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Pensions Bill

Conditional indexation as proposed by the Association of Consulting Actuaries is an interesting idea. I have been proposing over many years that there is a need to develop more hybrid schemes to share risk because clearly the bifurcation between DB schemes on the one hand and DC schemes on the other is absurd. Organisations such as Barclays, for example, have been looking at not only career averages but accruals at one-hundredth underpinned by a money purchase element. However, the problem has been that almost every company that has gone down this route—I am aware of only half a dozen or so major hybrid schemes which appear to share risk—has developed its own scheme; there is no common platform. As a result, to take one issue in particular, there is no way of knowing what element of a hybrid scheme is protected by the PPF because it is DB, and what is not protected because it is money purchase. I was hoping that the consultant actuaries would develop two or, at most, three common templates of hybrid schemes which could then be adopted by organisations and companies for the future to risk share. In that sense we are all in the same field. We want to reduce laying onto the employee the total risk of DC schemes but accept the need to give some security to the employer for future capping of costs in a fairly uncertain world. We all share that. On conditional indexation, however, I wonder whether the noble Baroness can help me. I thought she suggested that accrued rights would be protected, but that an existing employer within an existing DB scheme could switch future accrual of rights for existing members of existing schemes to the new conditional indexation basis. She is nodding. If so, why would not every employer go down that route? For every DB scheme that might be saved from going over to DC, would not 99 other DB schemes worsen the rate of return, which they would not have done otherwise, for their existing members? In other words, can she persuade me that this will not result in a general levelling down that would not have occurred but for this option? I absolutely accept and respect the fact that this may save the closure of some DB schemes that would have become DC for new members though not necessarily for existing members. But how would the noble Baroness protect members of existing DB schemes from being moved on to conditional indexation at a time when indexation, after a long period of stable inflation rates under this Government, may begin to move as the current recession sweeps in from the United States? That may produce a more volatile environment, causing a greater wish among financial directors to go down that path and a greater exposure to risk for the members. In a way, I am asking the noble Baroness whether she has any counterfactual evidence. I can see that this may prevent the closure of some DB schemes, but at what cost to members of existing DB schemes who will almost certainly, across the board, see their returns reduced?