House of Commons Hansard Debates for 15 Jan 1997 (pt 9)

Mr. McNamara: The ombudsman found that the Government effectively told the trustees to accept the conditions or the Government would not make contributions. He did not find that the Government were not capable of making contributions.

Mr. Watts: The hon. Gentleman is suggesting, as did the hon. Member for Carlisle (Mr. Martlew), that the Government should have accepted obligations--to be funded by the taxpayer--that gave greater guarantees and protection to the members of the fund than they had under the original terms.

Mrs. Dunwoody: Before the Minister moves on, will he spell out again exactly what he said--that he does not agree

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with the ombudsman's decision? That statement is more important than even some of the details we are now discussing. Is he really saying that a Government Minister does not accept the independent opinion of the Parliamentary Commissioner, commonly known as the ombudsman, whose office was set up to examine independently the behaviour of Government Departments? If that is the case, it is even more important than the misappropriation of funds for bus pensions, because the Government would be setting a precedent that could cause them enormous difficulty.

Mr. Watts: It is important to recognise that the pensions ombudsman's decision did not relate to the conduct of my Department.

Mrs. Dunwoody: Really? Which Department did it relate to?

Mr. Watts: The hon. Lady should acknowledge that the complaint was made against the trustees of the fund and that the pensions ombudsman--

Mr. Martlew rose--

Mr. Watts: I must reply to one point before I take yet another.

Madam Deputy Speaker (Dame Janet Fookes): Order. It is up to the Minister whether he gives way.

Mr. Watts: The decision that the pensions ombudsman made was directed to the trustees. I advance no opinion on the decision that the ombudsman reached regarding the trustees, but I do not accept the varied and wild accusations that have been made by Opposition Members today that the Government are guilty on the basis of the ombudsman's findings about the conduct of the trustees. Important legal issues remain to be resolved and, in our view and on advice, we believe that they are best resolved in the courts.

Mr. McNamara rose--

Mr. Martlew rose--

Mr. Watts: I have given way enough, but I will give way to the hon. Member for Carlisle.

Mr. Martlew: You have gone on about the trustees being at fault, but who appointed the trustees?

Madam Deputy Speaker: Order. The hon. Gentleman must remember that he is addressing me.

Mr. Watts: The trustees in question are those who were the trustees of the NBC fund, not the trustees appointed after the dissolution of NBC. They comprised representatives of the management of the company and of the trade unions. I cannot give the hon. Gentleman a detailed list at the moment, although if he would like that further information I will seek to secure it for him and I will write to him.

Mr. McNamara: Under the terms of the privatisation, did not the Government accept all the responsibilities for

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what went before? Those were the terms. The Government accepted all the liabilities and all the responsibilities in the Bill. Therefore, the Government stand as accepting the responsibility for the fraud on the beneficiaries and the coercion of the trustees.

Mr. Watts: I find that an extraordinary argument. The Government accepted that they would guarantee that the fund at its dissolution had sufficient money to secure the benefits due to existing pensioners and to those who had an interest in deferred pensions. I refute the hon. Gentleman's comments absolutely.

The House will want to note that the aim of the agreement was to secure members' benefits on a satisfactory basis--in short, to provide security for pensions in payment and deferred pensions and certainty for the trustees in the discharge of their responsibilities. It is important to recognise that the agreement achieved that aim. There is no question of the agreement being a pretext for a raid on the funds, because--at the time the decisions had to be made--the most recent complete valuation had shown the fund to be in deficit. It was because of the uncertainty in the minds of the trustees about whether the fund had adequate assets to meet its future liabilities that they sought to reach an agreement with the Government on the best way to secure those benefits.

It is also important to note that the agreement balanced the Government's undertaking--that, in the event of a deficit, the scheme would be placed in funds--with a mechanism, through the rule change on the use of a surplus on wind-up, to ensure that safeguards would be in place to ensure that the taxpayer did not take on a liability only to find that the fund was in surplus. That was a prudent and reasonable safeguard and, if it had not been put in place, the pensioners would have enjoyed a one-way bet at the taxpayer's expense. It was agreed at the time that the mechanism was an appropriate element in the agreement and achieved the aim of securing members' accrued benefits.

I find it difficult to accept any argument that the members of the fund were the losers from this agreement. On the contrary, they gained the security and the certainty that represented, and a basis for the indexation of accrued benefits which--as it has turned out for the vast majority of members--have been more generous than would have been the case if the link had just been to national average earnings.

The agreement that I have just described was set out in a statement to NBC employees in June 1986. It was signed on behalf of the company by its chairman and on behalf of the trustees of the two pension funds by the chairman of the NBC pensions committee--on which, of course, there were union representatives. That statement outlined the belief of the NBC and the trustees that the arrangements entered into

"will provide the necessary protection for payment of accrued benefits--including the attaching index-linking".

The statement also explained the factors that underlay the agreement reached. I refer in particular to two of the points made there. The statement refers to NBC's obligation to the Government--in effect, its obligation to the taxpayer--not to fund surpluses in the funds in the period running up to NBC's dissolution. It also refers to

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the trustee's recognition of the volatility of the market value of investments securing the benefits provided by the funds, the obligation resulting from the fact that benefits were index-linked and the fact that NBC itself was to be dissolved in a relatively short period. That sums up the kernel of the agreement--it balanced the obligations of all the parties involved, and it balanced security for members' accrued benefits on a satisfactory basis with the, at that time, uncertain possibility of a surplus in the fund being available for payment to the NBC.

I shall now move on to subsequent events. Following the agreement that I have just described, bids were invited from insurance companies. As a result, the liabilities of the funds were covered through insurance with Standard Life, who took on responsibility for the payment of pensions to individuals, and the funds themselves were wound up. I should emphasise that these liabilities have been, and continue to be, met in full.

The House will recall that, in the second half of the 1980s, there was a period of general growth in investment income. The assets of the bus employees superannuation trust were part of this general growth. As a result of this and other factors, the fund at wind-up was in substantial surplus. Under the agreed rule changes that I have already described, a surplus of £103 million after tax was paid to the NBC and passed to the Government in 1990. Some time later--in 1992--a complaint was made to the pensions ombudsman alleging that the trustees of the fund were in breach of trust and not acting in the members' best interests in entering into these arrangements.

It is this complaint that the pensions ombudsman has recently upheld, and following that decision, he has directed the trustees to take all practicable steps to obtain the return of the moneys received by my Department from the bus employees superannuation trust. It is important to note that his determination was directed to the trustees and makes clear that he has not carried out an investigation, nor made a determination, with respect to the National Bus Company or my Department.

Since the Department was not a party to the determination, the option was not available for the Government themselves to test its validity at law by appealing against it to the High Court. Instead, following the determination, the trustees wrote to the Department to ask for our proposals for repaying the surplus or, if the Department was not prepared to repay the surplus, for financial resources to seek its recovery through the courts.