Occupational Pension Schemes (Collective Money Purchase Schemes) Regulations 2022

Lord Davies of Brixton Excerpts

Wednesday 23rd February 2022 Grand Committee

Finally, on charges, will the code give guidance in the absence of reference to a de minimis for small pots and on how charges in relation to performance fees will be fairly applied when a member seeks a transfer out?

[Lord Davies of Brixton (Lab)]

My Lords, I join the previous speakers in thanking the Minister for her helpful introduction. To a certain extent, it was discursive, in that it brought in broader issues to set the context for these regulations. I suspect that, in this area, we just have to get on and do it before we truly understand what the problems are. The Royal Mail proposals act almost as a pilot: we do not know how this is going to work until we actually do it.

The advantage of speaking after my noble friend Lady Drake and the noble Baroness, Lady Janke, is that almost all the points that I had in mind to make have already been made. In particular, we have to move towards multi-employer schemes. We have to move towards schemes that are effectively in payment-only arrangements. They are not really encompassed within these regulations, and we hope that, in due course, we will be able to move forward. When I say, “in due course”, I really mean “soon”, but it is good to have the issues on the table, and I am glad that the noble Baroness, Lady Janke, made those points and I echo them.

I am glad that my noble friend Lady Drake asked all those questions, as they are all pertinent and important and need to be answered. I have one slight question about her use of the term “central estimates” and the suggestion that these decisions have been made using prudent estimates. The problem with prudent estimates is: prudence for whom? One person’s prudence could be a counterparty’s lack of prudence. That is one of the central issues that still needs to be resolved in how these schemes operate: whose interests are being considered, and how to offset the interests of one group against another.

My natural inclination in those circumstances is to use what we used to call “best estimates,” which have now been retermed “central estimates”. “Best estimates” perhaps captures the issue a bit more closely, but people did not like using that term, so we now have to learn to use “central estimates”. The point is that, as soon as you move away from a central estimate, you move towards favouring the interests of one group as against a counterparty group. That is one of the issues. The question was entirely reasonable, but it is a particularly difficult one to answer, which goes to the heart of how these schemes will operate in practice.

My third point is about the sheer complexity of this set of regulations. It is a bit depressing that there are going to be even more regulations. I have been told that, in practice, it is easier to establish a defined benefit scheme than one of these schemes; the procedural hoops that have to be jumped through to establish a scheme are easier for defined benefit schemes than for these new CDC schemes. Perhaps that is the right approach, but its effect is doubtless to deter organisations that might otherwise be attracted to developing this form of provision, because they are intimidated against doing it in practice. As is the nature of things, they will tend to be smaller, less professionally savvy groups of employers. That is why moving towards a multi-employer model is so important and urgent.

I think it reasonable to assume that other employers of the Royal Mail model are limited. This will work only if it is provided for a whole range of different sizes and natures of employer, including employers without strong human relations or whatever the staffing function is called, and employers without a strong union presence that can get involved in the development of this sort of scheme. In my view, that will happen only when we have a multi-employer model.