Personal Accounts Delivery Authority Winding Up Order 2010

I apologise to the noble Lord: I did not pick up his point correctly. It was always envisaged in the Act that there would be a phasing-in that would interrelate with the staging arrangements. That is partly to help individuals who have not saved in pensions schemes before to adjust to the costs and consequences of doing so; and similarly to help employers who have not previously engaged. On the issue of staging, we recognise that some people will have less time than others to build up savings. We estimate that somebody who enrolled last could have a pension fund 3 per cent lower than if they had enrolled first—but that is because of the staging rather than the phasing-in component. The noble Lord asked about investment risk. These reforms are intended to enable individuals to make greater financial provision for their retirement by making contributions to a defined-contribution pension scheme that meets defined quality standards. Like any DC scheme—as the noble Lord is well aware, being an expert in these matters—NEST will aim to earn a return on contributions by making appropriate investments. Inevitably, this involves making a judgment on the balance between the anticipated return from investment and exposure to risk. PADA is carrying out the initial work on the investment approach for NEST. It will prepare recommendations for the NEST corporation which will, as the trustee of NEST, make all investment decisions. PADA has consulted extensively with the pension investments industry, unions, employer representatives, consumer groups and academics in order to develop recommendations that best meet the needs of NEST’s likely membership of low to moderate earners. That consultation was widely praised for its analysis and thorough coverage. PADA’s emerging thinking, following consultation, suggests that the investment approach that many UK DC schemes take, whereby members' contributions are invested predominantly in the stock market, may not be appropriate for the members of the scheme, who are likely to have a low appetite for risk. Certainly one would not imagine the involvement of hedge funds. PADA is likely to recommend to the NEST corporation a strategy that invests members' contributions in a range of asset classes such as government bonds, stocks and shares, cash and alternatives. Such an approach would be designed to reduce volatility, as sharp falls or rises in the fund value would create the risk that some individuals would get back less than their contributions. In any DC scheme there are no guarantees of what an individual's final pension will be. A variety of factors can influence pension income, such as future annuity rates, inflation and interest rates, as well as returns on investment. I hope that that has given the noble Lord a flavour of where the exercise is heading.