consumers receive value for money from pension savings. I am pleased that, along with the existing powers in Clause 43 and Schedule 18, the amendments in my name will ensure that the Government have all the necessary powers to make this happen. I beg to move.

[Lord Lawson of Blaby (Con)]

My Lords, I begin by welcoming very warmly what my noble friend has said. The Government have done the right thing and moved a long way since we debated this issue in Committee. We see government Amendment 26A as part of that move, but I am glad to say that the Minister has at the Dispatch Box this afternoon said that he will, quite rightly, go even further. I should therefore like to go over the points, perhaps for clarity. The Minister does need to go further, some of the reasons for which he has mentioned. I will not therefore speak to any of the amendments in my name as such because they have been overtaken by events. It is the substance that matters.

There seem to me to be four ways in which further improvement is needed beyond Amendment 26A, the first of which my noble friend has agreed to. That amendment would open the door to disclosure but to a limited number of categories. It is essential that there should be full public disclosure. This is important. For example, all potential members of pension schemes and workers should know what is happening, given that every -one knows that the costs of pension schemes vary enormously, as the noble Lord, Lord Turner, mentioned. This is not in dispute. It is a fact. Studies have shown that that variation bears no relation to performance, and some of the costs are absolutely enormous. In money purchase schemes, that is a direct cost to the pension that the beneficiary will get at the end of the day.

Nobody has mentioned this so far but I do not think that we should forget the press. There are sections of the press that give excellent consumer advice on financial matters, and not just the press: there is the excellent Paul Lewis, with his “Money Box” programme on the wireless. All these people need the information. They need to be the beneficiaries of disclosure if they are to be as effective as they might be for the benefit of members of pension schemes. Therefore, there should be total disclosure, and I suggest in my amendment that perhaps the best way of achieving that is for there to be disclosure to the Pensions Regulator, who publishes a public register which anybody can look at. However, there may be another way which the Government prefer and which is equally good. I was very glad to hear my noble friend say that there will be full public disclosure, which goes beyond that set out in Amendment 26A. That is what is needed.

Another way in which Amendment 26A is inadequate is that it refers to “some or all” of the costs. My noble friend touched on that but it is of the first importance that it says “all costs” and that all the costs are itemised. It is obvious that if only some costs are disclosed, it will be easy for investment managers to load on to their costings costs which are not among those that need to be disclosed. That is a complete nonsense. It is absolutely essential that all costs are itemised and disclosed.

There is another thing that needs to be attended to and where further progress needs to be made, but again it seems that in the spirit of what my noble friend said he is prepared to go there. His amendment concerns disclosure of information about transaction costs. It refers exclusively to transaction costs and, again, that is not adequate; it has to be all costs. There are, for example, investment managers’ fees, performance fees and custody fees, all of which are not transaction costs. Indeed, the Investment Management Association has stated that it does not classify equity commissions as transaction costs. Therefore, clearly the limitation to transaction costs is an invitation to abuse. All costs that are incurred have to be included.

The final way in which the amendment needs to be improved is perhaps less important than the other three ways; none the less, it is still important. The present proposal—my noble friend made this clear—relates only to money purchase schemes. It does not apply to defined benefit schemes. Defined contribution schemes, money purchase schemes, or whatever one likes to call them, are more important because the proposal directly impacts on the benefit that the beneficiary of the fund or pension gets at the end of the day. If it is a defined benefit scheme, one could say, “Why does it matter?”, but I do not think that it is a matter of indifference. Investment managers can say, “We have to control our costs, and reveal our costs, on money purchase schemes and defined contribution schemes. We can get the money back by loading extra costs on to the defined benefit schemes”. That would be wholly unsatisfactory. Most defined benefit schemes may be closed to new members but they are still going on and are substantial. A further point is that on a number of occasions the Government have expressed concern about pension fund deficits. This proposal could have a direct effect on the size of pension fund deficits. Therefore, it is necessary to bring defined benefit schemes into this disclosure. Transparency should not be explicitly and exclusively confined to money purchase schemes.

Those are the four areas in which further progress needs to be made. My noble friend said that he would be happy to discuss how it will be done between now and Third Reading. I would be happy to take part with other interested parties in these discussions, following which we look forward to further proposals and amendments at Third Reading.

I have a further small point for clarification about something that is slightly obscure. I do not think that it has been mentioned yet—certainly not by the Minister. Subsection (6) of the proposed new clause in Amendment 26A states that,

“subsection (5) does not apply in relation to a scheme of a particular description if … as a result of another enactment, requirements are imposed relating to the disclosure of information about transaction costs of schemes of that description”.

The only thing that I can assume—I hope my noble friend will clarify it, as I cannot believe that he has some other Bill up his sleeve—is that there may a European Union directive in the offing that may cover this area. That may be what is being alluded to. It would be helpful to the whole House if he explained precisely what lies behind this curious subsection.

[Lord Browne of Ladyton (Lab)]

My Lords, it is a genuine pleasure to follow the noble Lord, Lord Lawson, and to engage in the debate on this group of amendments. The noble Lord has had an extremely distinguished career in both Houses of Parliament. I have seldom heard his name used with such strength by a Minister from the Front Bench—certainly not for a long time. It may be a lesson to others on the Benches behind the Minister on how to get that level of recognition.

Amendment 29 requires the Secretary of State to,

“lay before Parliament regulations to restrict such charges as soon as reasonably practicable and no later than 30th April 2015”.

We want to ensure that the promise to do so, and the commitment to see this through in this Parliament is not kicked further into the long grass, but is exercised,

“as soon as reasonably practicable”.

This may be redundant now, as the noble Lord, Lord Lawson, has indicated, but my noble friend Lady Sherlock and I support Amendments 27 and 28, which require full disclosure of management and transaction charges for each work-based pension scheme. Amendment 26B amends government Amendment 26A that is broadly to the same effect. Amendment 26B requires the information that the Government now belatedly agree should be disclosed to pension scheme members should also be disclosed to the pension scheme regulator who, in turn, must maintain a public register of all costs. Of course, I welcome Amendment 26A and I thank the Minister and congratulate him on having tabled it. I have the advantage of the Minister’s explanation about why, at this extremely late stage, the Government have—I will not say U-turned—but changed their position substantially by almost 180 degrees on the very issue of transparency and disclosure. I welcome the amendment. When the Minister was explaining this, his overconcentration on the amendments of the noble Lord, Lord Lawson, and his engagement with this process—airbrushing out the contribution of my honourable friend Gregg McClymont, who persistently raised this issue in amendments in the House of Commons—may have given some people the impression that the Government’s change of position is more to do with Conservative Party discipline than their commitment to disclosure and transparency in these issues in the interests of the saver.