Pensions Bill

moved Amendment No. 69: 69: After Clause 98, insert the following new Clause— ““Conditional indexed arrangements (1) Schedule (Provision for conditionally indexed arrangements etc), which— (a) amends section 84 of and Schedule 3 to the Pension Schemes Act 1993 (c. 48) (basis of revaluation), (b) amends section 51 of the Pensions Act 1995 (c. 26) (annual increase in rate of pension), (c) amends section 67 of the Pensions Act 1995 (restriction on powers to alter schemes), (d) amends Schedule 7 to the Pensions Act 2004 (c. 35) (pension compensation provisions), and (e) makes provision for consequential amendments for the operation of conditional indexation in relation to a scheme that satisfies prescribed conditions, has effect. (2) The amendments made by Schedule (Provisionally for conditionally indexed arrangements etc) do not apply in relation to any scheme or arrangement in existence prior to the coming into force of this section. (3) In this section, ““conditional indexation”” relates to benefits provided by a conditionally indexed scheme. (4) For the purposes of this section and any regulations made under it, a ““conditionally indexed scheme”” is an occupational pension scheme within the meaning of section 1 of the Pension Schemes Act 1993 which— (a) was established after the coming into force of this section, (b) is not a money purchase scheme as defined by section 181(1) of the Pension Schemes Act 1993, (c) provides that the future indexation of pensions both in deferment and in payment (at least the minimum rate required under section 84 of and Schedule 3 to the Pension Schemes Act 1993 or section 51 of the Pensions Act 1995, as relevant, as if those sections applied to conditionally indexed schemes) is funded for in accordance with Part 3 of the Pensions Act 2004, but is not a liability of that scheme such as to create an accrued right or entitlement for or in respect of a member unless and until it is awarded by the trustees or managers in accordance with such terms and conditions as may be prescribed, (d) complies with methods and assumptions prescribed for the setting of normal pension age, and (e) complies with such other requirements as may be prescribed.”” The noble Baroness said: My Lords, in moving the amendment, I shall speak also to Amendment No. 70. These amendments insert a new clause after Clause 98 and a new schedule after Schedule 2. They would allow conditionally indexed pension arrangements to be introduced into the UK. I will not weary the House with an extensive explanation of conditional indexation, because we covered that in some detail in Committee. These amendments are identical to those that I moved in Committee and I understand from the Minister’s officials that, if not perfect, they are fit for purpose. I shall go straight to the issue. Defined benefit provision in the private sector is in terminal decline. The Association of Consulting Actuaries estimates that only some 900,000 private sector employees remain in schemes that are open to new members. A recent survey by Aon shows that one-third of private sector schemes which were opened to new members a year ago have now closed. The Association of Consulting Actuaries’ survey of SMEs shows a situation that is even worse—91 per cent have closed to new entrants and 48 per cent have closed to future benefit accrual. Recent stock market falls will bring pension deficits to the fore again and, unless something is done, boardrooms will increasingly take decisions which will place more and more pension accrual on a defined contribution basis. The director-general of the CBI has said that we need to ““set employers free”” to design schemes which are open about the level of benefits to be provided to members, but which do not necessarily have to provide everything. The Government’s rather belated consultation on flexibility ended nearly two months ago and we have heard nothing about that review. We have a Pensions Bill before us and we may not have another for some time. It seems that the Government will let this opportunity pass and, therefore, we have to doubt the degree of commitment within the Government to finding flexible ways in which the complete eradication of defined benefit provision in the private sector can be avoided. The Association of Consulting Actuaries has developed one form of flexibility, conditional indexation, which is contained in the amendments. This gives only a modest degree of flexibility to employers who cannot afford to meet the onerous indexation provisions set out in our pensions legislation. I remind the House that we are the only country which insists on the indexation of pensions before and after retirement. Conditional indexation does not abolish that, but merely allows it to be modified in certain circumstances prescribed in regulations. The funding of the scheme would continue to be overseen by the regulator, who we know has a vast armoury of powers to deploy to keep schemes well funded. We do not believe that these amendments would stand in the way of the Government bringing forward further flexibility arrangements. Indeed, we hope that the Government will genuinely set employers free to design pension arrangements which they are comfortable operating. Flexibility is the only route to avoiding the whole private sector population being forced to migrate to defined benefit provision. That will, of course, leave the public sector with its gold-plated pensions, but the noble Lord, Lord Kirkwood, will speak to that issue when he moves his Amendment No. 74. The Minister claimed in Committee that the Netherlands scheme, on which these amendments are based, is not well understood by members. It is more difficult to communicate the details of conditional indexation than plain-manila defined benefit provision, but I do not see why employers on that ground alone should be denied the opportunity to develop conditional indexation schemes. The plain fact is that employees do not have a high understanding of pension issues generally, and let no one pretend that DC pension arrangements, which are the prevailing private sector provision, are easy for employees to grasp. The only other ground that the Minister offered in resisting these amendments was that we should await the outcome of the Government’s own deliberations on flexibility. The review is clearly in the long grass and I have heard nothing to suggest that the Government share the employers’ views that flexibility is urgently needed. We should grasp any possibility that may preserve defined benefit provision, albeit in a modified form. A small bit of flexibility today is worth many times more than the vague possibility of flexibility tomorrow. I beg to move.