To a not very crowded chamber, the shadow secretary of state for Work and Pensiosn did her party piece again
“It’s hard to find anyone who supports mandation”
I told Helen Whately when she spoke at Pensions UK that we do not all agree that a mandation backstop shouldn’t be in place. What is needed is a Pension Schemes Bill that delivers pensions to people who currently just get pots , superfunds to allow small DB pensions to run on and powers for trustees and employers to use surpluses responsibly (that includes paying unpaid increases on pensions).
I don’t think I’m very popular at Pensions UK or the ABI or with the long list of think tanks or Tom McPhail (who gets a special mention for his position on mandation).
There were three MPs on the Labour benches and a few more on the Tory benches. There is a dog asleep (and acting as a foot rest) . The empty Lower House suggests that the Lords and the Conservatives are equally irrelevant on “matters of principle” and over-complication of fiduciary duty.
The few Conservative MPs behind Helen Whately seemed unenthused. They were about to be brushed aside
Here is what the amendments brought to the table..
The full debate is a little more pertinent
If you want to read the full debate including the statements made by Torsten Bell, proposing the Bill on behalf of the Government they can do so here.
What is being discussed is very important and the Pension Schemes Bill is not about mandation , however much the pension industry is using it to derail the smooth passing of the Bill to Act.
I would remind my readers that hardly anyone in the House of Commons considered the speech of Helen Whately worth turning up for and I suspect the attitude of ordinary people.
Here is Bell on mandation
I now turn to the Bill’s reserve power on asset allocation, a power that has one purpose, which is to support better outcomes for savers, and one use case, which is to underpin the industry’s collective view that delivering those better outcomes for savers over time is supported by a more diverse asset allocation. [Interruption.] Let me spell this out a bit more, as I am being encouraged to do by the hon. Member for North Bedfordshire (Richard Fuller). There is strong evidence, not least internationally, that pension savers’ interests lie in greater investment diversification than we currently see in the UK defined contribution market. That is why 17 of the UK’s largest providers designed and signed the Mansion House accord, committing to invest at least 10% of their default funds in private markets by 2030. Those schemes are not just talking; they are acting, building up the capacity to invest in a wider range of assets.
However, while the industry is making progress, it has also spelled out a well-recognised collective action problem: an industry dynamic that sees competitive pressure to win and retain employers driving a narrow focus on keeping headline costs as low as possible, not on what matters to employees—the net returns on their savings—which is what we all want schemes to focus on. This risks a pension provider that is building the diverse
investment capability to deliver returns for savers being undercut by a competitor making a virtue of not doing so, even though it knows that that is not in the best interests of savers. The industry itself raises this issue; it is not an abstract risk, because it has already happened.
Under the previous Government, the Mansion House compact saw a narrower agreement on the importance of private markets signed. It was signed, but it was not delivered. Given that we all agree that it would have been good, why was it not delivered? The industry has now published its own progress update spelling out why. The single biggest barrier to delivering on its commitment was, in its words, that
“market dynamics continue to focus on minimising cost instead of maximising long-term value”,
and without intervention to shift that culture,
“‘too much focus on cost’ remains the key barrier.”
That is the collective action problem in a nutshell, and solving it—giving the industry certainty that it can do what is in savers’ interests, because the rest of the market will move too—is the only purpose of the reserve power. That is why we cannot support the Lords amendments that seek to remove it. To do so would be to let savers down, to ignore the strong consensus about what is in savers’ interests and to disregard the barriers that we all know are holding back delivery on that consensus—a view spelled out by the previous Conservative Chancellor, the right hon. Member for Godalming and Ash (Sir Jeremy Hunt).
I have been clear that that is the only reason the reserve power exists. To reinforce that point, our amendments in lieu today spell out that the power can be used only to support the industry’s view of what is in savers’ interests, as laid out in the Mansion House accord. The majority of savers’ contributions are held by schemes that have signed up to that accord.
and again
We are going to set this out in two ways. First, we will specify on the face of the Bill that regulations under the reserve power cannot require more than 10% of assets to be held in qualifying assets overall or more than 5% in the UK—exactly matching the Mansion House commitments. Secondly, our amendments require any regulations to implement the reserve power to be entirely neutral between asset classes, spelling out that a future Government who took a different view from this one could not use the power to direct investments into hand-picked asset classes.
The existing safeguards in the Bill also remain: the time limit, the reporting requirements, the affirmative procedure, and—most importantly—the savers’ interest test that allows pension schemes not to deliver against the reserve power requirements where it is not in savers’ interests to do so.
and again Torsten Bell explains that innovation will be given space to grow, by which he refers in the Bill to superfunds and CDC (which I consider innovation going back and forward- both ensuring that pensions are allowed to be paid).
we are ruling out the ability for the power to be used for any purpose other than for the broad private asset class. That would include questions of specific asset classes, but it would also include questions of geography. I hope that gives him the reassurance he is looking for.
It is also in the interests of savers to tackle the UK’s fragmented pensions landscape. Scale matters: it reduces costs, opens up a wider range of investment strategies and enables more active asset ownership. Those arguments, I think, have cross-party consensus, and they lie behind the measures in the Bill to require pension schemes to operate at scale in the years ahead.
Unfortunately, that policy objective, motivated by a desire to ensure that savers get the best returns, would be undermined by Lords amendments 26 and 37, which seek to create more exemptions from the scale requirements for small schemes.
They would do so in a way that would create ongoing uncertainty for years as schemes, regulators and likely courts debate whether or not the conditions for such exemptions have been met, a process that itself would impose significant costs on savers. Both regulators have expressed their concern that, as a result, these amendments would be inoperable.
I do, however, recognise the case that has been made, in this House and in the other place, for the importance of both competition and innovation in the market.
That is what lies behind the pragmatic approach we have taken to achieving scale: not only have we set a pragmatic £25 billion starting point, but smaller schemes will be given time to reach that point, with the transition pathway lasting until 2035.
The new entrant pathway will also provide a route for truly new and innovative disruptors to enter the market. This supports the policy intent of Lords amendments 35 and 43, which require the Secretary of State to have regard to innovation and competition when making regulations that support scale.
Back in the Lords on Monday.