I very much agree with my hon. Friend. It is now incumbent on advisers when they see clients for the first time to give them an initial disclosure document, which sets out the fees and charges that the client can rightly expect to pay. The disclosure of fees should always be completely upfront and agreed to by the client, before any work is undertaken—that is an absolutely vital part of the process, for sure.
Too many consumers are missing out on the potential opportunities that advice can bring because of a lack of understanding or a perception that advice is too expensive. It is time to develop the financial advice sector and make it work for consumers. I urge the Minister to continue to develop awareness of financial advice and guidance services, and make them as accessible as possible so that the advice gap around pensions can be closed.
One area of pensions where the advice gap is intrinsically linked is costs and charges associated with pensions. In many cases, the associated costs and charges, whether the annual management charge or underlying fund charges, are too much of a focus for consumers, advisers, the regulator and policy—to the detriment of the performance and quality of the actual pension. Instead of focusing on which contract is the cheapest, more time and guidance need to be shared that consider the end result and outcome. This is what will be available to pensioners and what will impact the quality of their retirement.
Even though pension costs may be more expensive, if a contract has the propensity to generate higher returns, it will give a better end result for the individual. In addition, as many people do not seek financial advice regarding their pension, many will lack the knowledge to understand the full impact of any costs and charges, which often leads to people choosing the cheapest contract which may not benefit their situation. The principle of having lower charges and less of a drag on performance is a noble principle, but it does not always work out that principles follow through to superior outcomes. It is the outcomes that people can spend in retirement, not the principle.
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.