My Lords, I recognise the expressed concerns over the regulation-making powers in Part 1 of the Bill and how they might be used. There has also been comment on the principles underlying the choice of negative or affirmative procedure for some of the regulations. This is why we have shared illustrative draft regulations to help noble Lords understand how we intend to use these powers, but the secondary legislation to be made under the proposed delegated powers can be laid before this House in final form only after Royal Assent, in accordance with the procedures set by Parliament. This House will have the opportunity then to scrutinise the secondary legislation.
There are important legal principles at stake before the proposed delegated powers can be exercised properly. In many instances, the Government will wish or have promised to consult further on the technical substance, particularly in Part 1. There are instances where there may be a statutory requirement to consult because of a connection to existing legislation. There are instances where there may be a need to await the outcome of consultation being undertaken by the regulator or where consultation is needed with professional bodies. Finally, there are instances where proposed delegated powers are sought to enable the Government to react to future developments.
Where there is an intention, promise or legal requirement to consult on the substance of secondary legislation, the legal position is clear that the Government cannot prejudge the outcome. Had the Government purported to draft all the secondary legislation at the same time as drafting the Bill, that would have entailed, inevitably, prejudging the substance without the benefit of any necessary consultation or consideration of the eventual wishes of Parliament. Likewise, it is more appropriate to consult once the Bill is passed, so as not to prejudge the intentions of Parliament.
Those are the points of principle. I will now deal with the point that the provisions intended for future secondary legislation could, nevertheless, be written into the Bill, at the inevitable cost of delaying introduction. This approach is consistent with the approach to previous pension schemes Bills, recent examples being the Pension Schemes Act 2017 and the Pension Schemes Act 2015. As with those Acts, the provisions in the Bill embody the fundamental policy.
Provisions of a more technical nature, or which are by their nature liable to change, are delegated to secondary legislation. This staged approach has two benefits.
First, it enables flexibility to ensure that the legal framework remains appropriately tailored to developments in the pensions industry. Secondly, it provides legal certainty more quickly and enables those affected to prepare for changes to the law. This is important for the pensions industry.
I note that comment has been made on the propriety of affirmative procedure on first use only. I take this opportunity to make it clear that the Government do not accept that the practice of specifying an affirmative procedure on first use is licence to use those provisions inappropriately at a future stage. The reason for affirmative on first use then negative is that a decision on when the scheme design is sound will be critical to the effective running of the scheme and to safeguarding members. Therefore, it is important that when first determining these matters the regulations are subject to full debate. Further use of the powers is likely to be limited to adapting matters the regulator will be required to take into account in the light of operational experience, so the negative procedure would be appropriate.
With respect, this House is called to scrutinise the scope of the proposed delegated powers and the parliamentary oversight of those powers. The Government can, of course, give this House assurance as to their future intentions in using these delegated powers. To assist the House, the Government have produced illustrative regulations relating to Part 1. I hope this illustrates both the way delegated powers in that part are intended to be used and the limitations in pre-empting their use.
Clause 18 provides for CDC schemes to be required to have rules for how the current value of CDC scheme members’ benefits must be calculated and adjusted each year and for powers for government to make provision about those rules. It is therefore a very important clause for ensuring that all members of CDC schemes are protected from inappropriate calculation methods, with all benefits calculated equitably, with no differentiation on the basis of age, gender and so forth.
The amendment moved by the noble Lord, Lord Sharkey, would significantly reduce the Government’s ability to ensure that all members of CDC schemes are treated fairly. For example, scheme rules could discriminate against certain members on the basis of age, and the Government would have limited powers to react swiftly to stop this unfairness.
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We will also use regulations under Clause 18 to require all CDC schemes to use the central estimate in all financial assumptions and projections when calculating and adjusting benefit values. This means that a scheme would not be able to take an overly optimistic view of future investment returns, for example, but will also not be able to take an overly cautious approach. Regulations made under Clause 18 can also be used to make different provisions for different purposes. This is provided for in Clause 51. We will use this power to ensure that the regulatory framework for the calculation and adjustment of benefit values is tailored appropriately for different types of CDC schemes. Concerns have been expressed that regulations made under Clause 18 could have the effect of redesigning an existing collective
money purchase scheme, potentially years down the line, by overriding what the scheme rules say about the methods and assumptions to be used in calculating benefits. I reassure noble Lords that while we must protect members from unfair treatment, we do not intend to undermine the way in which CDC schemes work through regulations.
One of the criticisms of Part 1 is that it does not go far enough. Many people, including those from the insurance industry, trade unions, pension providers and pension commentators, have called for CDC provision to be extended to master trust, accumulation-only vehicles and other models of non-connected multi-employer schemes. We can see merit in these other scheme types. We need to consult carefully with experts and interested parties in order to get the detail right. We can then make appropriate amendments to existing legislation to allow for these and other scheme types to operate. The regulation-making powers in Clause 47 allow for that. However, the proposed amendments to those powers could make the rollout of these other scheme types more complicated as it would require us to bring forward new primary legislation to achieve that.
I recognise that through this clause we are seeking a wider power. We do not do so lightly. It is important to remember that the provisions in Part 1 of the Bill were developed with real-world input from the Royal Mail Group and the Communication Workers Union. We want to work in a similar way with interested master trusts and others to ensure that when we come back to Parliament with regulations to extend CDC provision to other models, we get the detail exactly right. The underlying principles and requirements for other CDC schemes will be agreed during the Bill’s passage. Using regulations made under Clause 47(5) to amend legislation will allow us to ensure that these principles apply appropriately for other models of CDC schemes in future. This will allow employers and scheme members to benefit from new types of scheme without unnecessary delay, while providing for full parliamentary scrutiny through the affirmative procedure.
Clause 51 is a standard Bill clause. Provisions setting out the scope of regulation such as this are common in other legislation. For example, the Pensions Act 2014 and the Pension Schemes Act 2017 contained similar provision. The clause expands on the scope and procedures to be used in relation to the regulation-making powers in Part 1 of the Bill, such as enabling regulations to make different provision for different purposes, consequential or supplemental provisions, or transitional or transitory provisions. If the clause does not stand part of the Bill, we will be unable to make regulations to accommodate different types of CDC schemes. That would create a lack of clarity regarding the actual form that the regulations would take and the parliamentary procedure that would apply to them.
I concede that this speech has been a long one, but I know that this is an important issue. Discussion about the use of delegated powers has been a perennial feature of the House and I expect that it will remain so. I thank noble Lords for raising these important and necessary concerns. I hope I have demonstrated
that the powers we seek are necessary and subject to appropriate scrutiny. I therefore urge the noble Lord to withdraw his amendment.