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Pensions Bill

I thank the noble Lord for his amendment, which I understand is a probing one. Clause 21 sets out the quality requirements for defined benefit schemes with members in employment that is not contracted out of the state second pension scheme—commonly known as non-contracted-out schemes. This test operates in a similar way to the reference scheme test, which is an existing test of overall scheme quality for schemes with members whose employment is contracted out of the state second pension scheme. We recognise that many employers make generous pension provision through their defined benefit schemes and we want to encourage them to retain these schemes. That is why, when developing the quality test for non-contracted-out DB schemes, as well as ensuring that they deliver the additional private pension saving required under the reforms, we sought to minimise any burdens on business by introducing a simple scheme-wide test. Amendment No. 67 would prevent the test scheme standard from being a scheme-wide assessment. I know that that is not the intention but the amendment could make the application more complex and increase the burdens on business. Undertaking an assessment of the projected benefits for each member of a DB scheme would be more time-consuming and complex for employers. Amendment No. 68 would remove an important power in Clause 21 allowing the Secretary of State to make secondary legislation relating to the test. Without the regulation-making power in Clause 21(4), the Government’s ability to set the criteria for determining whether the pensions provided by a scheme were equivalent to, or better than, those provided by the test scheme would be severely curtailed. We would also effectively lose the power to specify the detailed application of the test scheme standard in technical guidance, as our ability to issue guidance is, by virtue of subsection (5), dependent on the ability to make regulations. This guidance will be particularly important where actuarial comparisons are being made. The power in subsection (4) is there to enable us to provide employers with the right assistance. Without it, employers, possibly with advice from their actuary, would have to determine how the test scheme would operate in order to assess whether their own scheme met the standard. The test would no longer be standardised across schemes, because employers and/or their advisers might have to rely on their discretion in making an assessment in relation to their scheme. This is something that they might not feel comfortable doing. We will use the regulation-making power as necessary to prescribe the method of determining whether the test scheme standard has been met, which will ensure that it targets the additional pension saving required under the reforms and is a relevant and effective measure of scheme quality. I hope that my response has clarified the purpose and importance of this regulation-making power sufficiently for the noble Lord to feel able to withdraw his amendment. How many individuals must fail the test is not relevant to how defined benefit schemes are tested, because it is done on a scheme-wide basis, whereas with defined contribution schemes one is looking at inputs on an individual basis.