Lord Bradley
Main Page: Lord Bradley (Labour - Life peer)Pension Schemes Bill
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Lord Bradley
“Decumulation
(1) A qualifying money purchase scheme may not sell annuities directly to anyone who has saved with the scheme unless this is the recommendation of an independent annuity broker.
(2) A relevant scheme may provide an independent brokerage service itself.
(3) A self-provided annuity brokerage service will be considered independent for the purposes of this Act if the provision of its services is subject to the direction of independent trustees.
(4) Pension schemes shall ensure that any brokerage service selected or provided meets best practice in terms of providing members with—
(a) an assisted path through the annuity process;(b) ensuring access to most annuity providers; and(c) minimising costs.(5) The standards meeting best practice for annuity brokerage services shall be defined by the Pensions Regulator after public consultation.
(6) The standards set out in subsection (5) shall be reviewed every three years and, if required, updated.”
Lord Bradley (Lab)
My Lords, decumulation is the process of converting pension savings into retirement income. I hope that, as we deliberate in Committee, we will try to avoid as much jargon on pensions as we possibly can to make it understandable not only to ourselves but to the public outside.
Our new clause on decumulation is aimed at protecting savers who default into an annuity with their same savings provider. At the start of Committee stage it is important to note that we are in a pretty dramatic and fast-changing environment for pensions. We must not forget those parts of the pensions market that are not currently working for consumers as well as they should. The amendment would provide safeguards for those who do not take advantage of the new flexibilities provided by the 2014 Budget changes, and for whom an annuity remains the best product. This may be the case for some who feel that they would still prefer the security of a product that guarantees them a set income for their entire lives, without the difficulty of making predictions about life expectancy. That can still be a very attractive option.
The ABI code of conduct requires members to encourage savers to use the open market option when choosing an annuity. However, 50% of savers still buy an annuity from the company they have already saved with. This situation could be further exacerbated by auto-enrolment, under which the majority will be enrolled by inertia. We know that, as a result of not shopping around, many get a much worse deal than they could have had, so this could have a serious effect on the size of their annuity. The National Association of Pension Funds estimates that those who do not shop around get up to 20% less in their annuity. The Financial Conduct Authority estimates that consumers could be missing out on up to £230 million in additional pension savings because they are not shopping around in the most effective way.
We know that this market has not served consumers well in recent years, and the process remains complex. The Financial Services Consumer Panel recognised this in December 2013, and said that a “‘good’ annuity outcome” might well require expert help. Our new clause would require the recommendation of an independent broker to sell an annuity to someone who has saved with the same scheme. This would protect consumers from getting a bad deal when taking a crucial decision in their lives. As was made clear in Committee in the other place, pension schemes should ensure that any brokerage service they employ on behalf of their members meets best practice in terms of providing members with an assisted pathway through the annuity process, ensuring access to most annuity providers and minimising the costs. Pension schemes have a duty to get the best possible deal for their members, or to do it themselves in-house. Such good practice can be found in pension schemes such as the Royal Mail and the National Employment Savings Trust.
That view flows partly from the significant evidence that the best way to get value for money on an annuity is to “bulk-buy” that annuity on behalf of the cohort of scheme members who are going to retire. For example, let us look further at the National Employment Savings Trust, which requires annuity providers to make sealed bids to provide annuities for those who have saved with NEST. It takes the cohort coming up to retirement and says to the providers, “We have X people. Given their personal circumstances, and taken together collectively, what offer of an annuity will you make?”. This seems a sensible way to proceed. It has the advantage of scale, and the expertise of the same pension scheme that built up the pension pot is used to turn it into a retirement income.
This is a brief opening amendment in the form of a new clause, so I shall summarise the position now. Annuities as they are currently constituted have not been delivering value for money for the whole of the market. The fundamental reason is that half of those coming to the point of annuitisation—turning their pension pot into an income—do not shop around for the best deal because it can be a complex, confusing and difficult process. Because of that and because of the advantages of bulk-buying by a professional expert, it seems sensible, for the consumer to get it right for their retirement income, to empower pension schemes to undertake that responsibility. As the new clause draws on best practice, I hope that the Government will see its merits. I beg to move.
Baroness Drake (Lab)
My Lords, I have some sympathy with the thrust of Amendment 1, under which my noble friend seeks to protect pension savers from purchasing an annuity which is not good value for money or appropriate to their needs. If there was any doubt about the nature of the problems in the annuities market, the recent FCA report has clearly put those to rest. It makes evident the need for assisted paths for consumers through the annuity process. Notwithstanding the new freedoms, annuities still have an important role to play in securing retirement income, and we need the FCA urgently to push ahead with tackling the conduct of providers in the market. With the new freedoms and the anticipated product innovations that will flow from that, the Government and the saver are still very dependent on the market to make them a success and mitigate consumer risk.
The issue of assisting the consumer through the annuity process—the role of the employer, the responsibility of the saver and the role of the provider—is complex. No doubt later in Committee—at least, I hope we will; I hope that an amendment is winging its way—we will debate a second line of defence provision to control the conduct of providers selling retirement income products, including annuities, trying to enhance consumers’ protection when they are in the purchasing process. I hope that we can pursue in more detail how the Government can mitigate the pension saver’s risk when purchasing an annuity, when, I hope, we can get into a wider debate on a second line of defence across all retirement income products.
Lord Bourne of Aberystwyth
Clearly, any form of guidance is not going to be appropriate for ever on specific issues. The guidance is not intended to address the specific situations of every consumer; that is the purpose of advice. The guidance is indicating to people what they should do in their particular circumstance, at that stage, to look at the future. It is for those consumers to decide whether to take that option or not; that is the purpose of the guidance. It is not specific in the way that the noble Lord, Lord McKenzie, is suggesting.
Lord Bradley
My Lords, I am grateful to the Minister for his comprehensive reply on the new clause. The whole purpose of this and of many of the amendments we are tabling in Committee is to assure the public of their protections and to ensure that they have the information and that it is communicated effectively to them so that they can make proper choices at a crucial moment, or moments, in their retirement or post-retirement period. While we have immediately—probably quite rightly—started to discuss the guidance guarantee, I did not expect to start that process within 15 minutes of the start of the Committee stage. That will be an incredibly important part of our deliberations and, while it is very useful for the Minister to start to lay out the purpose and detail of that guidance, I know that we will have many opportunities to expand on that as we progress through the Bill.
The Minister has raised a number of fears about this new clause, which I will look at and reflect on carefully in order to ensure that the issues he has raised will be comprehensively covered by the range of activities to protect the consumer in the way that we want. I am grateful for the comments of my noble friend Lord McKenzie in support of the general thrust of this amendment, which is another attempt to get belt and braces around the advice and guidance to ensure that people are making sensible decisions.
As my noble friend Lady Drake said, we will be bringing forward the issue of a second line of defence, which is relevant to this general debate, again on the basis that we want to ensure that the public have confidence in the new arrangements that are being put in place and feel that there is protection for the decisions that they make. We will come back to whether guidance is sufficient to achieve that objective, but we need to look at these elements as a comprehensive package of attempts to achieve the objectives I have set out. However, in the light of the Minister’s comments and the opportunity to reflect on those for a later stage, I beg leave to withdraw the amendment.
Lord Bradley
“( ) A statutory instrument containing regulations under subsection (3)(b) may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Lord Bradley
My Lords, Amendment 2, which is in my name and that of my noble friend Lord McAvoy, flows from the recommendations of the Delegated Powers and Regulatory Reform Committee’s 12th report of Session 2014-15. It should be stated at the outset of our deliberations in Committee that the ability to scrutinise this incredibly important piece of legislation, affecting millions of people already in a pension scheme, about to retire or starting the process of accumulating a pension pot, has clearly been limited by a number of factors.
First, many new clauses and amendments were introduced at a very late stage in the other place, so hampering its ability to scrutinise those aspects of the Bill. Secondly, to date, no draft statutory instruments are available for scrutiny alongside this piece of primary legislation, when that legislation relies on secondary legislation to make meaning of many of the proposals in the Bill. Thirdly, there is an incredibly short timetable to get this legislation through Parliament—I understand that implementation is still due to begin at the start of April, barely three months away. Fourthly, this is one of a number of pension Bills and Acts—I think we are up to four, but I am thinking particularly of the Taxation of Pensions Act—that this Bill is inextricably linked to. It is important that we are able to ensure that there are no tensions between the different Bills and Acts and that the freedoms and flexibilities do not in any way contradict the ability to have security of retirement income in future.
Lord Bourne of Aberystwyth
That would be an exceptional procedure. It is important for the industry and pensioners that we can provide assurance now that, where there is a need, there is provision to move quickly to ensure that collective benefit schemes are successful. I share the noble Baroness’s feeling that it is important that we give this a fair wind. We therefore recognise that there will be circumstances where the negative procedure is appropriate because of the great need to move quickly.
Lord Bradley
I thank the Minister for his explanation, for his more wide-ranging response to the report of the Delegated Powers Committee and for explaining the Government’s intentions in regard to the range of issues discussed and the recommendations made by that committee. It may disappoint him that that does not necessarily mean that we will not debate the clauses to which these regulations apply. There are wider points around those clauses which are not only about whether the regulations should be affirmative or negative. I hope the Committee will show tolerance as we go forward on that matter.
As my noble friend Lady Drake clearly and concisely laid out, Clause 8(3)(b) goes to heart of the definitions of collective benefit schemes. We need to be absolutely sure that, through debating the regulations, we understand fully the consequences of the schemes and how they will apply to the public who might rely on them. I accept entirely the need for flexibility, but I remain to be convinced that moving towards a negative position rather than a positive position through an affirmative vote in this House is the way to achieve that. As my noble friend Lady Drake pointed out, where there is a need for quick action to apply, there are procedures within the House to enable that. We are trying to support collective benefit schemes, and we want to ensure that they are properly scrutinised on behalf of the public.
However, the Minister said that he will be bringing forward amendments on Report. We shall reflect on the comments he has made on the issue and on why the Government consider that the negative procedure is appropriate. We shall think further about whether that is an acceptable position or whether we want the opportunity for further scrutiny through the affirmative procedures of this House. In the light of the comments made and the opportunity for further debate at a later stage, I beg leave to withdraw the amendment.
Lord Bradley
Lord Bradley
My Lords, the three amendments in this group stand in my name and in the name of my noble friend Lord McAvoy. Amendment 3 would remove the words “or managers” for collective schemes. In doing so, trustees would be required to be in place. Amendment 20 to Clause 37 would require managers to act in the best interests of members of the scheme, which seems an absolute minimum if they are to be relied on. Our proposed new clause sets out that trustees shall have a,
“fiduciary duty towards members of the scheme”.
That is an issue which will be debated here and further, and we believe it is essential for the confidence of schemes going forward.
It is my contention that the Bill does not go far enough on governance. The highest standards of governance are needed for schemes that could be even more opaque to their members than DC schemes are now. They have to manage pooled assets and, within that, conduct smoothing arrangements for the benefit of all members. This silence in the Bill occurs despite the Government’s consultation entitled, Reshaping Workplace Pensions for Future Generations. Paragraph 22 states:
“Collective schemes are complex and can be opaque—because of the indirect relationship between contributions and benefits. This necessitates strong standards of communication and governance. We intend collective schemes to be overseen by experienced fiduciaries acting on behalf of members, taking decisions at scheme level and removing the need for individuals to make difficult choices over fund allocations and retirement income products”.
Failure to require all schemes to have high-quality trustees means that we potentially have some collective DC schemes run by trustees and others where private firms offer them. They could seek to maximise short-term returns that are not necessarily in the best interests of all members. We have consistently argued that all workplace pension schemes must be run by trustees and have a legal duty to prioritise the savers’ interests.
Our proposed new clause would require pension schemes to appoint a “board of independent trustees”. Those trustees would have a fiduciary duty to pension holders that would take preference over any duty owed to shareholders. This change in governance is designed to ensure that members of pension schemes get far better value for money. For example, in its market study, the Office of Fair Trading said that savers were not getting value for money in a contract-based market. A significant reason for that was shareholder interest in contract-based schemes predominating over the interests of savers. Not enough information is available on how schemes are operating and what is available. As has been said, it can be complex and difficult to understand, which is what stops this market functioning in order to bring down those costs.
International evidence, such as that laid out by Chris Curry, director of the Pensions Policy Institute, during the evidence sessions, suggests that a trust-based approach to schemes is preferable and leads to better governance. It would not require a large number of trustees to implement. Of the 200,000 schemes currently estimated to be in place, many are under the management of four or five insurance companies and therefore would be covered by governance boards made up of trustees attached to those boards. Of the remaining pension schemes, progress to trusteeship might be slower. Equally, it might be aided by the amendment to be discussed later when we will encourage scale in terms of pension schemes.
Through these amendments we want to ensure that there is strong and effective governance, that the trustees have a fiduciary duty to look after the interests of members as a priority, and that customers are treated fairly to ensure that their interests are prioritised over those of shareholders where there may be a conflict. The new clause that we have suggested would help to rectify the current shortcomings in governorship and, with the ability to appoint high-quality trustees in whom the members can have absolute faith, strengthen the whole process. I beg to move.
Baroness Drake
My Lords, I rise to support and speak to Amendment 10 in particular. I expressed the view at Second Reading that at some point, unfortunately probably later rather than sooner, the Government will inevitably have to place in statute a clear fiduciary duty on pension providers and asset managers to put savers’ interests first.
Why one goes through all the regulatory complication of setting up independent governance committees, giving them fiduciary responsibilities to monitor the behaviour of private pension providers, while exempting the private providers themselves—the people who make and implement the decisions—from such responsibility is a little beyond me. If the responsibility of the independent governance committees is an attempt to align scheme governance with the interests of savers, why should that responsibility not be put directly on to the decision-makers in the pensions industry? But we are where we are.
John Kay, in his review commissioned by BIS, also concluded that all those looking after someone else’s money or advising on investment should be subject to fiduciary standards of care. Many times from these Benches I have argued the case for extending a clear fiduciary duty to those who have discretion over the management of other people’s money. It is a principle that the Australian financial regulatory system has embraced and applies to retail pension providers, including an unequivocal requirement that conflicts of interest must be resolved in the beneficiaries’ interests.
Each time I try to present the arguments in a slightly different or novel way but increasingly the FCA appears to be providing the arguments for the proposition. We have had numerous reports on how the market is not serving pension scheme savers well, be it legacy schemes, annuities, lack of transparency on charges, and many other examples. The new FCA study, which examined how market conditions may evolve from April 2015, found that greater choice and potentially more complex products will weaken the competitive pressures on providers to offer good value. The chair of the FCA has said that the increase in regulatory rules has failed to prevent misconduct and does not seem to “prevent further problems arising”. The FCA director of enforcement and financial crime, Tracey McDermott, speaking at the FCA’s recent enforcement conference in London, referred to the need for a cultural shift among firms similar to the change in public attitudes whereby drink- driving was, in the past, avoided through fear of being fined, but is now seen as a moral issue.
It is clear from the flow of pronouncements from the FCA that the behavioural and cultural challenge within the pensions industry remains a major issue. They are telling us and demonstrating to us that regulatory rules have failed to deliver the cultures that embrace the ethic of care towards the customer. Time after time, reports, reviews and investigations confirm that the private pensions market is dysfunctional, with a weak demand side that cannot be expected or fails to self-remedy, and where the process of trying to provide for the savers’ interest in a competitive fashion does not work well. One is tempted to ask: how many reports of market failure in the pensions market do we have to receive before it is accepted that writing yet another set of rules will not solve the problem? What is needed is a game-changer to force the pace of change in providers’ behaviour by strengthening in law the principle that they must act in pension savers’ interests.
The advent of auto-enrolment raises the bar. At the heart of the governance structure for the private pension system must be the interests of the pension saver, and the law must require that providers identify and manage conflicts in favour of the saver. An alignment of interests is not sufficient. The saver’s interests must come first. It will be a major regulatory failure of public policy if millions of citizens are auto-enrolled into pension schemes but Parliament has not ensured that sound governance is in place.
Turning specifically to collective benefit schemes, which Amendment 10 targets, the case for the oversight of the management of such schemes resting with trustees with a clear fiduciary duty to the members of the scheme that takes precedence over other interests is even more compelling. Collective DC schemes are more complex in that they are designed to smooth income and manage intra- and intergenerational risk-sharing between members. The individual does not have a well defined pot over which they have individual ownership. Consequently, transparency is a key challenge and provides a potential breeding ground for conflicts of interest. Collective benefit schemes do not automatically guarantee higher retirement incomes. In order to be sustainable, collective DC schemes need scale, an assured flow of new members, full transparency and, in particular, excellent governance. If these schemes are not well run or if risks are unfairly shifted—for example, across different age cohorts—young savers could be subject to lower payouts.
The Bill has a significant number of delegated powers so there is much still to be understood. On governance for collective DC schemes particularly, the Bill is largely silent. But the complexity of what needs to be addressed is captured in Clauses 9 to 18. The Government appear to recognise the particular nature of the governance challenge in collective benefit schemes and the possibility that things could go wrong because they have added Clause 37 to enable the Secretary of State to impose a duty on managers of collective benefit schemes to act in members’ best interests. But that is not sufficient. If the Government are serious about encouraging and building collective benefit pension provision, the governance rules have to be robust right from the very beginning. The risks are too great to do otherwise and that means requiring a body of independent trustees with a clear fiduciary duty to the members of the scheme, which takes precedence over any other duty, to oversee the running of such collective benefit schemes.
Lord Bradley
I am grateful to the Minister for giving way. I want to be absolutely clear on the point that he was making about the regulations that have been brought forward for implementation from April 2015. They will apply to the new arrangements in the workplace schemes and the board of managers or trustees who will be responsible for them. First, will they be comprehensive in their coverage at that point, including any new collective benefit schemes that come forward soon after April? Secondly, will there be a fiduciary duty on that body to act in the best interests of members, as opposed to other interests?
Lord Bourne of Aberystwyth
I shall deal with the second point first. As the Minister knows, there will be a contractual obligation with contract-based schemes, but there will not be a fiduciary duty. This is because the essence of a fiduciary scheme with trustees is that fiduciary duties are held by those trustees. A contract-based scheme will have contractual duties which may be greater or lesser than the fiduciary duties, but they are somewhat different. Perhaps I could come back later to the noble Lord with a detailed answer on his point about collective schemes, because I am not quite sure of the scope of that particular aspect.
Coming back to the serious point that I was making, this reformulation of ownership of funds could result in significant obligations. We need to be clear that, if this is the approach of the Official Opposition, then those are radical changes that will require quite an upheaval in the ownership of the way that the market is organised at the moment. I am not quite clear whether the Government have got it right that that is the basis of the amendment and the Opposition are going that far.
Turning to the point that I think the noble Lord, Lord Bradley, was making, we do not want to dictate that non-trust based schemes should no longer have a part to play in pension provision in the workplace. I am not sure whether I have understood that correctly and that is indeed the position of the Opposition. We want to make sure that there is appropriate protection in occupational and personal pensions, trust and contract-based schemes. We want to encourage innovation and not necessarily restrict to a single structure, because we think we can provide appropriate protections across the piece. Similarly, under the provisions of this Bill, schemes offering collective benefits and defined ambition schemes can be trust or contract-based, and can be occupational or personal pensions. It has been suggested in discussions outside this House that such schemes should be restricted to trusts—I do not know whether that is the Opposition’s position. Again, we recognise and respect the concern about and focus on governance—that is quite right—in respect of these provisions, but we do not wish unnecessarily to close down options for how such schemes must be set up in terms of trustees. We have already made separate governance provisions for these benefits and schemes, recognising the new types of risk that they bring. Instead, we want to encourage providers to consider entering this space with innovative products that consumers want, and we have separate, parallel governance provisions for this which we will come on to later.
On the point raised by the noble Lord, Lord Bradley, independent governance committees apply to money purchase benefits. We have other requirements for collective benefits under clauses in Part 2 and in Clause 37, to which we will come later.
It is important to be clear that a requirement to have trustees is not a panacea for the myriad of governance issues that we are debating today. Let us not assume that all trust-based schemes are always better governed than contract-based workplace pension schemes. While we value the role of the many good, indeed excellent, trustees running occupational schemes, we recognise that schemes are variable and the presence of trustees is no panacea for poor governance. There is no evidence that one governance structure necessarily or always delivers better outcomes than another. We consider that factors such as scale—which we will consider later—good governance and charge levels are among the key determinants of member outcomes, not whether a scheme is contract or trust based.
The governance of contract-based schemes has grown significantly stronger in recent years, led by the FCA with the “treating customers fairly” principles which have formalised firms’ responsibilities to their customers. The introduction from April 2015 of independent governance committees with a duty to act in members’ interests will further strengthen the governance of contract-based schemes. These points taken together are why we strongly believe that current measures and independent governance committees, rather than trustees, are the right response to money purchase contract-based or personal pensions.
The proposed new clause would also be a significant cost and burden for workplace personal pension schemes. Data from the National Association of Pension Funds show that just under half of the 1,200 schemes that it surveyed in 2013 had independent trustees and that trustee salaries range from about £10,000 to £35,000 a year, although it is true to say that not all trustees or trustee chairs are paid. Therefore, as your Lordships can appreciate, there would be considerable cost involved in increasing this figure particularly over the short term. It could even mean that trust-based schemes had to replace their existing trustees.
We have made separate provision for governance measures for collective benefit and defined ambition schemes, so we do not need independent trustee committees as well. The independent governance committee measures will apply to money purchase benefits, but we have made separate provision for the other schemes. Generally, provisions under Part 2 set out a number of regulation-making powers to make requirements in respect of key governance features: investment, factors affecting benefits, policies for dealing with deficit and surpluses, transfer values and so on.
More specifically, under Clause 37, referred to by the noble Baroness, Lady Drake, we have a regulation-making power that may require managers in non-trust based schemes to have a duty to act in the best interests of members when taking specified decisions in shared risk schemes and schemes offering collective benefits. This is because of the new types of risks that may arise in these new types of shared risk schemes and schemes offering collective benefits, which are different from money purchase benefits or defined contribution schemes. Therefore, Clause 37 takes a regulation-making power to impose a duty on managers of non-trust based schemes to act in the best interests of members when taking specified decisions.
Lord Bradley
On Clause 37 and the Minister’s assurance of the robustness of the independent boards, why is he resisting our amendment which says that managers “must” take those powers and apply them in the best interests of members, rather than only “may”?
Lord Bourne of Aberystwyth
This is probably the main difference between the approaches of the Government and of the Opposition. I do not think that we are miles apart on our desired outcome, but we believe that working with the industry, consumer groups and pension groups to achieve the best interests is the right way forward. If we can achieve the same end without making it mandatory, we believe that that is the right approach. It is probably at the root of the difference between the two parties that we believe that we are achieving the result without having to make it mandatory.
I recognise the spirit behind the amendment that has been brought forward and the Government accept the need for the appropriate corporate governance. Whether it is in relation to trust-based schemes or to contract-based schemes, we want the similar result of the managers or the trustees acting in the best interests of the pensioners. I want to reassure noble Lords that the matter that this clause deals with is of great importance to the Government, and we are working with the industry and the Financial Conduct Authority to ensure that we get the approach right.
On Amendment 3, which would change Clause 9, let me set out some context on Clause 9 and why we think that the amendment would undermine a key governance provision. Clause 9 sets out a regulation-making power which may require trustees or managers of schemes offering collective benefits to set targets in relation to any collective benefits that may be provided by the scheme. Ensuring that there is a target in relation to collective benefits offered by the scheme should enable the member to have a realistic picture of the benefits that they are likely to receive. This is important, as the member is handing over control of their investments to those running the scheme. A target will also help those who wish to plan for their retirement income to do so meaningfully.
Removing the ability to require managers to set targets, which is what the amendment would do, would undermine a key provision which provides additional governance and transparency about members’ collective benefits. The requirement to set targets in relation to collective benefits in Clause 9 works closely with the other aspects of the governance regime set out in Part 2 of the Bill. For example, it is our intention that the probability of meeting the targets will be assessed annually in a valuation report to identify whether it falls within a specified probability range. If it falls outside this range, this will trigger the scheme’s policy for dealing with a “deficit” or “surplus”.
I think that we all agree that good governance of pension schemes is essential. That is why the Government’s new governance standards, applying across all workplace pension schemes in respect of money purchase benefits, will protect members by ensuing that schemes are run in their interests. It is also why we have introduced Clause 37: to ensure that there is extra protection for members’ interests.
However, the Government are taking a proportionate approach and seeking to allow constructive forms of innovation by pension providers, as well as retaining flexibility to ensure that regulation remains up to date with changing requirements. On that basis, I respectfully ask noble Lords not to press their amendments.
Lord Bradley
Once again, I am grateful to the Minister for the comprehensive nature of his reply. I am sure that Hansard will correct that I am not the Minister—sadly—and probably never will be. We have slightly strayed into the next amendment, Amendment 4, on targets, so I will return to that when we debate that amendment to Clause 9.
Our purpose throughout is to ensure that members’ interests are protected, as the noble Baroness, Lady Drake, has clearly and effectively outlined. We are trying to ensure sound governance. The Minister has given assurances that the proposals being brought forward will achieve the same objective as our amendment. I will reflect on the issues that the Minister has raised and his sense that our views about trustees are not as soundly based as we believe they are. There will be an opportunity for that reflection before Report. In the light of those comments and the strong feelings on this side of House regarding trustees, at this stage I beg leave to withdraw the amendment.
Lord Bradley
“( ) A statutory instrument containing regulations under this section which is the first exercise of such a power may not be made unless a draft of the instrument has been laid before, and approved by a resolution of, each House of Parliament.”
Lord Bradley
Amendment 4 stands in my name and in that of my noble friend Lord McAvoy. Again, it flows from the recommendations of the Delegated Powers Committee. We have already had a response from the Minister about how the Government are handling this, but in the light of his preliminary comments about targets I think it is still worth our having a brief debate on this amendment.
The Delegated Powers Committee suggested that because of the nature of the powers in clause 9, which may require the trustees or managers of a pension scheme to set targets in relation to collective benefits, the affirmative procedure on first use would be most appropriate.
This clause is particularly important, as it raises many of the key areas that we wish to discuss around CDC schemes; indeed, we have already started to discuss them. These are issues such as the balance of intergenerational risk-sharing, the communication of the “risks of risk-sharing”, the importance of good governance in these schemes so that they can command sufficient trust from their members—a subject about which we have already had some discussion—and the role that actuaries are likely to play in the process.
The Secretary of State is here given the power to require a target that meets a set probability. For instance, if the probability was set at 98%, the target would have to take that into account and be set at such a level that there was only a 2% chance that it would be missed. To reflect on the most controversial aspect of CDC schemes—as I have made clear, the Opposition support these schemes—we have to look at what happened in Holland, where because of the financial crisis, pension payments had to be reduced. It is therefore important for us to look at targets and ranges, so as to give assurance to the schemes.
The Minister in the other place said that the regulations produced under the powers conferred by Clause 9 were to be subject to consultation. Can the Minister provide any further detail on when the consultation is likely to begin, and say whether the Government will be expressing a preferred option and asking for comment on that—and if so, what the preferred option is likely to be?
Because of the reasons that I have set out, communication to scheme members about how the target level is set and what factors could lead to it being altered is particularly important for these schemes. Can the Minister provide us with any more details on how the Government believe this can best be expressed to give scheme members confidence in the decisions being made?
This issue also takes us into the area of governance. The kinds of decisions that have to be made about targets and probabilities, and about how all this translates into the level of pensions paid out in a CDC scheme, require a high level of trust in the process—the kind of trust that is more easily established through a scheme being overseen by trustees rather than managers. But we have already rehearsed that argument, and I shall not go over it again.
Can the Minister provide us with any more detail on the interaction between the actuaries and the trustees or scheme managers under this provision? For instance, if the actuary gives advice that the probability of meeting a target falls outside the probability level set by the regulations, what options will be available to the trustees, in terms both of the action they can take and of how they communicate this to the scheme members? I acknowledge that this is a complex area, and the challenge of adequately communicating why a certain decision has been made is often considerable.
We understand that the Government cannot pre-empt a consultation that has not begun, and also that this Bill is not unique in being a piece of pensions legislation that confers a wide degree of delegated powers. However, it is still unsatisfactory if those powers are not before the House to be debated alongside the primary legislation. The huge range of options left open by this clause means not only that it should be subject to the affirmative resolution when the Government produce regulations on the matters within it, but that it would be useful if the committee were able to piece together the picture that the Government expect and hope will be in the regulations tied to the primary legislation, and see how they would impact on the important issues identified in Clause 9. I beg to move.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Bradley, for his comprehensive coverage of Clause 9. I shall deal first with the recommendations of the Delegated Powers and Regulatory Reform Committee, because that is the specific issue raised by the amendment. I shall then come back to some of the issues that the noble Lord raised in relation to the consultation process.
Clause 9 sets out a regulation-making power which is a key aspect of our approach to collective benefits. The issue of parliamentary scrutiny was considered by the Delegated Powers and Regulatory Reform Committee, and as I said before, we accept its recommendation on this matter.We intend to come back to it on Report and table amendments to ensure that the first time the powers are used will be subject to the affirmative procedure.
I confirm that the Government intend to have full open consultation on the regulations, which is expected to include discussions before the formal consultation takes place. Timelines will need to be agreed in due course. I suggest to the House that we come back to this subject in more detail on Report, so that we can consider the position in the round. Given the undertaking that we will table an amendment on Report on the specific issue addressed by Amendment 4, I invite the noble Lord to withdraw it.
Lord Bradley
Again, I am grateful to the Minister for his comments, and I welcome the fact that before Report stage we will get the detail that I sought through the amendment. It is important that we have that timeline for the consultation, so that there is clarity, both in the House and outside it, about what the process will involve. As the Minister has recognised, Clause 9 is crucial to this part of the Bill, and we need as much information as possible, and the opportunity to debate it, before the Bill passes through all its stages in this House. In the light of the Minister’s assurances, I beg leave to withdraw the amendment.
Lord Bradley
“Scale of pension schemes
(1) The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members.
(2) Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests.
(3) The Pensions Regulator shall have power to direct merger of pensions schemes where it would be in the interests of the members of each of the relevant schemes for merger to take place.
(4) The Pensions Regulator shall exercise this power in accordance with a methodology on which it has publicly consulted and which has been agreed with the Secretary of State.
(5) The methodology set out in subsection (4) shall be kept under regular review and revised when necessary, subject to further consultation and agreement from the Secretary of State.”
Lord Bradley
The amendment is in my name and that of my good colleague, my noble friend Lord McAvoy, who will continue to support me through the process of the Bill. This is also the first day that I have been at the Dispatch Box moving amendments, though we are a double act that flowed through the other place for many years.
The amendment is encapsulated in its first line:
“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.
Our proposed new clause would give the Pensions Regulator, along with the trustees of such pension schemes, the power to consolidate pension schemes.
The Pensions Regulator has been clear that scale is to be encouraged as it enables schemes to achieve better value for money, higher-quality governance and economies of scale. Scale is very important in reducing the cost of intermediation. The key report by John Kay for the Department for Business, Innovation and Skills recommended a reduction in intermediation. He made it clear that there were far too many intermediations and scale could be a trigger for in-house asset management. Evidence from abroad supports this view. For example, in Canada, scale means that schemes do not necessarily have to pay private equity houses and agents in order to buy private equity.
There is a general view that there are currently too many schemes—around 200,000, it is estimated—and the proposed new clause would enable this to be reduced by giving trustees the power under their fiduciary duty to recommend merger if it is in the best interest of the scheme, and enables the Pensions Regulator to take action if it believes small schemes are not obtaining value for money. Currently, the Bill contains no measures which would help promote scale, which most independent observers believe is necessary for collective DC schemes and work-based pensions in general to do the best for their employees. We have long argued that measures to promote scale are vital to ensure the best outcomes for savers, and those measures deal with the important issue of finding high-quality trustees. If there are fewer schemes, there is less need for a large number of trustees and we therefore address the quality as well as the quantity in schemes that are currently in place. The Government could, for example, require that automatic transfers default into aggregators, and the criteria necessary for qualifying as an aggregator could include scale.
The House of Commons briefing note on the Bill states:
“However, certain conditions such as large scale and strong governance appear necessary for DC schemes to operate successfully”.
Further, three-quarters of respondents to the consultation prior to the Bill thought there was a need for government intervention to create the scale necessary for schemes to offer proper guarantees.
To sum up, it is our view and the view of the Pensions Regulator—which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes. We want a process in place to try and reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful but it would make a start by giving powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pensions industry that scaling up will have to happen, and that in so doing costs would be reduced and there would be a better outcome for savers, I believe that the Government will wish to support this amendment and therefore I beg to move.
Lord German
Perhaps I might pose a number of questions about this amendment. My noble friend the Minister or the noble Lord, Lord Bradley, might like to reflect on them and give me an answer. First, the trend towards larger-scale pension funds is growing. I understand that the number of smaller schemes is declining. I wonder whether one or other of the noble Lords could tell me what the pace of that change has been and whether forcing mergers is necessarily the right thing if that pace of change is already accelerating. Secondly, when mergers are forced, the question is who that merger is with. Who will be found as a necessary partner to move in that direction? If that partner were a smaller-scale operation as well, forcing those two to move together might not necessarily provide the right output. Finally, scale does have merit and is worthy, but that does not mean that small scale is always bad. I wonder whether we should always look for quality rather than scale or the force to make companies move together. Those are fundamental questions which I hope one or other of the noble Lords will be able to answer.
Lord Bradley
If I might comment briefly, as the amendment says, any merger has to be in the best interests of the members. It is not being forced if that is not in their best interests. I am not aware of the pace of change; what I am saying is that the industry is looking at those measures. The fundamental point is that it is in the interest of the members, not the scheme itself.
Baroness Drake
My Lords, I have sympathy with the thrust of my noble friend’s Amendment 7. Scale can be very important in influencing efficiency of pension provision and value for money for the pension saver. We also know that there is a significant tail of small DC and DB schemes which could actually increase if we begin to see an accelerated closure of trust-based DC schemes in response to the new freedoms. That is a problem to be monitored and addressed as part of protecting savers’ interests.
In principle, putting small inefficient schemes into large efficient schemes is a good thing but as the noble Lord, Lord German, flagged, the path to achieving that can sometimes reveal some real difficulties. As a trustee I have experienced this. The problem arises when considering what a small scheme is transferred into. In real life, some real pressures come to bear. For example, an employer may be keen to see members of a closed, small, trust-based DC scheme bulk transfer into a contract-based product, but if that product is a personal pension which falls outside the scope of the new charges cap or the quality standards, the value for money and governance benefits on transfer may not be so clear-cut. Equally, the trust scheme rules of small schemes, even in DC, may have some beneficial provisions. For example, the employer may meet the administration costs, so some of the costs of that DC provision are met by the employer. What happens to that protection on transfer?
Certainly, the principle of promoting scale consequentially to promote value for money is a good one. However, if there is to be a provision to require trustees to transfer their schemes in certain circumstances, there needs to be regulatory clarity about the standards of schemes into which schemes can be transferred or directed by the regulator—whether there are nominated aggregators or whatever into which a regulator could so direct if it felt that something was quite small and unsustainable. The principle is sound but, like any principle, the path of getting there sometimes needs some additional support. I flag those up as issues that would need to be captured in making any regulatory provision about forcing the pace on scale.
I can speak only from an anecdotal basis to the point made by the noble Lord, Lord German, about evidence. I cannot provide any evidence. I can provide only experience. As employers have tackled their big DB benefits and addressed auto-enrolment, I think they are looking to consolidate or transfer out small schemes, so I expect this to be a growing issue—but I express that view on an anecdotal basis.
Lord Bourne of Aberystwyth
My Lords, I thank noble Lords who have participated in the debate and I welcome the opening remarks of the noble Lord, Lord Bradley, who is part of a dream team with the noble Lord, Lord McAvoy—a dream team for the Opposition, if I may correct my earlier slip of the tongue. In response to the point that was dealt with by the noble Baroness, Lady Drake, and raised by my noble friend Lord German, I am told that there are no published figures on mergers but, anecdotally, it certainly seems the case that there is a trend. Whether that would continue with the new reforms is another issue but I think that there is, anecdotally, such a trend at the moment.
The amendment would impose a fiduciary duty on trustees of pension schemes to consider whether the scheme is of a scale to deliver good value to members and, if not, to consider a merger with another scheme. The Government are interested in scale, in so far as it may help schemes to improve quality and lower charges, and to be fair, I am sure that that is what inspired Amendment 7. However, we are not interested in scale as an aim in itself. The Government believe that forcing scale does not necessarily drive good governance, investment expertise or low costs. Big is not necessarily beautiful, as my noble friend Lord German correctly suggested. On occasion, many small schemes are delivering very effectively.
Our analysis of the current defined contribution landscape shows that there are already effective benefits of scale operating within the marketplace, including significant consolidation of schemes. We have no precise figures on that but we expect this to continue and probably to accelerate as smaller employers are brought into automatic enrolment. Indeed, we have already seen smaller employers moving towards larger arrangements such as group personal pensions, master trusts and the National Employment Savings Trust. They can also access the benefits of scale by purchasing investment or administration services from a large provider, falling short of a full merger.
Noble Lords may find it helpful if I try to explain to the House why we believe this amendment to be unnecessary and why the matter is not as straightforward as it may at first appear. A significant push to force consolidation would come at a financial cost which would be borne by members—at least the initial cost. Agreeing what “sufficient scale” means and policing it would be difficult. The amendment would create some inconsistency across the regulatory landscape as it would bite on trustees of trust-based defined contribution schemes but not on the managers of non-trust based schemes that are either a shared risk scheme or a defined contribution scheme. Significantly, and certainly from my point of view most importantly, it also cuts across trustees’ existing fiduciary duties to act in members’ best interests.
Trustees are already required to pay particular attention to governance standards—for example, internal controls, investment governance and decision-making, administration practice in record-keeping, and preventing fraud and so on. As part of that, they may well consider the benefits of scale. Some employers may prefer a smaller scheme that can deliver bespoke investments and communications to their workforce which a larger scheme might not be able to do.
The Government believe that their flagship reforms of introducing, for the first time, minimum governance standards to ensure that schemes are well governed with low and fair charges for members is the correct approach to drive better member outcomes. We do not believe that it would be right to interfere with how the marketplace is evolving, bearing in mind the existing fiduciary duties that trustees are acting under. It would be strange if trustees were not already considering the viability of the trust and the benefits of scale as they assess its workability.
Finally, the amendment would give the Pensions Regulator a new power to compel a merger, if it would be in members’ interests to do so, and provide for the Pensions Regulator to use this power in accordance with methodology on which it has publicly consulted and which is agreed with the Secretary of State. The amendment requires this methodology to be kept under regular review. This, too, would impose new burdens and is unnecessary. Agreeing what “sufficient scale” means in members’ best interests, and measuring and policing it, would be very difficult. We believe that new governance standards from April 2015 will mean that trustees and managers will have a general legal responsibility to ensure that the schemes are well governed in members’ interests. As I say, it would be unusual if they did not consider, as part of this, the possibility of merger and the benefits of scale. In addition, the Pension Regulator’s existing regulatory strategy and activities include providing guidance and e-learning resources, and helping trustees to demonstrate that they meet the required standards of their defined contribution quality features. The regulator will also take enforcement action where necessary, under existing powers. This ranges from advice letters, warning letters, statutory compliance notices and monetary penalties to criminal prosecution.
We believe that our focus on ensuring that schemes are well governed and deliver good quality and low charges to their members, regardless of size, is the correct approach to drive better member outcomes, while recognising that on occasion scale is of importance and that trustees should be considering that, as should managers. On that basis, I urge the noble Lord to withdraw the amendment.
Lord Bradley
I thank the Minister for his response to the amendment and I welcome the comments made by the noble Lord, Lord German, and my noble friend Lady Drake on the issue of scale. There is no intention in the amendment to force anything. Subsection (2) of the proposed new clause is clear. It states:
“Where trustees take the view that the scheme has insufficient scale, they must consider whether merger with another scheme would be in the members’ interests”.
That is the crucial point. It is not forcing it but looking at what is in the members' interests. The relationship between the trustees and members on governance is very important. This is about a mechanism to ensure that it is considered and that it is in the best interests of the members. We are not saying that big is necessarily beautiful but that, in certain circumstances, bigger might be better—better value for money for the members of the scheme.
There is clearly some difference between the Government and the Opposition on this issue. I do not want to caricature the Minister’s response but he was basically saying that the market will decide and that mergers will happen because the market will determine that they happen.
Lord Bourne of Aberystwyth
I appreciate that the noble Lord was not intending to caricature my response and that I have cut in before he finished but I said that although we believe that the market is driving things in the direction of scale, it is the case that managers and trustees should be considering this as part of their duties. We are not simply saying that it is all about the market; we believe that the framework is already there.
Lord Bradley
I am grateful to the Minister for that clarification and I certainly was not intending to misquote what he was saying. However, there seems to be a difference between the active consideration of mergers and the more passive position from the Government in that determination “may” be governed by the influence of the market rather than through what we are saying in this amendment. Again, it is absolutely crucial to us on this side of the House—whether it be on governance, transparency or the way in which duties are imposed on trustees—that while being mindful of previous situations regarding pensions and difficulties in the market, we are always looking to get best value and protect the interests of the public throughout this process. However, in the light of the comments that the Minister has made and the opportunity for further consideration at a later stage, I beg leave to withdraw the amendment.
Lord Bradley
Lord Bradley
My Lords, I will not labour the points that we have already made regarding affirmative resolutions of regulations, but I shall speak briefly to Clause 21 because it is another key clause in shaping the structure and policies of pension schemes that are to be developed under Part 2. This is another area that, as we know, the Delegated Power Committee picked out when it said that,
“the likely ingredients of regulations will be so significant to the working of Part 2 as a whole that the negative procedure will not afford the House an appropriate opportunity to debate the provision that will determine the shape of the arrangements”.
I am aware that the Minister is going to bring forward an amendment on that so we will have that opportunity, but it is always worth putting on the record the views of the excellent Delegated Powers Committee on these matters, and obviously we welcome the Government’s response to it.
We have another amendment in this group, along with the delegated powers amendment, which again turns—I will not labour this point—on the issue of “may” and “must”. The first part of Clause 21, which is entitled, “Policy for dealing with a deficit or surplus”, says:
“Regulations may require the trustees or managers of a pension scheme … to have a policy for dealing with a deficit or surplus in respect of any collective benefits that may be provided by the scheme, and … to follow that policy if a valuation report shows a deficit or surplus”.
In our view, it is extremely important that they have a policy around deficit or surplus; it is inconceivable, as my noble friend Lady Drake pointed out in the previous comparable amendment, that there would not be such a policy.
I ask again, similarly to the previous set of amendments, whether the Minister sees any circumstances in which there would not be a policy for trustees in applying and dealing with deficits or surpluses. In order to ensure that the members have confidence in the policies, it is crucial that they are consulted on those policies, so there must be a policy that is available for them to have that assurance. For the members of the scheme there must be a policy, so the regulations should be saying that the trustees must produce a policy around deficit and surpluses within the scheme, which are crucial to the members within the scheme. I feel sure that the Minister will be able to give us the necessary assurances on that, which is why I shall be brief and beg to move.
Lord Bourne of Aberystwyth
My Lords, I am grateful to the noble Lord. I apologise that I keep referring to noble Lords opposite as “Ministers”; I am afraid that it is my background in the Welsh Assembly, where I am used to asking questions rather than answering them. They should not jump the gun.
I reassure the Committee about the recommendations of the Delegated Powers and Regulatory Reform Committee. I confirm again that we are content with its recommendation and will therefore bring forward amendments on Report to reflect that. As the noble Lord has said, the power in Clause 21 allows us to ensure that schemes have appropriately transparent policies for how they will handle a situation where the scheme is outside the probability range for paying the target benefits, and that it is a permissive power, not a mandatory obligation.
I shall share some of our thinking around how and why we will use the powers in Clause 21, which deals with what happens in schemes with collective benefits when the required probability range in relation to the target benefits is not being met. In our drafting approach we have used the term “deficit or surplus” to refer to the situation where the scheme is above or below the required probability range. However, I remind the Committee that there is no promise in relation to a collective benefit that an employer would need to stand behind.
The first question to ask is why we require trustees or managers of schemes providing collective benefits to draft a policy on deficit and surplus in the first place. We believe that this is essential because schemes providing collective benefits function in an open and transparent way. It is vital to engender confidence in the way that these schemes are managed and are seen to be managed. Indeed, the lack of a policy set out in advance about how schemes would adjust members’ benefits if required has led to heated public debate in the Netherlands, where some schemes had to reduce benefits when members were not expecting that to happen. I hope that we have learnt lessons from experience elsewhere, as I indicated earlier; this is very much central to the Government’s approach.
Lord Bradley
I am slightly confused. The Minister seems to be saying that there would never be a circumstance where there would not be a policy and therefore it can be permissive because there would be no exception to it. There would always be a policy in place. Can he confirm that that is the case?
Lord Bourne of Aberystwyth
I am happy to confirm that. I believe that I indicated in response to an earlier amendment that there would not be any of these powers where we would not anticipate regulation. We do not see a vacuum in any sense in any of these matters. As I said, I think that the difference is a difference of approach rather than a difference of outcome. We believe that we will reach the goal—achieve it—on a permissive basis. We do not believe that the mandatory approach, which I believe is what the noble Lord is pursuing in relation to at least some of these amendments, is the correct one. The difference is a difference of approach rather than a difference of outcome. I hope that that deals with the point that the noble Lord was making. On that basis, I respectfully ask the noble Lord to withdraw the amendment.
Lord Bradley
Again, I am grateful to the Minister for his response and clarification. From this side of the Committee we could not envisage a situation where something as important as deficit and surplus within funds and providing policies about which the members are clear and on which they have been consulted would not be addressed and in place. The Minister assures the Committee that, through a permissive regime, there will always be such a policy in place. With that assurance, I beg leave to withdraw the amendment.
Lord Bradley
I am grateful to the Minister again for his explanation of the government amendments, which I accept are minor and technical. However, they clarify the position on certain aspects of the Bill, which is welcome, and remove any ambiguity that may have transpired from the original drafting. In that light, the Opposition are happy to accept them.
Lord Bourne of Aberystwyth
I am most grateful to the noble Lord, and I commend the amendments to the House.
Lord Bradley
“Collective benefits: annual review
The Secretary of State must each year produce a report on the operation of this Part and the report must include the number of collective benefit schemes that have been set up under its provisions.”
Lord Bradley
My Lords, I draw attention to the wording of this amendment because I am sure that it will be welcomed by the Government and that they will wish to produce and deliver such an annual review to Parliament.
When the press release that accompanied the Bill was issued, it gave me the impression that the Government envisaged that Part 2 would lead to a number of new combined collective defined benefit schemes coming into operation. However, as we have seen the Bill being considered in this House and in the other place, the number of schemes coming into operation has been cooling and the Government have been more reticent to be clear about how many new schemes they anticipate will be set up.
This is why, among other things, the number of schemes should be included in an annual review to see whether provisions in the Bill adequately enable collective defined contribution schemes to be set up. That cannot and should not be the only measure. We do not wish such an annual report to cover only quality, but it would be useful for Parliament and the public more broadly to be kept aware of how the policy is unfolding.
There is also the wider point that a number of issues that have been raised in Committee today have centred on the speed with which the Bill is passing through both Houses of Parliament, the number of changes to the Bill in that process and the ability to scrutinise secondary legislation alongside primary legislation. All this leads to the conclusion that an annual report to Parliament would be a very effective way of giving assurances that all is well with the implementation of the Bill and indicating specifically the consequences around CDCs.
I accept that the first annual review—if, or when, this amendment is accepted—might be rather thin because, as we heard earlier, the regulations for Part 2 will not come into force until later in the year. However, I do not think that undermines the basic point that legislation of this type should be reviewed and presented to Parliament on an annual basis. I believe that the Government will welcome the publication of such a report, principally because these new schemes are part of the overall package of changes which have been hailed by Ministers as a pensions revolution. It will enable the Government to communicate to Parliament, and more importantly to the public, how these packages of reforms are rolling out, how they are working in practice and how they are achieving the policy objectives which the Government have laid out, not only with the Pension Schemes Bill but with the Taxation of Pensions Act and the other pensions provisions that have been put through Parliament. I accept that this amendment only applies to collective schemes, but it establishes a principle about reporting to Parliament on the pensions changes more broadly. It is a peg on which to hang a package of reporting and a way in which we can continue to have the ability to question and scrutinise a very important area of policy for millions of people in this country. I beg to move.
Lord Bourne of Aberystwyth
My Lords, I thank the noble Lord, Lord Bradley, for moving this amendment. I will say a little about our approach. As I think noble Lords are aware, our approach is about enabling choice. While the number of schemes is important, it is not the only measure of success.
The Bill enables schemes providing collective benefits to be set up where employers and providers wish to do so. We believe that this Bill will stimulate greater innovation and choice, allowing employers to adopt the sort of arrangements available in other countries—we have spoken previously of the Netherlands, Denmark and Canada—if it is right for them and for their employees. The number of schemes is an important issue, but it is certainly not the only issue.
We believe that the development of schemes offering collective benefits could be more appropriately monitored in other ways than a bespoke annual review, which may become something of a tick-box approach. We envisage that this could be done through existing access through the Office for National Statistics, which conducts surveys and collects data, for example.
Perhaps more importantly and across the piece, the noble Lord indicated that this review is on only one small aspect of the legislation. There is much else in the legislation. The Cabinet Office Guide to Making Legislation already requires the relevant government department within three to five years after Royal Assent to submit to the relevant Commons departmental Select Committee a memorandum, to be published as a Command Paper, containing a preliminary assessment of how an Act is working in practice. No doubt, our House can pick up on that too.
I recognise that there is a genuine concern about providing information on how this aspect of the legislation is operating in practice and perhaps more widely than the noble Lord indicated in his contribution. There is a wider issue about how the rest of the legislation is operating. I will have a look at this to see what we can do. However, we believe that an annual review is somewhat bespoke and tick-box. We have a provision for a review within three to five years of the Bill passing, but if there is anything that we can do supplementary to that, and should be doing, I will come back on that on Report. I say that without any firm promise that we believe there is anything to do, but I am happy to look at it. On that basis, I hope that the noble Lord will withdraw the amendment.
Lord Bradley
I welcome the Minister’s response to the request for an annual review. It was certainly not my intention—I hope it was clear in my opening remarks—to see this as a tick-box exercise. I see it as a very effective document that would be presented to Parliament and allow us to have proper scrutiny of a very important new proposal that has been brought forward. The Minister is right that it was in the context of looking at the wider pension reforms that are going through.
While I do not believe that we need to wait three or five years to get such an annual report, I accept the Minister’s offer to at least consider how information can be provided to the House, specifically on collective defined contribution schemes, and then more widely in the context of pension reform. I welcome the Minister’s response to that at a later stage in our deliberations. With that assurance, I beg leave to withdraw the amendment.