Occupational Pension Schemes(Minimum Funding Requirement and Miscellaneous Amendments) Regulations 2002

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The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle",8.1>): The review that the hon. Gentleman referred to in his latter point is the ordinary quinquennial review that we always conduct for every non-departmental public body.

Mr. Boswell: I am grateful to the Minister for that clarification, as the review did not seem to be quite like that. If the press got a bit excited about it, it may only have been because there are so many reviews to get excited about.

I was going to allow myself a brief joke before I ended my speech. If we wanted to be extremely cynical about the Government's intentions—I do not—we might suggest that the trouble with all the reviews, however remarkable they are, is that they will come to an end at some point. If we come to an end-of-the-pier show, we want to ensure that it does not shade into the substantive problem of an end-of-the-pensions-industry show.

So far today, we have what I would describe as crumbs before Pickering. [Interruption.] The Minister appears to evince amusement at my joke. I in no sense mean to devalue Alan Pickering's review. We are grateful even when crumbs are offered, as one has to be in opposition, but I make no further claim about the sympathy of the Committee.

There is a problem in funded pensions, but I am sure that the Minister will not want to claim that the welcome changes will reverse it by themselves. Much more work has to be done, and there will be good will

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from both sides of the Committee if it is undertaken as soon as possible. The Government will have to come to terms with their responsibilities following the reviews, but not too long after them.

4.47 pm

Mr. Steve Webb (Northavon): It is a pleasure to serve for the first time under your chairmanship, Miss Widdecombe.

Like the hon. Member for Daventry (Mr. Boswell), we broadly welcome the regulations, especially because they were produced in draft and, in response to the consultation, the Government took out some provisions that did not make sense. Perhaps unusually, they also brought in some provisions that were suggested, even though they were not in the original scope of the regulations. We welcome the fact that the Government are consulting on such matters and listening to the consultation.

We are broadly sympathetic, as a balance must be struck between the desire to ensure that pension funds are properly funded and the danger of over-regulation, which could require a fund that is not properly funded to move to full funding too quickly, at the risk of killing the entire fund off. The received wisdom is that the minimum funding requirement has bitten too tightly, so one instinctively thinks that a regulation that relaxes it is welcome.

I am, however, aware that I make my remarks in a vacuum of ignorance, for want of a better phrase. I hope that the Minister might fill that vacuum. I have no conception of how many schemes at the last round of valuations were less than 90 per cent. funded. Is that exceptionally rare? Is it common? To the extent that it is the case, are the big occupational schemes or the one-person schemes involved? Likewise, how common are schemes that are funded at between 90 and 100 per cent? I have seen aggregate statistics, but it was not clear what schemes were involved.

It would help the Committee's deliberations if we had a clear idea about that. How does a scheme become 75 or 80 per cent. funded? What type of scheme would that be? How long would it have been like that?

Mr. Boswell: Perhaps the hon. Gentleman could add to his list, and ask whether the schemes are in the public or private sector. There is a real worry about some public sector schemes.

Mr. Webb: I am not sure how far the regulations apply to public sector schemes, although obviously their funding is important.

What sort of schemes are we talking about, and how did they come about? That will obviously affect our view on what is a reasonable time to resolve the problem. How does one decide the optimum length of time needed to sort things out? Too quick, and it could kill the thing off; if it was an unrealistic time, the company would say, ''Blow this, we are shutting.'' Too slow, and the risk is that something could happen to the company or the industry, and that no would get around to funding it fully.

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A balance needs to be struck. The received wisdom is that the balance may have been struck too much at one end, as a knee-jerk reaction to Maxwell, and that we need to move away from there. That might be welcome, but I have no sense of how far we should go, and I should be grateful for some insight into the paradox of the procedures on prayers against regulations, which mean that we do not hear the Minister's thinking on the subject until later in the debate. We would value some idea of where the three-year and 10-year figures have come from, and what sort of evidence they were based on.

I am broadly sympathetic to the regulations, but I want to raise a couple of detailed points. The Engineering Employers Federation, which the hon. Member for Daventry referred to, has expressed reservations about the wisdom of the rules for voluntary wind-ups being amended by the regulations to be based on the MFR valuation when the MFR itself will be going next year or the year after. If one accepts that MFR is a flawed methodology, embodying it in revised regulations for voluntary wind-ups might cause some of the problems that are meant to be solved by its eventual abolition. The concern is whether that is the right way to go about it. I should be grateful for the Minister's response.

The hon. Member for Daventry mentioned FRS 17. Would the Minister clarify the relationship between that and the MFR? We seem to have two different ways of measuring the funding of schemes. MFR is statutory, and companies have to respond to it with certain funding levels by particular times. FRS 17 is an accounting standard that tells the owners of companies the state of the fund on the balance sheet. That does not of itself imply action, although in practice it has prompted a lot of action.

Mr. Boswell: I shall try not to disrupt the hon. Gentleman's argument, but would he not also agree that it would help if the Minister could say a word about any differences in the criteria between the MFR and FRS 17? I do not claim any particular knowledge of this, but in my experience minor differences or wrinkles are often germane to the figures that are thrown up, even those that comply precisely with the two standards.

Mr. Webb: That is really where I am coming from. I sense that a scheme could pass one test but not the other. I wonder whether the Government have considered the fact that FRS 17 is itself a transitional accounting standard pending international standardisation. I wonder also whether, in coming up with a replacement for the MFR, the Government have given any thought to using an accounting definition that is consistent with accounting standards, so that one fund could be used for all purposes.

I realise that one fund may not be able to do both jobs. However, it seems paradoxical that when the industry is asked about the problems of regulation it cites one or the other—or both—and it is bewildering, particularly for members of a scheme, who wish to know whether it is properly funded. Perhaps they have passed the MFR test, but the FRS test shows a big deficit, or vice versa. It is confusing for scheme

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members, and I wonder whether we should go for greater standardisation in measuring the solvency of a pension fund and the relative balance between its future liabilities and current assets. Some comments from the Minister would be useful.

When will the MFR go? My hon. Friend the Member for Twickenham (Dr. Cable) asked that question of the Minister for Pensions last October, and was told about these transitional changes and that substantive changes would be made when time could be made for primary legislation. One accepts that there is a battle within Government for time for primary legislation, but my worry about the Government's handling of final-salary pension scheme matters is that they have taken almost too much of a hands-off approach. Leaving aside the dividend tax credit issue, dramatic changes are going on and it would be unfair to say that the Government are sitting idly because reviews are being held and so on. The worry is that the reviews will be completed by the end of the summer, or whenever, and the Government will then consult. I suspect that the reviews will imply primary legislation.

One never wants the Government to rush legislation; they should consult on it and introduce it in a coherent whole, not in bits and pieces here and there. There are therefore competing pressures, and the worry is that the legislation will be too late when we finally get it. Indeed, there will be scarcely any final-salary schemes left to be subject to the son of MFR or whatever the new arrangements happen to be. Will the Minister reflect out loud on that tension in the timing? Final-salary schemes are disappearing by the week, and a lot of employer contributions, which are the key, are disappearing with them. What are the Government's thoughts on the timing? How does it mesh with the current rate of change?

The regulations are welcome, but probably a bit of a sticking plaster. The Government accept that we need fundamental reform, but we still have no clear idea of when it is coming. Our instinct is to be sympathetic to the regulations, but there is something of a veil of ignorance—that is perhaps the phrase that I have been searching for. It would be helpful to know some of the Government's thinking on the specific details.

4.55 pm

Maria Eagle: It is a pleasure to be in Committee again with you, Miss Widdecombe. Your job is to ensure that we behave, and we seem to be doing so at the moment. I shall do my best to behave as well as my Opposition colleagues.

Some interesting points have been made, although the debate has been shorter than some that we have had on such issues. I shall do my best to respond to those points, although I am not sure that I shall be drawn into reflecting out loud, as the hon. Member for Northavon tempted me to. It is dangerous for me, as a Minister, to reflect out loud when Hansard is reporting my words and everyone with an interest will read them tomorrow morning. I appreciate that the hon. Gentleman must try to get me to do such things, but he will understand if I decline to reflect out loud in the way that he invited me to.

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Let me say a little about the regulations before dealing with some of the substantive issues that were raised. Having read the regulations, I understand that they are not the most accessible provisions. It must be admitted that statutory instruments are often inaccessible, and some of the most complex relate to pensions, benefits and the other issues that we discuss in what the hon. Member for Daventry called our end-of-the-pier show, which seems to take place regularly in this Committee Room. I understand hon. Members' comments about the complexity of the regulations, but the difficulty is that we are amending earlier regulations. Without having the whole lot spread out in front of us, it is difficult to ascertain from the present regulations and the explanatory memorandum precisely what is going on.

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