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Pensions Bill [HL]

My Lords, as anticipated by the Minister, I rise to express reservations about government Amendment 44, which continues to give rise to the anxieties expressed by my noble friend Lord McKenzie. While on the face of it the amendment appears to be somewhat benign, aimed at improving the drafting of the Bill, on more detailed reading it raises anxieties, certainly in my mind. As I understand it, this amendment would allow trustees to change pension scheme rules to enable their employers to meet the regulatory test set by the Secretary of State for the alternative requirement for certifying that their scheme meets the qualifying earnings contribution standard—the alternative requirement regulatory test, which my noble friend Lord McKenzie was addressing in Amendments 42 and 43. My anxieties are twofold and I will try not to be too technical in addressing them. First, the intention behind the regulatory test for the alternative certification to the normal statutory quality requirement was, I believe, to assist good employers who run good schemes but who use a definition of pay for pension purposes other than earnings. However, either their scheme meets the test or it does not. An assessment against that proposition should stand or fall on its own merits. Having made the concession of an alternative qualification test, surely one cannot allow scheme trustees to change their scheme rules in order that the alternative regulatory test is met. That strikes me as changing the original intention of the alternative test and encouraging arbitrage by bad employers, particularly if that regulatory test is weakened, because if a bad employer—and I know that good employers will not do this—can see the benefit of redistributing pay between base pay and other elements of earnings, they may be able to avoid paying contributions on a segment or proportion of members of their workforce. If we have good employers—and the primary intention of this regulatory test is to allow them to show that they are good employers—I do not see why the proposition cannot stand or fall on that basis and why we need to allow subsequent amendments to the scheme rules. Secondly, the Bill allows for the regulatory test, as my noble friend Lord McKenzie has said, to make an assessment for an employer’s workforce as to whether it meets the contribution requirement at the aggregate level. However, it allows simply for an assessment for a majority of employees at the individual level and, in that way, the regulatory test can still be met. This amendment appears on the face of it to allow trustees to change their scheme rules, with the effect that some individuals are made worse off, under both the scheme rules and the statutory provisions, because no one has disputed that it is possible for some individuals—maybe up to 5 per cent or more, even on the Government’s own arguments—to be excluded from a contribution to which they might have had access if the statutory provisions had been strictly applied. However, we now find the situation where a group of individuals could be made worse off—not only under the statutory provisions but also under their scheme rules—but where an employer can still meet the regulatory test. I am also concerned that this regulatory test could be made weaker. The consultation on the regulatory test, as outlined by the Minister, has not concluded. We know that it is ongoing, so we do not know what will eventually be brought forward in the regulations. If the regulatory test becomes weaker, the problem could become worse, because there is an even greater incentive to change the scheme rules to take advantage of that regulatory test. Therefore, I have reservations.