Having observed first-hand the strength of feeling among members of the House of Lords about the Pension Schemes Bill, Pensions Expert editor Nick Reeve thinks it’s time to shift attention to another aspect of the legislation.
From a seat in the Strangers’ Gallery overlooking the House of Lords yesterday afternoon – peering at the peers, if you will – I watched as a succession of lords, baronesses, and viscounts lined up to hand the government a resounding defeat over the subject of mandation.
I won’t rake over that issue too much, except to point you in the direction of the latest episode of the Always A Pensions Angle podcast, in which my colleague Thomas Parker and I interviewed Conservative MP Helen Whately, shadow pensions minister, about why mandation was such a big issue for the opposition to fight.
Shortly after we spoke to Whately, we were in the House of Lords watching the debate and subsequent vote, with the result that she and her fellow Conservatives (and many from other parties too) have welcomed, along with much of the pensions industry.
However, even as the sighs of relief are echoing through the sector, something else is afoot, dear reader. From my discussions with policy experts this week, it has become clear that mandation may not be the worst thing lurking in the Pension Schemes Bill’s 168 pages.
Mere inches away, in fact, elsewhere in Clause 40, sits the outline of the scale test for defined contribution (DC) “megafunds”. As chancellor Rachel Reeves set out almost 18 months ago, the government wants large-scale funds in the DC space to aid diversification and raise governance standards.
But as peers argued this week, the way this part of Clause 40 is worded could have significant negative effects for many DC providers and, by extension, their members.
The Department for Work and Pensions recently set out its initial plan for the scale test, with very little scope for exemptions from the £25bn target. Schemes that are outperforming, innovating, and supporting members well could still be forced to consolidate if they don’t hit the arbitrary £25bn assets target. As blunt instruments go, it makes Captain Caveman’s wooden club look like a precision engineering tool.
There is a danger of a contradiction with Value for Money, too. The test as currently worded gives no allowance for strong VfM ratings, meaning that green-rated schemes could still be forced to merge with a bigger provider, just as red-rated funds will.
Peers highlighted these issues and have passed an amendment to bring important nuance and exemptions to the scale test. We must now hope that the government is willing to listen.
Nick Reeve is editor of Pensions Expert.
