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Pensions Act 2007 (Abolition of Contracting-out for Defined Contribution Pension Schemes) (Consequential Amendments) (No. 2) Regulations 2011

My Lords, I do not propose to detain noble Lords for long with my contribution. I start by thanking the Minister for his introduction to and detailed explanation of the orders. As he indicated, they spring from the Pensions Acts 2007 and 2008, of which one has some fond memories and some other memories as well. He reminded us that they were based on the findings of the commission chaired by the noble Lord, Lord Turner. He will understand if we on this side now refer to the commission as the ““Drake, Turner and Hills commission””. But he was right to say that there was a political consensus at the time, as indeed there is now. The date for implementation was identified by the previous Government, and we are grateful for the support of this Government in taking it forward. The noble Lord, Lord German, is in a sense right in his description of what is happening here. People are moving out of a DC scheme into something that is effectively a DB scheme—moving out of a funded scheme into something that is pay-as-you-go. That is the essence of the switch that is going on here. I have about three questions for the Minister, all of which I hope are pretty straightforward. The first was touched on by the noble Lord, Lord German. The impact assessment talks about actuarial neutrality. It identifies for employers both a short-term and a long-term neutral component to this. For individual employees and for the Government, although there may be actuarial neutrality overall, the cash flow effect for each is different in the sense that the Government will generate cash flow from this in the early years, while of course the payback will be the extra state second pension paid in later years. If we look at the remainder of this CSR period and perhaps the next period, how do the cash flows pan out? What is the extra amount of revenue for the Government over the period, which they will pay for later with increased contributions to S2P? What are the Government planning to do with the headroom they will get from that cash flow? I might suggest that they could help out on dealing with adjustments to the state pension age, but that is probably a debate we ought not to have at this point. My second query was partly prompted and indeed enhanced by what the noble Lord said about the Insolvency Act and Article 3, and why that will not operate in future because schemes post abolition will not be able to track protected rights. I suppose that my question is this: looking at what is happening here, most of the DC schemes involved are personal pensions and therefore do not have the trustee arrangements that some of the occupational schemes may have as part of their fiduciary duties. What will protect the legacy guaranteed minimum pensions of those who built up these rights in the past? As the noble Lord said in his introduction, at the moment protected rights have restrictions on scheme transfers, on the type of annuity that can be bought—a unisex annuity—on survivor benefits and on joint life annuities. I think that that is one of the requirements. If that is all swept away and we are left to deal with contract-based schemes without the protection of trustee arrangements, what protection will there be for people with legacy rights? Obviously for new entrants and for the future the issue does not arise. My last point again picks up on a comment made by the noble Lord, Lord German. He said that he liked the direction of travel because it helped us towards the enhanced flat-rate pension. Perhaps the noble Lord can give us an update on that. In particular, will he explain how as a practical matter it will be possible to deal with that while there is still contracting out from DB schemes and whether, as the noble Lord asked, there are any proposals to accelerate the withdrawal of contracting out for DB schemes? Those are the only questions I have, and I look forward to the Minister’s response. However, obviously we support the regulations.