Baroness Sherlock (Lab)

The noble Baroness makes an important point about innovation. We recognise the importance of a proportionate approach to scale, which is why we created the transition pathway. I know that the noble Baroness thinks the number or scale is not right, but that is the purpose of the transition pathway: to give schemes that can reach scale within a reasonable time the chance to do so. On innovation, although we want to see a market of fewer, larger pension schemes, the policy still encourages competition through allowing innovative schemes, such as CDCs, to develop and by enabling brand new innovative schemes to enter the market via the new entrant pathway. I know the noble Baroness is not satisfied with that, but that is our answer to her question: the new entrant pathway. Amendment 102 from the noble Baroness, Lady Stedman-Scott, would delete the regulation-making power on what values can be counted towards the scale threshold in order to probe how assets will be calculated. The market contains varied and complex arrangements. It is both prudent and necessary that affirmative regulations, consulted on with industry, set out the assets that may be included or adjusted when calculating the total value in the MSDA, with a focus on assets where members have not made an active choice. Let me be clear on that point: the choices that will be made here are the ones that will create the big fat wallet, if you like, which will in turn drive the benefits of scale. The intent is that the regulations will focus on the default arrangement that the vast majority of members will be in. We want to see members of the same age who join the scheme at the same time get the same outcome, but the regulation-making power enables practical realities of how the market operates now—especially at the margins. We know that there is a variety in practice in the market, so engagement and consultation are crucial. Amendment 104 from the noble Baroness, Lady Stedman-Scott, would remove the regulation-making power to define “common investment strategy” and to set evidentiary requirements for the scale condition. I understand that the aim here is both to probe this power and to require the Government to define “common investment strategy” prior to Royal Assent. A common investment strategy will help to deliver a single approach to maximise the buying power of a scheme in terms of fees and the diversification of its investments. We think that is crucial because allowing, for example, multiple potentially divergent strategies within the MSDA would maintain fragmentation and drive away from the consolidation that we want members to benefit from.