I am encouraged by the fact that the hon. Gentleman and his friends in opposition have not tabled a single amendment to the Bill. I am pleased that the Opposition thought the Bill was flawless, but the Government did not. In Committee I tried to flag up that additional amendments would be tabled on Report, and I wrote to all members of the Committee setting out what those would be. I will not speculate, but if we use all the time available this afternoon I will be surprised. I hope we have time to properly consider the amendments.
Let us consider the first group of amendments. There are quite a few—the hon. Gentleman makes a fair point—and I hope the House will bear with me while I put on the record what the purpose of them is. I am happy to provide any clarification that may be sought. The majority of the amendments and new clauses change parts 1 and 2 of the Bill in respect of the new pension categories and collective benefits. New clause 1 is minor and technical and relates to provisions on judicial pensions—I will return later to that point.
Changes to parts 1 and 2 of the Bill have been made following debates in the House and in response to points raised by one of the hon. Gentleman’s colleagues on Second Reading. We have continued to talk to what are known in the trade as “stakeholders”—people who care about this stuff—and they have provided us with further feedback. It therefore makes sense to try to amend the Bill while it is going through the House, rather than at a later stage. The changes are in two broad categories: the addition of two regulation-making powers relating to the new pension scheme category definitions in part 1, which will offer more clarity; and to provide more detail and additional regulation-making powers on certain aspects of collective benefits in part 2. They are designed to bolster member safeguards in relation to key activities in the scheme.
Part 1 of the Bill contains provisions for a new framework for categories of pension scheme. The categories are based on the experience of the member about what certainty they have, while they are saving, about their retirement benefit. The intention is to create recognition and to encourage innovation in the shared risk, or defined ambition, category. The three mutually exclusive categories are: defined benefits; shared risk, sometimes known as defined ambition; and defined contribution. The definitions describe certain features of schemes that determine which category they fall into. This framework operates at a scheme level, and as such does not affect the requirements on pension schemes in relation to matters such as scheme funding, which operate at a benefit level. It should be clear from the definitions where existing schemes fit within this framework. The definitions also allow for new scheme designs.
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The amendments do not change any of this, but they provide for two regulation-making powers in response to technical feedback. I will explain those in more detail shortly, but I just flag to the House that one clarifies what
“at a time before the benefit comes into payment”
means in respect of certain schemes, a point raised on Second Reading. The second is to be able to ensure that, going forward, the definition of defined benefits scheme retains its intended meaning as explained in the House,
and in various policy publications, namely that the member is not sharing risks, such as investment risk, in a defined benefits scheme.
Part 2 of the Bill introduces a new definition of collective benefits. This definition operates at a benefit level and does not have the same meaning as a shared risk scheme. Collective benefits do not create any additional liabilities for an employer above any pre-agreed level of contributions, and can provide for more stable outcomes for members compared to individual defined contributions schemes. To enable a new collective benefits pension design, part 2 defines the meaning of collective benefit and provides a number of regulation-making powers about key aspects of managing those schemes.
The amendments that I am moving today include powers to improve governance and transparency for members. They add to the powers in the Bill in relation to: enabling regulations to be made in respect of the matters to be taken into account, and the principles trustees and managers must include in the scheme policy, and follow, on key areas where policies are required; enabling regulations to require trustees or managers to act in a specific way in certain circumstances, for example, in relation to dealing with a deficit or surplus in respect of any collective benefits in particular circumstances; and making provision for regulations in respect of identifying collective assets in a scheme, winding up a scheme with collective benefits, calculating collective benefits and applying transfers calculation methods to pensions sharing on divorce. I hope that that high-level overview helps the House to understand the purpose of this group of new clauses and amendments. I will deal with them in turn.
New clauses 1 and 2 help to provide the necessary transparency about how members’ benefits will be calculated. They introduce a requirement for schemes to have a policy, which they will follow, about the factors used to determine each collective benefit. Regulations made under powers in new clause 1 may set out certain requirements about the policy, including in relation to content and matters that the trustees or managers must take into account when drawing up the policy. Regulations made under new clause 2 may impose requirements about factors used to determine each collective benefit.
New clause 3 and amendments 5, 6, 23 and 25 will ensure that schemes act appropriately to keep the scheme on target. In general, trustees and managers will have discretion about how they will respond to a deficit or surplus and will explain in their policy the actions they will take. Amendment 5 allows regulations to specify certain matters that trustees or managers must take into account when formulating that policy. However, there may be particular circumstances in which it would be appropriate for regulations to require that a deficit or surplus is dealt with in a particular way. New clause 3 provides a regulation-making power that will allow us to specify circumstances in which schemes must respond in a particular way to deviations from the required range, and amendment 6 is consequential to that. Amendments 23 and 25 simply insert definitions of “deficit” and “surplus” into the interpretation clause in part 2, and give them the same meanings as the definitions included in clause 19. The word “deficit” in clause 20 has its own, separate, definition.
On Government amendments 7 to 13, trustees and managers of schemes providing collective benefits need to have a policy on calculating cash equivalents, which
should cover all circumstances where a cash equivalent might be required. Amendments 7 to 12 simply ensure that the policy deals with calculation of cash equivalents for the purpose of pension sharing on divorce and transfer of pension credit benefits arising from a pension share, as well as revising a cross-reference to the Pension Schemes Act 1993. The amendments also include a power to add, through regulations, further circumstances where a cash equivalent might be required. Amendment 13 allows regulations to set out matters to be taken into account, or principles to be followed in formulating that policy.