Baroness Sherlock (Lab)

My Lords, as I was saying, as the noble Baroness, Lady Noakes, described so well, the aim of her Amendments 168 to 170 is to shift from measures aimed at restricting the creation of new non-scale defaults towards a wider remit to encourage competition and innovation; I will come back to that in a moment. In addition, her Amendment 171 would expand the statutory review under Clause 43 to examine the extent to which such non-scale defaults contribute to competition. Although we share the noble Baroness’s desire to see a vibrant, innovative market, we want these characteristics to operate alongside, not separate from, scale. Our concern is that the changes would leave too many default arrangements in place, entrenching fragmentation and preventing members benefiting from scale. Inserting a competition function into this regime would significantly extend the remit of the Pensions Regulator; again, I will come back to that in a moment. The Government’s view is that there is no tension between scale and competition. Scale enables meaningful competition on quality and on long-term returns. I am sure that noble Lords will have had a chance to read the impact assessment on the Bill—it was green-rated, of which we are incredibly proud—which estimates that between 15 and 20 schemes may operate in this market after the conclusion of the transition pathway in 2035. We think that, by any measure, that represents a market within which successful competition can function; I do not think it would pass the oligopoly test that has been suggested. However, we also need to remember that a key ingredient for competition is competitive charges for employers. Nest has helped lower charges through its public service obligation. It is important that employers continue to have access to pension products that offer low-charge options; Nest and others will play a key part in that going forward. We see no reason why competition for market share would not continue as it has done in the past. The drive for it is clearly still there. The new entrant pathway places innovative product design at its core. The aim is to create a space for new solutions while maintaining a strong baseline of member protection. Our view is that, although we understand its underlying intent, we do not believe that Amendment 170 would add greatly to the opportunities for innovative schemes to remain in the market that are already set out in the Bill. Our new entrant pathway will place relatively few additional requirements on new schemes beyond those that exist today. I agree that, alongside the innovation and competition that will come from existing schemes, there must be space for new market participants—the disruptors. We want to enable them to come to market, but there also needs to be confidence that they can grow to scale—over time, of course—and can deliver good outcomes for members. We recognise that a new scheme cannot come with scale and will need time to build up, obviously, but we need new entrants to demonstrate their plan to build scale. Innovation is a good indicator of a scheme’s ability to grow. The noble Baroness described what is happening, but the truth is that there is a weak demand side, and it is already difficult, as we have seen, for a new entrant to gain traction. We do not seek to limit innovation, but we want regulators to focus on what innovation can deliver for members and its impact on scheme growth and member outcomes. In short, the Government support innovation that improves outcomes, but we do not want to perpetuate sub-scale defaults at the expense of savers’ interests. On Clause 45, it might be helpful if I set out the purpose of the clause—