My Lords, I refer to my interests in the register. I move Amendment 8 in my name and that of my noble friend Lady Sherlock and the noble Baroness, Lady Bowles of Berkhamsted. Collective money purchase schemes—CMPs—seek to share risk collectively and more efficiently between their members. There is no employer promise under- pinning that risk. The Bill currently restricts CMP schemes to those set up by an employer or connected employers such as the Royal Mail. It would require the Secretary of State, exercising powers under Clause 47, to extend the qualifying definition to include CMP schemes that cover a lot of unconnected employers.
A function of the legislation is to understand the risks that members face in a CMP scheme, and to put in place appropriate measures to mitigate them. One of those risks is that a scheme becomes financially unsustainable and has insufficient resources to meet the costs of dealing with a triggering event where it occurs, and the cost of continuing to run on the scheme for a period while the problem is dealt with. These costs may include the cost of transferring members’ assets to another pension scheme and winding up.
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Amendment 8 gives a power to the regulator to seek a contribution, from an employer using or intending to use a qualifying scheme, to the financial resources available to meet the costs of setting up the scheme or resolving a triggering event. A triggering event that would raise the alarm bells on financial sustainability could include the main employer becoming insolvent, declining in size or choosing to withdraw from the scheme—thereby cutting off the future supply of contributing members, which would undermine the collective risk-sharing approach—as well as a major administrative failure or governance failures that lead the regulator to rescind authorisation.
The resolution of these failures can incur significant costs. The risk of a scheme becoming financially unsustainable may be higher in a scheme that is used by only one employer or unconnected employers than in a scheme that has many unconnected employers participating. Where only one or connected employers are using the scheme, the actions or circumstances of that employer are much more likely to materially affect the financial sustainability of the scheme.
The financial sustainability requirement in Section 14 is intended to protect against that risk if a scheme experiences a triggering event. The Bill does provide restrictions on the imposition of member-borne charges during a triggering-event period, but my concerns remain that the Bill as drafted means that the only source of financial resource to deal with a triggering event could be restricted to the scheme’s fund.
My amendment does not seek to prescribe how exactly the pension regulator will implement the requirement that a scheme has sufficient financial resources to meet the financial sustainability requirement of meeting the costs of setting up a scheme or resolving a triggering event. What it does is to provide for the regulator to have the power to seek a contribution, from an employer using or intending to use a qualifying scheme, to the financial resources available to meet the costs of resolving a triggering event. Where, or whether, that power is used would be a matter for the regulator in the authorisation and supervision of each collective money-purchase scheme.
I have raised this issue on several occasions, which I am sure is a source of some frustration for the Minister and the department, but I have not received a clear answer. Can I ask the Minister to give clarity as to who can be required under the Bill to contribute to meeting the costs of resolving a triggering event? Clause 14(3) requires the regulator to satisfy itself that it has sufficient evidence that the financial sustainability criterion is being met and that members are protected. The Minister advised in Committee on 24 February that this would include
“evidence of any financial commitment by the establishing employer or connected employers ... that the scheme has access to the financial resources it needs, including in the event of employer insolvency.”—[Official Report, 24/2/20; col. 16GC.]
Although the evidence that the regulator will take into account is of interest, it does not give or specify that the pensions regulator will have the power to seek a contribution from an employer using or intending to use it as a qualifying scheme to the financial resources
available to meet the costs of resolving a triggering event. That is the intent of my Amendment 8 and I beg to move.