Clause 20 - Duty to set targets for collective benefits

Part of Pension Schemes Bill – in a Public Bill Committee at 12:00 pm on 30th October 2014.

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Photo of Steve Webb Steve Webb The Minister of State, Department for Work and Pensions 12:00 pm, 30th October 2014

I certainly was not suggesting that people should reflect on the finer points of the investment strategy and press for change, or, at a fundamental level, on whether or not to be in the scheme. Under auto-enrolment, they will be placed in a scheme that they do not have to stay in, and if they are not satisfied with the governance or with the targets, they may take their money elsewhere. That is the type of thing that individuals will be choosing.

Collectively, for example, trade unions might want to scrutinise things on behalf of employees in the work force. If they feel that the CDC scheme to which the work force are being automatically enrolled is not as good as another CDC scheme, they could make representations to the employer to choose a different scheme. So it is horses for courses. All the information has to be available, but we do not impose complicated stuff on people who are not well placed to deal with it. That is the balance we are trying to strike.

The hon. Gentleman probed further on targeting and having a probability range as against a funding target. In our judgment, a funding figure is backward looking. The year comes to an end and the clever people do their clever sums. They come up with a number and tell someone that they were 110% funded last year. The probability is forward looking: as we go into any year, based on the best assumptions about what will happen in future, what is the probability of delivering what was targeted? In our judgment, the most intuitive and best way—not the only way—is for the people in charge of  the scheme to go into a year planning to achieve their targets with a set of probability, or in a set probability range, rather than potentially reacting with considerable lag to events in terms of the funding outcomes. I do not think that schemes that do that differently are doing it wrong. I just think that it is probably clearer to scheme members to have a forward-looking model, rather than a backward-looking model. That is the judgement we have come to.

Finally, the hon. Gentleman asked about the balance between primary and secondary legislation, which is a familiar theme. In dealing with new forms of pensions—new models and new providers—we can speculate on what they might look like. We talk to people, and we amend the Bill when they tell us that we have not got it quite right, so the dialogue is ongoing. However, on trying to hard-wire particular features of the model—such as limits on probability ranges—in primary legislation, I do not think we are in that place yet. We do not anticipate that any of this will go live until post-April 2016. As we have got time, we want to set out the overall framework and go on talking to potential providers, employers and members about what they want, and then we can frame the regulations in the light of that, rather than second-guessing them at this stage. That is why we have chosen this balance. I hope that that is helpful. I commend the amendment to the Committee.