Contribution
My Lords, Amendments 134, 137 and 138 in this group are in my name. I thank my noble friend Lady Neville-Rolfe for adding her name to Amendment 137; unfortunately, she needs to be in the Chamber imminently so was unable to stay in the Committee.
I support the other amendments in this group. I am very sorry that the noble Lord, Lord Davies of Brixton, is not in his place; I hope he has not been silenced by his Front Bench. On our first day in Committee, I found myself in near agreement with the noble Lord—that is quite unusual for me—when he said that he was not totally convinced by the Government’s line that big is necessarily beautiful. He said that he was open to that debate, but my position is less nuanced: I am absolutely certain that big is not always beautiful. There are plenty of examples of big being beautiful. The US tech industry is probably a good example of that, at least from a shareholder perspective. On the other hand, there are many examples of where being big is not good. Big can be bureaucratic and low-performing. It can be hampered by groupthink, unresponsive to customer needs and hostile to innovation and competition; we can all name organisations in that category, I am sure.
I buy, as a general proposition, that an investment management scale has many attractions, including efficiency of overhead costs and the ability to diversify into a wider range of asset classes in order to achieve superior investment returns, but I have absolutely no idea whether £25 billion is the right threshold for forcing people into certain kinds of investment. I am absolutely certain that we should not dogmatically force all organisations towards that asset threshold in order to leave the door wide open for new entrants and players who can demonstrate good returns for savers and innovation.
My Amendment 137 would widen the qualification for the new entrant pathway relief so that it can include schemes that will produce above-average performance. If smaller, more agile providers can provide equal or better returns than the big boys, why should they be excluded? If a provider has a winning formula, why must it also demonstrate that it will achieve scale? What benefit is there for pension savers in restricting the market in this way? Noble Lords should also ask themselves why the big providers in the market, in their emails to us, have generally not challenged the scale proposals. The answer is very simple: this Bill acts as a barrier to entry, and large players love barriers to entry. We must not let them get away with it.
Amendment 134 probes why subsection (2)(a) of new Section 28F, which is to be inserted into the Pensions Act 2008 by Clause 40, restricts new entrant pathway relief for schemes that do not have any members. The main scale requirement is to have assets of £25 billion under management by 2030. The transitional pathway is for existing smaller players, provided they have assets of £10 billion under management by 2030 and have a credible plan for meeting £25 billion by 2035. The new entrant pathway relief is available only to completely new schemes—that is, those with new members—and only if they have strong potential to reach £25 billion. This leaves a gap in which new players that have been set up very recently, or will emerge between now and when this bit of the Bill comes into force, will not qualify for new entrant pathway relief and may also not qualify for transitional pathway relief. They may well have strong potential to pass the new entrant test—that is, if they were allowed to because they had no members—but they would not satisfy the regulator that they have a credible plan for transitional pathway eligibility.
Growing a business is not a linear matter. At various points, additional capital will generally be needed, but the Bill will make it difficult to raise funds because of the significant uncertainty about whether a pension provider would satisfy the transitional pathway test; and failing that test would mean that the business could not carry on and would thus be very risky for investors or lenders. Do the Government really intend to drive out of the market new providers that have only recently started or will start between now and the operation of the scale provisions? I am completely mystified by this.
My Amendment 134 deals with the substance of Amendment 136 in the name of the noble Baroness, Lady Altmann, which she has degrouped into a separate group and which will not come up until later. I think they deal with the same issue, but I will wait to see what she has to say on her amendment in due course.
Finally, my Amendment 138 seeks to delete subsection (4) of new Section 28F in order to probe why the Government need a regulation-making power to define “strong potential to grow” and “innovative product design”. The Government are probably the last place I would go to find out about growth or innovation. The regulators that will implement the new entrant pathway are, or ought to be, closer to their markets and therefore will understand in practice how to interpret the terms for the providers they regulate. Why can the Government not simply leave it to them? What value can the Government possibly add to understanding how these terms should be implemented in practice? I look forward to the Minister trying to convince me that the Government know about growth and innovation.