The amendment is in my name and that of my good colleague, my noble friend Lord McAvoy, who will continue to support me through the process of the Bill. This is also the first day that I have been at the Dispatch Box moving amendments, though we are a double act that flowed through the other place for many years.
The amendment is encapsulated in its first line:
“The fiduciary duty of pension scheme trustees shall include a duty to consider whether the scheme has sufficient scale to deliver good value for members”.
Our proposed new clause would give the Pensions Regulator, along with the trustees of such pension schemes, the power to consolidate pension schemes.
The Pensions Regulator has been clear that scale is to be encouraged as it enables schemes to achieve better value for money, higher quality governance and economies of scale. Scale is very important in reducing the cost of intermediation. The key report by John Kay for the Department for Business, Innovation and Skills recommended a reduction in intermediation. He made it clear that there were far too many intermediations and scale could be a trigger for in-house asset management. Evidence from abroad supports this view.
For example, in Canada, scale means that schemes do not necessarily have to pay private equity houses and agents in order to buy private equity.
There is a general view that there are currently too many schemes—around 200,000, it is estimated—and the proposed new clause would enable this to be reduced by giving trustees the power under their fiduciary duty to recommend merger if it is in the best interest of the scheme, and enables the Pensions Regulator to take action if it believes small schemes are not obtaining value for money. Currently, the Bill contains no measures which would help promote scale, which most independent observers believe is necessary for collective DC schemes and work-based pensions in general to do the best for their employees. We have long argued that measures to promote scale are vital to ensure the best outcomes for savers, and those measures deal with the important issue of finding high-quality trustees. If there are fewer schemes, there is less need for a large number of trustees and we therefore address the quality as well as the quantity in schemes that are currently in place. The Government could, for example, require that automatic transfers default into aggregators, and the criteria necessary for qualifying as an aggregator could include scale.
The House of Commons briefing note on the Bill states:
“However, certain conditions such as large scale and strong governance appear necessary for DC schemes to operate successfully”.
Further, three-quarters of respondents to the consultation prior to the Bill thought there was a need for government intervention to create the scale necessary for schemes to offer proper guarantees.
To sum up, it is our view and the view of the Pensions Regulator—which was set out in evidence—that there has to be a scaling up of the UK pensions industry. At the moment there are far too many schemes. We want a process in place to try and reduce that and build up scale. Our proposed new clause would not by any means reduce the number to a handful but it would make a start by giving powers to trustees and the regulator to promote scale. It would be a sensible addition to the powers of trustees and the regulator. Given the widespread consensus in the pensions industry that scaling up will have to happen, and that in so doing costs would be reduced and there would be a better outcome for savers, I believe that the Government will wish to support this amendment and therefore I beg to move.