Future of Pensions Policy

We could look at including a savings element in auto-enrolment. Why not, when payroll makes a deduction for the relevant amount for a pension, put 1% into a savings pot at the same time? There could be an auto-enrolment ISA, and people could be given the ability to increase the percentage to what they can afford. Creating a savings culture on the back of pensions policy could be one of the more pleasant side effects of covid. Many people might be more open to having emergency funds to combat future challenges.

Another area of pension policy that could benefit from further positive change are the annual and lifetime allowances. Bearing in mind that that is a Treasury issue and not necessarily one for the Department for Work and Pensions, I shall not labour the point, but there is no need for an annual allowance if there is a lifetime allowance. Saving should be encouraged, and individuals should not be penalised for taking on extra work and saving more into their pensions. That happened to doctors recently, leading to them not taking on shifts and procedures because of the danger of a significant tax bill. A potential solution to that issue would be to remove the tax penalty for breaching the annual allowance, but keep the restriction on the amount of tax relief available to current limits. There would be no additional cost to the Exchequer, and people would be able to continue saving into their pensions in the same way. Yet those who were unnecessarily penalised under the limits of the annual allowance would not be at a disadvantage. As I have said, it is a Treasury area, and I am sure that the Minister will take great pleasure in passing it along.

Wider change is needed in the pensions industry, and one way to achieve that and encourage people to engage earlier with pensions is by improving the accessibility and reach of financial advice and guidance. Despite having been a financial planner involved in the pensions industry for many years prior to coming to this place, I admit that the topic of pensions can be complex. I can see how, for many without such experience and knowledge, pensions could be viewed as hard to understand or even, God forbid, a boring subject—a terrible thought.

I welcome the Government’s push for a simpler regime, which is coming down the line, to make statements more comprehensible for both the consumer and professionals. Members would not believe the wide range of disparate information that pension providers send out to customers, making it impossible not only to understand what they have but to make accurate comparisons between providers. It is currently extremely complicated, and I look forward to simpler statements that will put the consumer in charge. I keep my fingers crossed that that policy will not be several years in the making, as the wheels of Government tend to take rather an age to turn.

It is right to empower individuals to make their own decisions about their futures, but we should ensure that before they make such life-changing decisions they feel informed and supported, and have considered their own unique circumstances. Advice and guidance about pensions needs to be accessible, affordable and available. Despite the benefits that financial advice can bring, only 8% of all UK adults have received it. That is, amazingly, an increase on previous years, but it is still shockingly low, and it puts individuals’ retirements at risk. Whether that is because people feel that financial advice is unaffordable or only for the wealthy, or because they feel it is a risk and do not trust the financial services industry, we need to work actively to change those perceptions and show that financial advice is for everyone.

I can assure the public that the vast majority of advisers whom I have worked with will treat someone’s £30,000 pension pot with the same care and diligence that they will treat someone’s £300,000 pot, because each sum is just as important to the individual concerned. Indeed, the smaller pot can be considered to be much more important to that individual in many ways, because it will often be a lower-earning individual’s only pension provision, and so the risks of it running out too early are more significant.

If we do not promote the need for and the benefits of financial advice, I worry that we will have a retirement crisis on our hands 20, 30 or 40 years down the line. Recent data shows that 35% of the adult population say they do not have a pension. Of those who do have one, 36% are not sure how much is in their pot. Even more worryingly, the uncertainty around pensions goes further than uncertainty about individual circumstances, with almost half the population admitting that they do not have a clue about how much income they would need to retire comfortably. That clearly shows that widespread advice and education regarding pensions and retirement are urgently needed if we want people to be able to live out their later years in financial security and comfort.

In the past, these types of financial decisions and risks were shouldered by employers, pension providers and life insurance companies. Now, however, with the introduction of greater flexibility and freedom to the pensions marketplace, it is increasingly down to the individual to decide these matters, which is a wonderful thing in some respects, but worrying in others. We should not really place all responsibility for such important decisions on to people themselves. Instead, we should ensure that people feel supported and know where to turn for help and advice.

Financial advice is not only needed to help people feel more informed and aware when they make decisions that will affect their lives; it also adds real value to people’s pensions, providing them with a better retirement in the long run. A recent report by the International Longevity Centre found that those who have sought professional financial advice are better off by an average of £40,000 in their pension pot compared with those who did not seek advice. That is not an insignificant amount of money. Ensuring that financial advice is seen as a viable option for people is not only the right thing to do, but crucial if we want people to have the best possible future, as well as the peace of mind that they are making the right decisions to benefit themselves.

Most importantly, how can we make sure that people are accessing the right financial advice and support? Forcing people to access support is not an option. Some people will not even take a vaccine to save lives, for goodness’ sake, so mandating things just because people have an in-built aversion to being dictated to does not work.

One option, however, is to encourage individuals to use guidance services, such as Pension Wise, the free and impartial guidance service that was set up in 2015. Accessing guidance is often the first step towards accessing full financial advice and should be greatly encouraged. Seeking guidance helps people to gain a good initial understanding about their options and also helps to boost their confidence in their ability to do things such as avoiding pension scams, which, sadly, are all too common.

In addition, we know that financial guidance is a great enabler for the full advice process. Data from Pension Wise’s user evaluation report recently found that 36% of customers who booked an appointment with Pension Wise went on to speak to a financial adviser in the following three months, compared with only 22% of non-users. That highlights the fact that we need to emphasise the benefits of these services, and ensure that people use them as early as possible to improve advice take-up and improve the financial outlook for many individuals in the UK.

Currently, it is far too easy to opt out of taking this free guidance from Pension Wise. Many studies over many years have shown that individuals need several exposures to information before they start taking action, so perhaps we need to start them on that journey a little bit earlier, so that they are engaged in the process when the time is right.

Finally, it would not be right to hold a debate that seeks to improve people’s future in retirement without considering how to ensure that the pension industry is becoming green and playing its part in protecting the environment. Given that pension funds—long-term investments—hold around $20 trillion in assets globally, they are an integral part of socially responsible investing and can play a major part in helping the UK to reach net zero. I commend, in his absence, my hon. Friend the Member for Grantham and Stamford (Gareth Davies), whose campaign has led to the UK’s first green investment bond, which is on the horizon.

According to the Make My Money Matter campaign, sustainable pensions are 27 times more impactful in reducing your carbon footprint than stopping air travel and following a plant-based diet combined—27 times! Looking across the whole fund universe, we see that relatively few pension funds have fully embraced socially responsible investing or incorporated environmental, social and governance factors into their processes. While some have suggested that the Government should force private pension schemes to invest in a socially responsible way, that feels like an over-reach—an inappropriate and counter-productive use of power—as it may well encourage disinvestment. The bottom line to keep in mind is that pensions are there to provide retirement income first and foremost; if we can save the planet afterwards, that is an extra bonus. But 68% of UK savers want their investments to consider people and planet alongside profits, while 71% would opt for a fully or partially sustainable pension if they had the choice, showing the demand for socially responsible investment of pensions.

The Pension Schemes Bill has recently created a taskforce on climate-related financial disclosures that puts the consumer in charge and increases the transparency of pension funds regarding investments. There is clearly a demand in the UK for socially responsible investing within pension funds. The Government aim to facilitate that, as shown with the taskforce, and I commend them for it and look forward to seeing how it develops.

As I said at the beginning, pension policy is a topic that can often be overlooked. It is overly complex, too technical and not relevant to the many immediate, pressing issues of the day. But it does not have to be overlooked. Pensions policy is an incredibly important topic that will impact all of us in later life as we look to retire, and it is the responsibility of all of us to look at how we can shape it positively to provide the best retirement for as many people as possible. The contributions and sacrifices that our older citizens have made throughout this pandemic, and indeed throughout their lives, are considerable, and it is only right that our policies recognise and reflect that hard work and allow them to live out their retirement in comfort with the peace of mind that their pension will see them through.

I look forward to the contributions of colleagues, including the Minister and the shadow Minister. Although great strides have been made through the Pension Schemes Bill, there is more to do if we want our pensioners to have the retirement they deserve.

I wish I could say that that was a one-off, Minister, but I am afraid that my inbox has been full of similar letters.

I would like to give that hope to every family because this is not just about women—it is also about the families supported by those women. Any future reforms of pensions policy must come with justice for the 1950s women who lost out when the Government changed the pension age. Again, this is all about fairness. Those women worked, paid in and did the right thing, then had part of their pensions taken away. I ask the Minister whether the Government’s line from last year still stands. Is there no money for the WASPI women or will that change? Dignity as we grow older should not be an optional extra; it should be the very basic that the Government should provide. In one of the richest countries in the world, we should not have any older people living in poverty.

The pensions dashboard is welcome. It will simplify pension information and bring it to one place. It will empower people to do more than they have previously been able to do, with pieces of paper given on an intermittent basis.

Another area of the Pension Schemes Bill is green pension investments. The UK is the first major economy to put climate risk and disclosure into statute for pension schemes. I asked the Secretary of State for Work and Pensions about that last week. It is a new area for pensions, but the generations coming up are more inclined to support green issues and might want their pensions to be invested in some of those companies, so we should empower them to do that.

As my hon. Friend the Member for Delyn set out, people should receive a good retirement. The Government have shown through the Bill that they understand the issues facing pensioners; I genuinely believe that they are responding to them. When we talk about pensions, however, we are talking about the end of the process—when people will receive one or what time of life they will retire. We need to start talking about pensions at the beginning of people’s working lives when they start a job or a career and, hopefully, start saving for their retirement. As he said, it may not be the sexiest subject to speak about, but it is one of the most important. If somebody gets it right or wrong at the start of their career, it can be life-changing. Of course, as has been said, we should also look at points in time where we can have an MOT of where our pensions are.

Education in schools is critical and it should be there for all children in all schools. My financial education was about opening a bank account, credit cards, overdrafts and how to fill in a cheque, which was a cause of great excitement for many fellow pupils. I must say that I am still excited about it; I still use cheques. That being said, there should have been, and there should be now, more emphasis on pensions and what that will mean in later life. If we do not start explaining the long-term value of saving for a pension, we will never do it when people get close to the point of receiving one. That is really important. I know that the Minister is committed to lifelong financial education, and there is no better advocate of that than him in the Government, but I would like to see more of that happen when he speaks to my right hon. Friend the Secretary of State for Education.

On pension credit, which has also been brought up, I know that the Government are doing all they can to ensure that people who are eligible for pension credit, who have paid into the system throughout their lives and done the right thing, receive it. Pension credit ensures that the pension of those who receive a weekly income is brought up to the minimum amount, which is an absolute lifeline to many people. As has been said, many people do not claim everything they can. We should encourage people to claim what they are entitled to.

Recent research commissioned by Independent Age shows that we must work harder on that. If the level of pension credit uptake was boosted to 100%, it could lift 450,000 pensioners out of poverty. Whether they are buying groceries or heating their homes, it is important that people in older age are living a life, not just existing, and that they do not feel shut away from society in any way. In 2018-19, £1.8 billion of pension credit was not received by those eligible for it. The low uptake of pension credit costs the taxpayer £4 billion a year in additional unavoidable NHS and social care spending. In an area that we are looking to reform and make better, we could prevent that high level of spending by giving people what they are entitled to.

Renewing our focus on increasing uptake would save the taxpayer money, as I have said, and people in all parts of our country would have a better standard of living. DWP representatives have already confirmed that the technology is there for greater automation of benefit provision and that the data required is largely already held by the Government. Hopefully, we can unlock that to get the process going. We need to build on that and work towards meaningful solutions for those in pension credit scenarios.

The key things that I would like the Minister to take away include education, of course, which is where we can start to build a better pensions policy and framework. If people have better education, they can take control of their lives. In later life, we need to look at the pension credit issue. We should also have an eye on innovation, technology and green industries and ensure that they are promoted to people now, because there is no better time for them to be thinking about it, in terms of their future and the future of our planet.