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Pensions Bill

The Government have said that we are interested in the concept of risk-sharing, which is why we recently issued a consultation paper on that very topic. That paper has been welcomed in many quarters as a step in the right direction. To be clear: the consultation paper we published on 5 June is very wide-ranging; it does not set out a government policy position but seeks views on a number of different proposals. On the question of whether the Government are concerned about the decline in private sector defined-benefit provision, there are a variety of estimates of the number of active members in such schemes, but we are not under any illusion that there are serious issues around the decline of defined-benefit provision, which is why we launched a deregulatory review and why we are interested in risk-sharing. The consultation paper includes material on risk-sharing within the current regulatory framework, including what changes employers are making to their schemes currently, what is possible and why only a few employers are taking advantage of these options. It also outlines proposals for risk-sharing put forward by stakeholders that include conditional indexation but also collective defined-contribution schemes. The noble Baroness’s amendments seek to modify the application of existing legislation for new schemes that provide conditional indexation. However, it is important to remember that conditional indexation schemes are just one form of risk-sharing, as we set out in the consultation document; I have just mentioned collective defined-contribution schemes, and conditional indexation itself can be based on a career-average approach or it can be included for all schemes, including final salary arrangements. We need to bear in mind that risk-sharing could have far-reaching consequences for schemes and their members. Making conditional indexation possible would be a significant move away from the current requirements and would remove a valuable protection for members. Given that targeted indexation would not in itself deliver any immediate savings for employers, we need to find out how much real appetite there would be for such a change. Our consultation paper asks for views on whether greater flexibility in the way employers and employees share pension risks would encourage employers to provide good workplace pensions. We also want to find out whether employers who provide defined-benefit pensions today would adopt the conditional indexation or collective defined-contribution approach as a middle ground for continuing to provide some sort of defined-benefit provision. We do not want to introduce legislative changes that would introduce another layer of legislative complexity if those changes would not be of sufficient benefit to warrant it. That is why we want to hear from employers and others about the likely impact of different risk-sharing approaches. This is an important issue and we do not want to rush into legislating for one form of risk-sharing until we have had the opportunity to consider responses to the consultation. We need to hear views about, and gauge the level of interest in, the other forms of risk-sharing outlined in the paper. I assure Members of the Committee that we want all types of good employer pension provision to continue and we will explore all means of achieving that. Changing the law to encourage the development of more innovative approaches to risk-sharing may be the way forward, but we want to hear from employers and other stakeholders before we consider what changes, if any, need to be made. We understand concerns that urgent action is needed to slow down the closure of good pension provision, but legislating at this stage for just one particular form of risk-sharing would be premature and could even accelerate closures. There was one issue that arose regarding the Netherlands and the impact that this can have. I do not want to dwell upon the technicalities of the proposal, but we know from the Dutch experience that where indexation is withheld but subsequently restored, there is an issue regarding fair treatment between those accruing rights or with deferred rights and those already drawing their pension. This is not least because pensioners feel the loss of indexation immediately in their pocket. We should also bear it in mind that on a recent visit to the Netherlands, a DWP official was told by the Dutch Government and industry representatives that the intricacy of the new conditional indexation system means that schemes are understood by fewer members than ever before. One of our aims throughout this programme of reform has been to encourage people to take personal responsibility for saving for retirement, and adding complexity to the occupational pensions landscape would not sit well with this aim. If they are to take personal responsibility, it is important that people understand the scheme in which they are saving. I reiterate that we are interested in risk-sharing. We expect to publish the response to the consultation in the autumn, and I will keep the House updated on progress in the mean time. Until we have gone through that detailed consultation, we believe it would be premature to rush into legislation, particularly given that there are fairly broad powers and no great detail about what may be prescribed. Given that there is not just one model of risk-sharing, we need to evaluate them all. However, it is an important issue.