Clause
20
Test
scheme
standard
Mr.
Waterson:
I beg to move amendment No. 23, in clause 20,
page 9, line 4, leave out subsection
(3).
If
there was an Olympic event for probing amendments, this would surely be
among the medal winners. The amendment is reasonably narrow. It would
remove clause 20(3), but I have comments to make on the rest of the
clause, so if we can obviate a clause stand part debate, I will touch
on those provisions as
well.
Let me make my
fundamental point. As part of the deregulation and simplification
agenda, there is a move towards what some people call
principles-based legislation. That is probably more likely to be
appropriate in respect of pensions than many other areas. For the most
part, the people involved are grown-ups and the organisations and
companies involved are big organisations and sensible, respectable
companies. There is an agenda for turning to principles-based
legislation, but if clause 20 is an example of what we are to expect,
perhaps that is not such a good idea after
all.
My particular
beef with subsection (3) is that it does not really mean anything. It
states:
“In
applying this section the pensions...must be considered as a
whole.”
I have no idea
what that means. Is the alternative to consider them piecemeal? I have
no understanding of what it means, but I am sure that the Minister will
explain it to us.
I
do not understand subsection (3) any more than I understand subsection
(4), which makes the point that regulations will be made and refers to
determining whether the pensions to be provided under a scheme
are
“broadly equivalent
to, or better than, the pensions which would be provided...under a
test scheme.”
Again, I have no idea what
“broadly equivalent” means, and the word
“broadly” creeps in at one or two other places in the
clause, including subsection (1). Is that really the sort of word that
should appear in primary legislation? If this is the new world, I am
not sure that I am
buying.
12.15
pm
We were told
that there would be regulations, but I have not seen a glimpse of any
draft regulations on this or any other part of the Bill in which they
are proposed. Subsection (5) provides for guidance to be issued from
time to time by the Secretary of State, but I have not seen any draft
guidance. Perhaps the Minister will give us some clues about how people
in the real world will be affected by clause
20.
The
Parliamentary Under-Secretary of State for Work and Pensions
(Mr. James Plaskitt):
I am grateful to the hon.
Member for Eastbourne for the points that he made and I believe that I
can give him the reassurance that he seeks.
Together, clauses 20 and 21
establish the test scheme standard for defined benefit schemes that are
not contracted out of the state second pension. The test is conducted
by comparing the benefits payable in the scheme with those payable in a
hypothetical test scheme, and the features of the test scheme are set
out in clause 21. Clause 20 sets out instructions for conducting the
comparison.
The test
scheme standard is a benchmark for occupational pension saving and has
been set at a level that would broadly put a median earner on course to
achieve the sort of replacement rate recommended by the Pensions
Commission. Those schemes contracted out of the state second pension
will automatically meet the qualifying criteria, because to be
contracted out, schemes must already pass the reference scheme test set
out in the Pensions Act 1993. Rather than introduce a new test for
those schemes, we have set that as the qualifying requirement for the
purpose of the employer duty in this
measure.
Those
schemes that are not contracted out will meet the qualifying
requirements through the test scheme standard. That has been developed
by simplifying the principles from the existing reference scheme test,
and the amendment would require the test scheme standard to be
conducted on a different basis from the reference scheme test.
Employers conducting the test would be prevented from looking at the
average benefits paid to members of the scheme. That is the answer to
the hon. Gentleman’s question about what “as a
whole” means.
Requiring an individualised
calculation in respect of each member of the scheme, which would be the
effect of the amendment, would place a significant burden on any
employer seeking to meet the test, with a risk that the whole scheme
would fail if even one member’s pension did not meet the
standard.
Paul
Rowen:
I listened to what the Minister said about clauses
20 and 21. Clause 21 defines the test scheme and subsection (2) refers
to the age of 65, but we are moving away from 65 as the retiring age.
What provision is there for changing the test scheme as the
retirement age is changed? Surely 65 should not be stated so firmly in
the Bill when the retirement age will change over time. The calculation
that will be needed in future years will not have that figure as a
requirement.
Mr.
Plaskitt:
I do not want to tempt you to rule me out of
order, Mrs. Anderson, but I have been asked a question about
a clause that we have not yet reached. Briefly, the purpose of stating
the age of 65 in clause 21 is that it ties it clearly to the current
state retirement age. It is not the age at which people will choose to
start drawing pensions, but the age at which the state system currently
indicates that state pension is
payable.
Returning to
amendment No. 23, I was trying to point out that it would require
employers to assess their schemes against every
individual member in the scheme, which would be very administratively
complicated and, undoubtedly, hugely expensive for employers. Members
will be aware that we are committed to a programme of deregulation for
pensions, and some important elements of that deregulation are
contained in the Bill. The amendment would run completely counter to
the deregulatory reform agenda, so although the hon. Member for
Eastbourne says that he is not sure that he wants to sign up for
principles legislation, we do not want to sign up to his amendment,
which would cut against the drive to deregulate and simplify the rules
relating to schemes. The amendment would represent a big step
backwards.
The
amendment could also inadvertently lead to employers levelling down
pension provision—the very thing that the hon. Gentleman seeks
to avoid—as they would be forced to abandon good pension schemes
because only one member’s pension did not meet the standard.
That point is interesting with regard to the lengthy discussion that we
had on clause 18.
We
recognise, however, that there might be concern that a test based on
collective pensions across the scheme could mean that some individuals
lost out. To limit that risk, we intend to use the regulation-making
power in clause 20 to put in place safeguards that prevent excessive
distortion of the scheme’s average test by high earners and all
differentiated benefits. Therefore, when developing the quality tests
for defined benefits schemes, we sought an appropriate trade-off
between protecting members’ interests and minimising burdens on
business, and we believe that we have struck the right
balance.
The measure
is in the interests of simplification, which I think the hon. Gentleman
would expect us to support. I have tried to explain precisely what
“as a whole”, which he teased out of the language,
actually means. In relation to a further point that he made, the word
“broadly” will, of course, be clearly explained to
employers in the plain English guidance that will be delivered in due
course. With those reassurances on the points that he raised, I hope
that he will withdraw the
amendment.
Mr.
Waterson:
I am grateful to the Minister for that
explanation and those reassurances. The amendment was clearly
thoroughly rotten, and I wonder at my temerity at tabling it in the
first place. I beg to ask leave to withdraw the
amendment.
Amendment,
by leave,
withdrawn.
Clause
20 ordered to stand part of the
Bill.
Clauses
21 to 23 ordered to stand part of the
Bill.
Clause
24
Quality
requirement: personal pension
schemes
Amendment
made: No. 140, in clause 24, page 10,
line 28, at end
add—
‘(8) A scheme does not
fail to satisfy the quality requirement under this section merely
because the trustees or managers of the scheme may on any occasion
refuse to accept a contribution
below an amount prescribed for the purposes of this section on the
grounds that it is below that
amount.’. —[Mr. Mike
O’Brien
.
]
Clause
24, as amended, ordered to stand part of the
Bill.
Further
consideration adjourned.—[Mr.
David.]
Adjourned
accordingly at twenty-four minutes past Twelve
noon
till
this day at Four
o’clock.
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