This week the new pensions bill had a second reading in the House of Commons, the first opportunity for members of parliament to debate its main principles.

Not a huge amount of MPs took up the offer to debate with pensions minister Steve Webb on his vision for the future of pensions: 

"The pension schemes bill will improve the system in two ways," said Webb. "It will give people much greater flexibility on how and when they access their savings, and it will enable innovation in the pensions industry, to better meet the needs of businesses and individuals.”

The minister answered questions on how small and medium-sized companies would be incentivised to implement defined ambition schemes and how these schemes would be regulated.

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Not a huge amount of MPs took up the offer to debate with pensions minister Steve Webb on his vision for the future of pensions: 

"The pension schemes bill will improve the system in two ways," said Webb. "It will give people much greater flexibility on how and when they access their savings, and it will enable innovation in the pensions industry, to better meet the needs of businesses and individuals.”

Demand is the challenge for defined ambition

The pensions bill will introduce a third type of pension scheme – shared risk, also known as defined ambition. Webb said research has shown that individuals want “to know something about what their savings will give them and have some protection from the worst vagaries of the market”.

As an intended middle ground between defined benefit and defined contribution, DA “will create a distinctive space to encourage innovation in pension design, and it will provide more certainty for individuals than DC schemes by sharing risks among employers, employees and third parties”, Webb said.  

Guy Opperman, conservative MP for Hexham, questioned the minister on how small and medium-sized companies will be incentivised to offer DA schemes.

“There is a degree of concern which is legitimately held that the safer DC pensions – in which there is little or no risk – will continue to be offered, thereby reducing the impact of the defined ambition pension,” he said.

Webb said research found a quarter of employers have said they would be interested in providing a risk-sharing scheme and another quarter are waiting to see.

“To be honest, if I were surveyed at this point,” Webb said, “I would be in the waiting-to-see quarter because the legislation is yet to go through and the regulations that this framework bill provides for have yet to be tabled.”

He anticipated that larger employers would be the first to provide such schemes. “I am guessing that larger employers will use them first, but once there is the infrastructure – a regulatory regime or governance regime – one can imagine a scenario in which smaller employers would join.”

The 'single regulator' debate makes a comeback

Nigel Mills, conservative member for Amber Valley, questioned the minister on how DA would be regulated, as adding a promise could tip schemes over to be regulated by the Pensions Regulator, not the Financial Conduct Authority. He asked: “Does is not look as though we need one pensions regulator to make it all make sense?”

Webb said that while drawing up the regulation and guidance for the bill, he often had to question which regulator applied. But he said it was not the right moment to introduce such a change as the FCA had just been created.

Webb added: “However, the experience of the last 12 months has made me more sympathetic to the view that the eventual destination might well be a single regulator.”

Budget 2014: does it all fit together?

The second half of the bill relates to the announcements made by the chancellor in this year’s Budget. The bill also introduced a guidance guarantee as a safeguard for pension savers.

Crispin Blunt, conservative MP for Reigate, whose constituency is home to providers including Legal & General, Partnership and Just Retirement, questioned the minister over the levy imposed on providers to cover the guidance guarantee. He claimed the figure would be closer to £1bn, rather than the current £20m cited.

Webb said: “To be clear, the £20m is not an estimate of the annual recurring cost of providing guidance; it is a one-off, seedcorn, getting-the-thing-going fund… The first point is that it is about getting things going; it is not our estimate of the recurring cost of guidance.”

He assured Blunt that the government did not “envisage a levy on the financial services industry to pay for full-blown, regulated, independent, tailored financial advice”.

Blunt also raised concern that the levy could hamper competitiveness of the market. However, Webb said there was huge opportunity for the industry from auto-enrolment.

“These are huge additional sources of revenue for the pensions industry. Relative to that, the scale of the levy for the guidance is modest, so I think that I can reassure him about that issue of scale,” he told the Commons.

Webb also answered concerns on how the new pension freedoms would interact with DA schemes.

“In a defined ambition scheme, more than one type of benefit arrangement is likely to make up the overall pension pot or income stream,” Webb said.

“These schemes will offer an option – that is the crucial point: the freedom and choice agenda – for those who wish the scheme to pay them a pension income for life.”

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