It is vital that people are enrolled in schemes that offer transparent and value-for-money charges. The National Employment Savings Trust’s low charge structure has set a benchmark, prompting several competitive alternatives in the market, and I have called for providers to guarantee not to enrol people into high-cost legacy schemes.
The Minister will be aware of the recent Cass business school report that says that many older defined-contribution schemes charge 3% or more. That is six times the best practice of newer schemes, and it is costing many tens of thousands of people the chance of having a decent pension. Will he act to ensure that people cannot be auto-enrolled into those schemes—by using either a kitemark or a charges cap?
On the sort of legacy schemes that my hon. Friend refers to, I am pleased to announce that, only today, another provider—Fidelity—has said that fees in its default funds will not exceed 1% and that existing scheme members will have the opportunity to switch out of their current funds. That follows Aviva’s statements that its schemes will have a charge of not more than 1%. It will not allow auto-enrolment into any older-style schemes. I encourage other firms to follow suit.
Auto-enrolment schemes will still be subject to stock market vagaries, the effects of varying interest rates and inefficiencies of scale. Is not what we really need a 100% state system, where we get defined benefits, as well as defined contributions, and efficiencies of scale and best possible value?
Two sorts of risk are associated with pensions: financial risk and political risk. We have had SERPs—the state earnings-related pension scheme—which successive Governments cut and cut again. So that scheme did not provide any guarantee either. I want a balance of risks for people, a state promise and a private sector entitlement as well.
We now seem to have a consensus across the House on the need for a charge cap. The leader of the Labour party has called for a charge cap on old-style legacy schemes, and the hon. Member for Warrington South (David Mowat) has just done the same. Can the Minister confirm that, when he refers to Aviva charging no more than 1%, that is an average and does not apply to all schemes?
On the hon. Gentleman’s first point, this is another of the loose ends left by Labour on auto-enrolment. When Labour legislated, it put in practically no quality requirement at all. So Labour required millions of people to auto-enrol but set practically no standards for what they were auto-enrolled into. This is one of the many issues that we are actively tackling.
The Minister has not answered the second part of the question, so I will ask it again. He just told the House that Aviva—I do not single out Aviva, as this is a broader issue—is charging no more than 1% on its schemes. My understanding is that that is an average of 1%, so a scheme could charge 0.4% and another could charge much more. The hon. Member for Warrington South, the leader of the Labour party and I are calling for a cap on old-style legacy schemes. Why does the Minister not get on with this, so that everyone can have a decent retirement scheme?
Let me clarify the specific point. The statement by Aviva is that
“its schemes for automatic enrolment will have an average total product charge of less than 1%... It will not allow auto-enrolment into…older-style schemes.”
On the charge cap, the danger of the hon. Gentleman’s idea of having, say, a 1% across-the-board cap is that someone can tick the box with 0.99%. Actually, many in the market will offer below that. There is a danger that people will be misled if they are just below the cap, when many lower prices are available in the market.