Benefits and Jobs
Pension Schemes Bill: Clause 2 - Asset management
“I am grateful to be called to speak in this debate. Sadly, it reflects the interests of Members that so few of us are here for a debate about one of the most important elements affecting the future of our constituents, friends, neighbours and, in fact, ourselves. Pensions are rather more than just a savings scheme; they are the thread that binds generations. They are the remarkable invention of our ancestors, who found a way to make sure that the energy, innovation and force of the young could be tied to the assets, education and experience of the old. It is that bond between generations that makes pension saving so special. While I welcome much of what this Bill does, I fully align myself with the points made by my hon. Friend the Member for Faversham and Mid Kent (Helen Whately) about mandation. In that one small area, this Bill repeats an error that was made nearly 30 years ago when the Government, for very understandable reasons—it was a very tense moment in pension savings, just after the Mirror Group Newspapers scandal and the Equitable Life scandal—took upon themselves powers, which were entirely reasonable at the time, to de-risk some of the private pension market. That de-risking was about moving savings, very gently at the beginning, from equities into bonds. In the early days, that did not make much of a difference. It took the percentage of bonds in investment portfolios from 19.1% to 19.3%, and so on. However, although the intention was to de-risk very slightly, the accumulation of time means that the bond element of pensions has grown, so that in the UK the figure is now roughly 60%, whereas in Australia or Canada, which are similar economies, it is roughly 20%. That is a real problem not just because it means pensioners are getting a lower return—they are getting a return based on the debt of the country, not on the energy of young people—but because young people are not getting the energy or the lifeblood they so vitally need when they are starting their lives. Let us look at the difference between equities and bonds. The truth is that bonds are fundamentally dead money: they are money taken or held by the state in ways that pay back over five, 10, 15, 20 or more years—in fact, a couple of times, over 100 years. Equities are fundamentally different. It is true that they are not predictable and it is also true that they do have risk, but they are a bet on the energy of the young people in our community. They are that bond or ligature between generations that fundamentally makes a community strong, rather than tearing it apart. Over the past 20 to 30 years, we have seen those bonds erode. What is the result? A slower growing economy. Why? Because there are no assets to invest. There is no water for the crops, if you like; there is no fertiliser for the soil. What else have we seen? Young people have been moving away because they do not have the opportunity to start their business, or when they do start their business, they do not then have the opportunity to go to the next stage. We see an amazing start-up culture here in the UK, but immediately they hit series A and B, people go to America—they go to California or to a Delaware corp and get foreign money. Again and again, that is happening because the state, for very understandable and entirely principled reasons, made a decision to take authority off savers in order to protect them, and I am afraid that that is what the Minister is doing again today. I understand the Minister’s point. I understand why he feels he needs to take that power. He feels that the Government have a role in ensuring that pensioners get a better deal. I get that. He also feels that the best way to do that is for the state to exercise its authority over a market system. Again, I understand that. But the problem he has is a fundamental one: the only way we achieve the connection between generations and communities, and the only way we get that life flow of the living blood of an economy— the equities market—rather than the dead hand of the state through the bonds, is in a free market. By putting his hand on the tiller and his finger on the scales, he is changing that, and that incremental change over time will do much greater damage than he fully appreciates today, despite his best intentions and despite the intentions of the Bill. That is why I will not be supporting the Government today.”
