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Pensions Bill

We now have a complete change of topic. New clause 12 arises from a good debate we had in Committee about investment principles as they apply to PADA—and to the board and trustees in due course. It seems that everyone is talking about ethical investments to which there seems to be a range of different approaches, of which this new clause is only one. It merely seeks to apply to the authority the"““United Nations principles for responsible investment (““UN PRI””) and adherence to those principles will be part of the contractual arrangements with fund managers in respect of””" the variety of matters listed. The hon. Member for Carmarthen, West and South Pembrokeshire (Nick Ainger) pointed out in Committee that the Co-op ethical fund had had one of the best performances of any all-shares funds in recent times, so it is not as if we are suggesting a measure that is likely to fetter the ability of the personal accounts system to provide a decent return for those saving into it. In fact, in many respects, the opposite is the case. I am delighted that our proposals have received support from a range of different organisations, including FairPensions: The campaign for responsible investment. It makes the point that responsible investment does not necessarily mean disinvesting from so-called unethical industries, but that it does mean taking steps such as to"““proactively engage with companies on environmental, social and governance (ESG) issues””" and"““working with them to future-proof their profits by limiting the potential of…poor governance, lax safety standards or climate change””." One of the attractions of the UN principles as opposed to other codes that are sometimes cited in this context is that they are not prescriptive but provide what is called a voluntary and aspirational code of best practice. FairPensions goes on to say that this House"““should affirm its commitment to safeguarding investments, and to responsible business practices, by amending””" the Bill in the way suggested. It says in conclusion:"““By committing to the UN Principles of Responsible Investment, Parliament will provide a clear mandate to the Personal Accounts Delivery Authority and its fund managers to engage with companies on environmental, social or governance issues.””" The Government's attitude in Committee was very much that they did not want to bind the hands of PADA—or the trustees in due course. I find that surprising, because the question of ethical investment was foreshadowed even in the impact assessment produced alongside the Bill. We are not trying to be prescriptive; we are Conservatives, so we understand the need for business not to be fettered by unnecessary red tape or bureaucracy. However, surely PADA and its successor could reasonably be expected to reflect current best practice—the Pension Protection Fund is already signed up to the UN principles, as are various comparable bodies around the world. The new clause would, however, still leave some flexibility to those running the personal accounts system. Two approaches are possible. We know—because that is the way life is—that the default fund will far and away be the biggest fund, as people will not make a conscious decision to invest in a particular type of fund and therefore by default will end up in that default fund. One option is to apply the UN principles right across the board, and particularly to the default fund. Another option would be a specific fund based on those, or comparable, principles. It seemed to be accepted without debate in Committee that there would be a fund—possibly out of only five or six altogether under personal accounts—that would be subject to sharia law. There is a lot of sense in that; it is important that we make that kind of provision. However, why should we not also have a fund based on ethical principles—perhaps Christian principles? Within a limited number of funds—I think the number should be limited for all the practical reasons debated in Committee—there should be that element of choice. Following our Committee deliberations, the Minister was good enough to write to Mr. Tim Jones, PADA chief executive—who has featured quite a lot in our debates today—and raise with him the issues discussed in Committee. The Minister shared with us the reply he received on 5 March from Mr. Jones, in which he says"““I take very seriously the strength of feeling expressed in relation to investments within personal accounts and, in particular, responsible investment.””" He goes on to point out that it is ultimately"““the responsibility of the trustees””" and he then says:"““Consistent with the level of interest and strength of feeling shown by the Committee in this area I intend to address the issue of responsible investment in PADA's public investment consultation which is due to take place later this year and which aims to capture the views of the personal accounts scheme target audience.””" Mr. Jones concludes by saying that he hopes that what he says has ““provided…sufficient reassurance””. The answer is that it does not. I am delighted that there will be a consultation on this, but I would have thought the appropriate way to proceed would be to consult on the way to deliver these kinds of ethical investment principles in practice under PADA—and the board. All we are asking to do is to put in the legislation the fact that the authority must have regard to the UN principles for responsible investment. That is not an unreasonable thing to require. When personal accounts are up and running, the funds will be a substantial part of investment in this country. That will be the case for the default fund in particular, for reasons that I have mentioned. Therefore, it is important that a message is sent out that the authority will have regard to those ethical investment principles. If Ministers take the opposite view, it is odd that, as I have mentioned, the Pension Protection Fund is already signed up to the principles. Why would PADA not be so signed up? It is perfectly legitimate for Mr. Jones and his colleagues to consult on the way in which this matter is delivered—I have given a couple of possibilities—but not on the overwhelming principle. It is perfectly reasonable for this House to say that the principles should apply and to leave the detailed work to the authority. Amendments Nos. 25 and 26 approach things from a slightly different angle. By proposing to include the word ““needs”” and the question of ““disproportionate cost””, as we tried to do in Committee, the amendments make the point that even where people have their own preferences as to how their money should be invested, both their preferences and their needs should be taken into account. That is because people sometimes make slightly bizarre investment decisions, often for the best possible ethical reasons, when they would be better advised doing something slightly different, or at least spreading the risk in a different way. As amendment No. 26 sets out, when it comes to offering choice we must address a real issue about disproportionate cost. If any message came across loud and clear from the evidence of Mr. Myners and Mr. Jones to the Committee, it was their obsession with keeping things as simple as possible for personal accounts in order to try to drive down those running costs and administrative costs as far as possible, so that the accounts can deliver a reasonably cheap, easily accessible and easily understood form of investment for retirement. We are not looking at anything remotely like the Swedish model, which I believe has about 200 to 300 different funds, and I commend new clause 12, and amendments Nos. 25 and 26, to the House. If the Liberal Democrats do not take offence, I shall not deal with their amendment No. 39, as I am sure they will do it justice.