TUC Pensions Conference

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I spoke at the TUC pensions conference as Shadow Work and Pensions Secretary and detailed the alternative Labour can provide.

My speech, based on the issue of “In from the pension fringes: when will social and green issues go mainstream?” is below, in full.

“I welcome the opportunity to discuss the positive potential for investing pension funds.  Labour’s plans to transform the economy will greatly increase the opportunities for pension schemes to invest in ethical British businesses. 

 

We will do this by amending company law so that directors owe a duty directly not only to stakeholders, but to employees, customers, the environment and the wider public.

We will also drop the Conservatives’ Great Repeal Bill, replacing it with an EU Rights and Protections Bill that will ensure there is no detrimental change to workers’ rights, equality law, consumer rights and environmental protections as a result of Brexit. 

We will use trade negotiations to boost markets access for British environmental goods and services, alongside support for investment into new green technologies and innovate low-carbon products.  We will also ensure that 60 per cent of the UK’s energy comes from zero-carbon or renewable sources by 2030. 

A Labour government will create a British economy that works for all. 

Sadly in recent months I’ve had to spend a lot of my time commenting on the failure of British businesses and their pension schemes, and the emerging evidence of a crisis in the governance and regulation of pensions.

The failure of The Pensions Regulator to identify and challenge the irresponsible and unacceptable behaviour by Carillion over several years raises serious questions about this Tory Government’s failure to reform the pension’s regulatory framework in spite of warnings going back to 2013.

We had the extraordinary admission by the Trustees of Carillion’s pension fund last week that the Finance Director thought funding pensions was a “waste of money.  Clearly he felt that the regulator posed no threat.

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On the other hand, when it comes to the Universities Superannuation Scheme, the regulator appears to have put undue pressure on a scheme to address a deficit even though it is sitting on £60 billion of assets with a growing membership.

This has brought our campuses to the brink of crisis by an intransigent and unreasonable employers’ body, while the Government has sat on the side lines.  Hours before the strike commenced, the Minister, Sam Gyimah, wrongly claimed that UCU and UUK were currently in negotiations, and completely failed to address the employers’ refusal to meaningfully negotiate.

Even at this stage, employer representatives could spare students and staff any further disruption if they entered into genuine negotiations, and it is well past time that ministers told them clearly to do so.

It cannot be right that universities are proposing to cut the pension benefits of staff when just one vice-chancellor alone at Edinburgh University has accepted a 33% salary hike as part of a package worth £410,000.

Last week saw we also saw reports that it was the hardline positions taken by some of the UK’s wealthiest universities which provoked this strike, with Oxford and Cambridge and several of their colleges backing policies which has resulted in plans to drasticallly cuts to pensions.

This is in no doubt because they know that they’d have to pick up the bill if any employer in the scheme goes bust.  I’m very glad to hear that professors at those institutions have mounted efforts to overturn this decision.

It cannot be right that universities are joining a race to the bottom in closing its defined benefit pension, ringing the death knell of decent pensions.

The behaviour of Philip Green on BHS pensions was outrageous, likewise Carillion paying dividends and big bonuses while running a £900 million pension deficit, but frankly we expect better from our great universities.

STATE PENSION AGE

And then there is the vexed question of the State Pension Age and the stagnating life expectancy in the UK.

The Department of Health and Social Care has recently been accused of ignoring repeated warnings about stagnating life expectancy.  The academics said that in recent years there had been one of the greatest slowdowns in life expectancy improvements for both sexes since the 1890s, with rates even declining for some groups.

So how can ministers justify pushing up the state pension age in the current climate, especially as the Institute and Faculty of Actuaries had taken notice of the trend and adjusted their projections?

Yet the government is pressing ahead with plans to increase the pension age to 68.   The evidence is clear: increases in life expectancy have slowed markedly and at older ages may even be reversing, and women are most adversely affected by the slowdown. In other European countries progress in mortality rates just carries on as normal and they continue to see life expectancy rise and rise.

They are doing the best and we, in the UK, the worse when it comes to progress since 2010.  We support the academics who are demanding an urgent independent inquiry into whether austerity policies could be driving the trend.

We’ve all seen the impact of bringing forward the SPA on the 2.6 million women born in the 1950s.  I am proud of the last Labour Government’s success at reducing pensioner poverty, but women and the lowest paid still remain at high risk of falling into poverty in their retirement

COSTS AND CHARGES

We welcome ShareAction’s recent report on Independent Governance Committees (IGCs). As highlighted in the report, members of IGCs, and of all other Defined Contribution (DC) schemes, bear all of the investment risk and all of the costs and charges but are not fully informed about the nature of these costs.  Quite simply, those saving for their retirement are kept in the dark.

Labour has been calling for costs and charges to be fully disclosed to pension members for some time now.

We are also calling for the immediate resumption of the FCA’s dropped review of IGCs and demand that providers, who are in the main asset managers, hand over full details of all fees and transactions voluntarily to their IGC.

It is unacceptable that the Government has failed to act decisively on the Office of Fair Trading report published in 2013.

How have we ended up in this shocking state of affairs where no one – no one – can find out how much it costs to run a pension fund – all too often when costs need to be reduced it is the member’s pension benefits that are cut first.

But the cheaper the cost of the pension machine – the more the individual will get out of the process.

Yes we’ve had caps on costs for DC schemes – but not on transaction costs – but without transparency of cost we don’t know if the caps are too generous.  

I believe firmly in the principle of simplicity – everyone contributing to a pension scheme should have a set of transparent and understandable rules we should have access to transparent cost data – administration, investment management and transactions.  Simplicity and transparency will I believe gain more out of the system for everyone.

For too long the costs and charges levied on pension schemes have been complicated and hidden. Pensions as they are currently structured are nigh on impossible to understand and are harming peoples’ efforts to save the right amount of cash for later life.

As Financial Secretary, Harriet Baldwin, told the W&PSC in 2015 that if the industry failed to sort this out themselves the Government would step in. Instead we have nothing but prevarication. Is the Government’s relationship with the pensions industry more important to them than the people saving for their retirement?

We all need to concentrate on pension outcomes as well as pension contribution levels.

There is much to be gained by looking at the template for the Local Government Pension Scheme reporting.  This is down to pressure from Labour and the Trade Unions, and we look to the FCA is proposing replicating this. 

We now need this standardisation to pass across to pension schemes regulated by the Pensions Regulator, which is all trust based DB and DC schemes. Labour will continue to press for this

We need an honest grown up conversation in Britain about the future of our pensions.  About the incomes and the living standards that succeeding generations can expect.  And about the contracts between generations, and between the individual, employers and the state.

PENSIONS FREEDOMS

Another area where the Government’s pension’s policy is causing misery is the so-called pension’s freedoms. This granted a right to all pension savers to access their pots after 55.

This measure has been widely welcomed, and, there are clear benefits in getting rid of some restrictions for some savers and allowing people to invest or spend their money as they choose.

However the lack of a provision for default guidance for people who want to take advantage of pensions freedoms has resulted in many people suffering through scams or by simply making the wrong choice.

The providers, particularly the rogues, have no business interest in making sure that people receive the appropriate advice and, as such, it is not made as clear as it should be.

The right kind of default guidance—strong default guidance—would promote shopping around, better informed decision making and protection against scams.

It would also give people the opportunity and time to consider a scheme’s investment in social or green issues.  We are working to amend the Financial Guidance and Claims Bill to introduce these measures so as to ensure people can make the right decision for them and their families.

LABOUR’S RECORD

Labour in government did get a number of things right on pensions. We built strong foundations, enabling some of the more credible pension reforms you see today. This led to fewer than 1 in 7 pensioners living in poverty in 2010 down from 1 in 4 in 2003.

Last year we saw the first sustained rises in pensioner poverty for two decades according to a report published by the Joseph Rowntree Foundation.  This means the number of pensions living in poverty has now risen to 1 in 6.  This is a damning indictment of this Tory Government’s policy of austerity and cuts.

Labour’s policy of auto-enrolment is helping many more workers build a savings pot for their retirement, but again the people who were meant to be helped by this policy are still missing out. More evidence, if it was needed, that only Labour can be trusted with pensions.

Much more is needed to ensure people on the lowest incomes and those who for example have caring responsibilities, are protected in their retirement years.

LABOUR’S PENSION PRINCIPLES

Labour will build on these pension foundations as part of a comprehensive offer for older people. My new Shadow Pensions Minister, Jack Dromey and I have established a Pensions Commission to examine the current issues with our pensions system, state and workplace. We will develop a pension policy that is evidence-based, fit for purpose and fair.  That will also be an opportunity for us to consider environmental, social and governance issues in pension fund investing.

But I want to reiterate my pension’s principles today which underpin my vision for our pensions system to ensure a secure and dignified retirement for our pensioners:

  1. Both the sponsoring employers and members benefit from pension developments
  2. There are low costs of investment management
  3. To achieve no 2, we need costs and charges to be transparent
  4. Governance and regulation improves
  5. Developments move towards large scale schemes to improve efficiency and spread risk. Earlier this year we saw Royal Mail and the Communication Workers Union (CWU) agree in principal to work towards introducing a collective defined contribution (CDC) scheme for all employees.  We will push the government to introduce the required secondary legislation needed to facilitate that plan.

The Future

The current government may talk about tackling burning injustices but are failing older people; in pensions, in social care, in supported housing & much more.

We have committed to the Triple Lock beyond 2020. We shouldn’t be trading off pensioner poverty for the poverty of our young people – neither are acceptable in the 6th richest country in the world.

Labour will deliver the fairer nation that we deserve, providing dignity and security in retirement all our citizens, not just the privileged few.

A Labour Government would bring forward urgent measures to regulate the pensions sector including improvements in pensions governance, regulation, new mandatory clearance powers and greater transparency as well as powers to fine bosses who benefit at the expense of pension members, to ensure that such devastating mismanagement can never happen again.

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