It is a pleasure to speak in this debate and welcome the many positive measures in the Bill, which will substantially improve the pensions landscape in the UK—not before time, perhaps. I wish to touch on the two main areas that the debate is focused on: the introduction of the defined-ambition or shared-risk scheme, and the move to get flexibility at retirement age and the guidance that that involves.
We should pay tribute to the Minister for the fact that we have defined ambition in a piece of legislation; it has been almost a one-man dream for most of this Parliament, and perhaps we all thought it would not quite make it, but here it is in the Bill. If I appear generous in my praise for my coalition colleague, let me say that is was a brave thing for any politician to try to define a promise. We have all struggled with this: when is a promise not a promise? We know now that a promise is not a promise when it is an ambition. I think we were tortuously trying to work out in this Bill how to say what constitutes a complete pension promise and where something is not quite a promise but an aspiration, a hint, a suggestion or something more than a hope. I think that the Bill’s definition just about gets there, but I am not totally sure, without trying to work it through in various scenarios, that I can work out when a full pensions promise perhaps becomes a partial promise. That goes to the nub of the matter.
When we try to get into the detail of how we regulate these things and move them forward, we find how much of a promise or how much certainty or expectation can be created to allow one of these schemes to become a shared-risk scheme rather than a defined-benefits scheme or something that is no more meaningful than an existing defined-contributions scheme. Working out exactly what a good employer who is trying to be generous and helpful to their staff can say without falling foul of some of these rules will be hard. I assume that what we are trying to do is to say that under a defined-benefits scheme, if a person finishes their role on £30,000 a year, they will get a £20,000 a year pension. That is clearly a defined benefit. I suspect that what we are trying to say under defined ambition is that if a person finishes their role on £30,000 a year, and investment returns and longevity are just about what we expect, we think that we will be able to give them £20,000 a year. But if those assumptions are a bit out, we might have to put in a bit more money ourselves and they will get £18,000 rather £20,000. I suspect that that is the sort of promise we are trying to achieve with a shared-risk scheme.
It is not clear exactly how we can set the parameters. For example, when can £20,000 become £10,000? If there is a higher investment return, contributions can be reduced and we may still think that we can get £20,000. I think that we will just end up dropping back into regulatory uncertainty and all the issues that we have had on defined-benefits schemes. A lot of work needs to be done to get these schemes out in the market. We need to understand exactly how much risk the employer is running and how much certainty the individual gets; otherwise we are left with the difficult situation the Minister alluded to, where one side thinks it is an actual promise and the other side thinks it is a kind of hope. It probably means that whoever regulates these new shared-risk schemes will have an incredibly important role. In some ways, it will be even more difficult for trustees to administer defined-benefits schemes. I sense we will need a very competent and focused regulator looking at these things.
As I said in my intervention, it is a little difficult to see where the line will be drawn between defined benefit and defined ambition and between defined ambition, defined contributions plus and pure defined contributions. I suspect that before these things get into full speed, we will need one regulator doing all those things. If a scheme makes a bit of a promise and then withdraws it, does it drop out from being a defined ambition and become something else?