My Lords, I will restrict my remarks to Amendment 32, which is in my name and the names of the noble Lord, Lord Vaux of Harrowden, and my noble friend Lady Bowles. I thank them for their support. In Committee, we spent a long time discussing intergenerational fairness in CDC schemes. We did this partly because we knew from the Government’s excellent briefing note that concern about intergenerational fairness was raised by many respondents to the consultation and because it seemed clear that the risk to intergenerational fairness was an almost inevitable feature of such schemes.
We pressed the Government to legislate the requirement for intergenerational fairness into the schemes. We knew that the Government themselves were deeply concerned about the issue and seemed to be choosing mechanisms for intergenerational fairness over benefit stability; but as I remarked at the time, it was hard to tell how they might work, since the mechanisms for bringing this about were not yet explicit and no real assessment of effect was possible.
In her response, the Minister made it clear that she shared our commitment to ensuring intergenerational fairness and that the mechanisms for achieving it
would be introduced, after extensive consultation, by regulations under Clause 18. This will be long after the Bill has become an Act, and leaves open the question of how we will assess the success or otherwise of these mechanisms. It also leaves open the question of how the assessment of any such mechanisms will be communicated to members and potential members of the scheme.
Our Amendment 32 proposes a way of addressing these issues. It provides that, whenever TPR issues a notice requiring a scheme to submit a supervisory return, the notice must include a requirement that the trustees
“make an assessment of the extent to which the scheme is operating in a manner fair to all members.”
The amendment speaks of fairness. Intergenerational fairness is a critical subset of fairness, but there are other kinds of fairness, too. For example, there is gender fairness, and single versus married status and the fairness implicit in that, or not. The amendment makes no attempt to define fairness; it relies on the trustees to do that, as they should in the normal operation of the scheme. Their definitions and assessments will help members of all classes, and potential members, understand the working of their scheme and the success of the trustees in operating it fairly in the interests of all members.
As I mentioned in Committee, AJ Bell noted that the DWP leaves little doubt that it will not allow schemes to be skewed in favour of one cohort of members over another. I am sure that is the intention, but AJ Bell also noted that fairness could make outcomes in CDCs less predictable and raises the spectre of pension cuts. It goes on to say:
“The DWP itself notes any reductions in benefits will not be well received, and so clear communication of this – not just upfront but on an ongoing basis – will be absolutely essential.”
Our amendment will bring some communication and transparency to the balancing required to produce, and to the consequences of producing, fairness across all member cohorts.
In Committee, the Minister explained how the proposed headroom mechanism for the Royal Mail scheme would be fairer than a capital buffer. All classes of members and potential members of the scheme need to know how well this headroom mechanism or other mechanisms generated by Clause 18 are working. Our amendment will require the trustees to explain these things and to assess their success in managing the scheme fairly for all members.
Given the acknowledged risks to fairness inherent in the scheme, and that Parliament’s opportunity to influence the mechanisms that might arise in regulation will be as small as usual, it is vital that scheme trustees are open and transparent about their success in producing fair outcomes for all members. That is what our amendment would help bring about, and I intend to test the opinion of the House.