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Pensions Bill [HL]

My Lords, this is a probing amendment to understand fully the implications for scheme members in cash balance schemes that are not contracted out or where members have not accrued benefits on a contracted-out basis. This clause removes the requirement to index pensions that come into payment at a future date under cash balance schemes. I have two concerns. In the first instance, cash balance schemes usually fall into one of two types. The first is cash balance with guaranteed conversion terms, whereby the pension pot at retirement is defined, based on the proportion of salary set aside each year and the guaranteed rate of interest earned, and the pot is converted to pension on guaranteed terms that are set by the scheme at an agreed point before retirement. Once in payment, the amount of pension is guaranteed. The second type is a cash balance scheme with open market annuity, whereby the pot is converted to pension on open market annuity rates and, once in payment, the amount of pension is guaranteed. My concern is that, under the open market option, an individual has a choice between a level and an indexed pension, whereas the effect of the clause—on first reading of the Bill—could require an individual in a cash balance scheme to accept conversion of their savings pot into a pension on terms that were potentially less favourable than those available on the open market option, given that they could not have access to an indexed pension. Hence my amendment, which seeks, on removal of the indexing requirements, to anchor the conversion rates in cash balance schemes to being no less favourable than those available on the open market. My second concern arises from the removal of the indexation requirements from cash balance schemes that are not contracted out, as the Bill states. Given the Government’s aspirations to accelerate the integration of the basic state pension and the state second pension into a single state pension, which will result in all schemes being contracted in, what would be the implications for scheme members who had not yet converted their assured sums into pension from their previously contracted-out cash balance schemes but had a reasonable expectation of indexation? I beg to move.