Pensions Bill

My Lords, I recognise that a number of the amendments in this group seek to build greater objectivity into the material detriment test. Therefore, I shall speak to Amendments Nos. 78C, 78D, 78E, 78F and 78AH. I understand the concerns. The material detriment test is broader than the current grounds for contribution notices, which are based on evidence of intent. That is why we have built appropriate targeting measures into the proposed legislation. Our amendments have refined the application of the material detriment test. For example, we will require the regulator to issue a code of practice setting out when it expects to apply the test. However, we believe that the regulator’s discretion is the most appropriate basis for this test, not just for the Government but for the industry and trustees. Granting discretion is not principally about allowing the regulator latitude, it is about creating a system that functions effectively for all. Amendments Nos. 78C and 78D would mean that the regulator could not be of the opinion that the material detriment test had been met, or that certain matters were relevant in considering an issue. Amendments Nos. 78E, 78F and 78AH would remove the regulator’s discretion when deciding what factors it must have regard to when deciding whether the material detriment test was met. The consequence of these amendments would be that the determination of these issues would, therefore, move into the arena of the court. Precedent would have to be established through case law by the courts. This would be costly and time-consuming for employers and the regulator. Currently, the regulator can arrive at decisions more quickly and cost effectively, and the regulated community can build up an understanding of the regulator’s approach. These amendments would, in effect, result in making the regulator something more akin to a prosecuting examiner and would severely limit the effectiveness of the material detriment test and its influence on behaviours in the market. It is also worth stressing that this flexibility is not just for the benefit of trustees, it works in the employers’ favour, and experience has demonstrated this in practice. We understand from the regulator that there are specific instances where employers have been able to draw further factors to the regulator’s attention and have affected the outcome of the case. In certain situations, the regulator concluded that action was not appropriate. Indeed, there are a number of instances in legislation where it is for the regulator to decide what is relevant and where the regulator’s opinion is the basis for decision making. These provisions work well. Experience has shown that employers, trustees and others have been able to build up reliable experience of what the regulator was likely to view as relevant. I understand noble Lords’ desire to improve the objectivity of decision-making, but I do not believe that it is their intention to replace the current approach with a protracted and expensive process whereby, for example, every clearance application would need to be considered by a court. That would be impractical and unnecessary. The current approach is working well and, as I said earlier, we have introduced further targeting with regard to material detriment. I hope that that has reassured both noble Lords and that they will withdraw their amendments.