Occupational and Personal Pension Schemes (Automatic Enrolment) (Amendment) (No. 3) Regulations 2012

Baroness Turner of Camden Excerpts

Monday 15th October 2012 Grand Committee

[Lord Freud]

My Lords, I think I will end up writing a letter, but I ought to try to answer the questions in general terms, thus saving a little effort in terms of letter writing. The first point made by the noble Lord, Lord McKenzie, concerned the potential changes to CPI and RPI. About a year ago we had the most glorious debate on this matter, for which I enjoyed researching probably more than any other topic. I think I am pretty comfortable in saying that the authorities are looking at these two measures and that there are likely to be some changes. RPI has had a very bad press lately, as some noble Lords who are aficionados will have noticed. If and when that change happens, we will have to take a decision, but it is pretty premature to take two hypotheticals and jump to a conclusion ahead of time. We will engage closely with the ONS to ensure that the potential impact on pension re-evaluation is fully considered.

On relying on trustees, my noble friend is absolutely right that there will be trustees here. This is just a technical change. The way it was drafted would have excluded these particular schemes, so that is the way that that has been addressed. This is moving into where schemes go into deficit and the question from the noble Lord, Lord McKenzie. They will be required to find funds for the minimum revaluation rate. Section 75 debt will continue to be calculated on the basis that the minimum revaluation rate will apply. The sums go on, even though the scheme has a problem which needs to catch up.

On the schemes that revalue benefits by reference to earnings, we are committed to considering further how that kind of revaluation could be allowed for. Historically, earnings have gone up faster than inflation so it is a lower risk, although that has not necessarily happened in recent years. On the question of whether the provision for discretionary revaluation would be required to be at least that necessary to meet the minimum rate—CPI, RPI or whatever is lower—the answer is yes. Regulation 36(3)(a) stipulates that a scheme with benefits to be revalued on the exercise of the discretionary power can be a qualifying scheme if,

“the funding of the scheme takes account of the exercise of the discretionary power and does so on the assumption that accrued benefits would be revalued at or above the minimum rate”.

That figure is CPI or RPI, whichever is the lower.

I may have answered all the questions without the need for a letter. That would be one of the miracles of our time. I will make sure and, to the extent that we have not absolutely locked this down, I will send a letter over because it is a very technical area.

[Baroness Turner of Camden]

I have a question. There has been a report in the newspapers recently that a number of small employers have no idea how to operate the new scheme. Of course, the problem is that if it is not operated, a lot of people will not get the choice of whether to go in, opt out or whatever. I am interested to know whether the Government are taking on board the problems with smaller employers who really do not understand what is actually involved in getting people into the automatic scheme.

[Lord Freud]

Yes, I can pick that up. Clearly, there is a staging going on. Smaller employers are towards the end of that, and are two or three years out from now. It would clearly be hugely counterproductive to send them an early letter which tells them that in two years’ time this or that will happen because they will tend not to look at it. It is really important in a communication exercise that we time it right. It is somewhat encouraging that quite a few knew that this was coming. A communication exercise is integral to us launching this properly. That is a key point.

To sum up, the point of this measure is to make sure that good-quality career-average pension schemes can be used for automatic enrolment. It allows flexibility without compromising individual protection and closes a particular gap in the legislation that we would not have wanted to see. On that basis, I commend the instrument to the Committee.

Motion agreed.