My Lords, I support Amendment 71, to which I have added my name. I have little to add to the excellent words of the noble Baroness, Lady Bowles, and my noble friend Lord Young of Cookham.
I stress to my noble friend the Minister that this is a really important amendment. The Government’s recent White Paper called for pension scheme funding which enables the best deal for members, supports the economy and does not place extra burdens on business. If those are the objectives—and I think they are the right ones—they will be at odds with the draft DB funding code that may emerge from this legislation, which seems to want to drive DB schemes on a path to so-called de-risking, aiming for a particular date of maturity. This concept is simply inappropriate for an open scheme.
The regulatory approach for schemes such as USS or the Railways Pension Scheme would see their ability to invest for the long term, which must be in the members’ best interest, become much more difficult.
There does not seem to be sufficient recognition of the difference in liquidity profile and investment horizon of an open, relatively immature scheme compared to a closed scheme. Indeed, this would pose an existential threat to the survival of all remaining 1,000 or so open schemes. In the face of quantitative easing, increasing exposure to gilts and fixed income assets makes little sense while central bank policy is designed to force bond yields lower. Forcing schemes to compete with central banks to buy ever more expensive bonds is the most expensive way to fund these pension commitments.
The Bank of England’s pension scheme is an ideal example. It follows a lowest-risk approach, investing solely in gilts and other such supposedly safe assets. It does not match its liabilities, but it is open and entails a contribution rate of between 40% and 50% of pensionable salary. Should such pension contributions be required without any upside potential for a diversified investment strategy that can take advantage of the wide range of investment options available from infrastructure assets, building housing for rental and other areas where pension schemes with a long-term horizon are ideally placed to take advantage—for example, our own infrastructure, in which other countries’ pension schemes have significantly invested—schemes such as RPMI would require such significant contribution increases that members could not afford it and would opt out, and employers could probably not afford it either.
Therefore, I urge my noble friend to look carefully at this really important issue and to recognise explicitly that there are different needs for open DB schemes relative to those that are otherwise closed.