The Minister is right that this is an important part of the Bill. We are discussing what we mean by “collective defined contribution.” The Minister made an admirable stab at it, but at this stage it might be useful to try to get a sense of what we are talking about in language that is intelligible to people who are not pension experts like us.
This came up in the witness sessions, so it might be useful for the Minister to say what he thinks is the big advantage of collective defined contribution vis-à-vis individual defined contribution. I know that it is implicit, and to some ears it may be explicit, in what he says about smoothing, targets, stability and outcome, but it might be useful to bear down on that language. We are constantly searching for more straightforward language on pensions.
It would be equally useful to be honest about the potential downsides of collective defined contribution. Most things have upsides and downsides. The Minister used the term “balance” a moment ago, and it would be useful to have a sense of where he sees the potential downsides. There is an issue with one scheme potentially cutting pensions in payment, which he is concerned about. He has tried to do this, but he should explain it simply at a general level. He said that collective benefits cannot contain a promise. There will be people who do not understand what that means, so it is important that, as we begin discussing these clauses, we have a common vocabulary on these issues.
The Minister talked about the fixation on the Netherlands, and he also mentioned Canada. I suspect that the Department for Work and Pensions has been looking at New Brunswick as an example. He quoted the IPPR, which has done some research on this subject. This morning I asked whether there is a danger in defining something as shared risk if all the risk is being borne by the employee, the scheme member, rather than by the scheme. Are there forms of collective defined contribution that would fail that test?
Another issue, which we have not yet discussed, is the best form of collective defined contribution and whether it should be at an industry level. The Minister mentioned master trusts—does he have a sense of whether we are talking about master trust level or company level? It might even be on a national basis, which is certainly how some schemes operate, admittedly in smaller places.
There are a number of issues with the language. The Minister did not create that language, and it is a constant issue for all of us. This is a cliché, but it has struck me that the communication challenge with this will be significant. The governance challenge will also be significant, and I will say more about that. If we can find a common vocabulary and agree on the terms we use and what they mean, we can hopefully make some useful progress. Those are not the easiest questions—if they are questions—but they are my observations on a common vocabulary as we proceed into the collective benefits part of the debate.