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Fisheries Jurisdiction
Mr. Salmond accordingly presented a Bill to make provision for withdrawal from the Common Fisheries Policy of the European Union; to amend the Fisheries Limits Act 1976; to make provision about the exercise of functions under that Act by Scottish Ministers, the National Assembly for Wales, Northern Ireland Ministers and the Secretary of State; to provide that that Act shall have effect regardless of the provisions of the European Communities Act 1972; to define Scottish, Welsh and Northern Irish waters; and for connected purposes: And the same was read the First time; and ordered to be read a Second time on Friday 21 May, and to be printed [Bill 64].
Orders of the DayPensions Bill
Order for Second Reading read.
Mr. Speaker: I should inform the House that I have selected the amendment in the name of the Leader of the Opposition.
12.42 pm
The Secretary of State for Work and Pensions (Mr. Andrew Smith): I beg to move, That the Bill be now read a Second time.
The Bill is an important step forward in security and confidence in pensions. It strengthens protection and strengthens regulation. It cuts complexity in the system, making it easier for firms to run pensions and helping to cut costs. It will increase choices for people over the timing and pace of their retirement. It reflects the extensive consultation that we have undertaken. Those are all crucial building blocks for confidence in pensions, rebuilding the pensions partnership for the 21st century. The Bill will, I hope, command widespread support in the House.
I am clear that a pensions promise made should be a pensions promise honoured. That is why, for the first time ever, we will set up the pension protection fund to protect workers whose firms go bust without enough funds to pay their pensions.
We have yet to hear whether the main opposition party supports the key measures in this Bill. The arguments in its reasoned amendment, which I will deal with later, do not stack up. I look forward to it making its position clear in today's debate. The hon. Member for Havant (Mr. Willetts), however, with his customary courtesy, raised in advance a number of points in a letter to me this weekend. The questions that he poses are reasonable ones, and I thought that it would help the House if I responded to each.
First, the hon. Gentleman wanted an assurance that we would implement the levy in a way that respected risk. I can confirm that, like all sensible insurance schemes, the PPF will have a risk-related premium. This will ensure that those who pose the greatest risk to the PPF pay the lion's share of the levy.
Mrs. Jacqui Lait (Beckenham) (Con): As the Secretary of State is beginning to talk about risk, what can he tell us about his plans for the first few years of the PPF if the claims paid out of it are greater than its income?
Mr. Smith: I shall come to the operation of the PPF. We have to ensure that its board is in a position to meet its liabilities, while ensuring that it operates within a framework of reasonable constraints, so that it does not impose an undue burden on schemes or on business. I shall have more to say later about the balance that must be struck.
The risk-related element of the levy will be substantial. Indeed, the Bill states quite clearly that this part of the levy must raise at least 50 per cent. of total revenues, and could raise significantly more. As hon. Members will be aware, this is new territory, and we
need to collect the information to ensure that the system can work, so for the first year only we shall in effect treat all schemes as low risk, with a significantly reduced flat-rate fee. After that we shall work closely with businesses, allowing them to switch to the risk-related premium as best fits the normal triennial valuation cycle. But let us be clear: if they want to bring that forward, they will be able to do so. We are clear that we are adopting a risk-based approach and are clear about the principles on which it will be introduced.
Mr. Steve Webb (Northavon) (LD): In last week's debate the Minister for Pensions guaranteed that the risk-related element would indeed come in after a year. If I read the Bill correctly, it allows the Secretary of State to delay it beyond a year. Will he accept amendments in Committee to withdraw that provision, because if he is confident that that element will come in within a year, why allow himself the power to delay it further?
Mr. Smith: There will be ample opportunity in Committee to explore all these matters in greater detail, but if we are to refer closely to the Bill now we shall see that the initial period is defined as the period between when the measures take effect and the following 31 March or the following 31 March plus 12 months. Anyone looking at the timing factors can see why that is necessary. As I said in answer to the hon. Member for Beckenham (Mrs. Lait), we are bringing in a new institution, and want, as everyone does, to get the protection in place as quickly as possible, because it is needed and wanted by workers, while wishing, of course, to ensure that it operates sensibly and does not impose undue burdens on schemes. Therefore, there must be that measure of flexibility, which is provided for in the Bill.
Mr. Frank Doran (Aberdeen, Central) (Lab): In January 2002 more than 900 workers at the Richards textile factory in my constituency were told that the company pension scheme, a final salary scheme, was to be closed. All have been told subsequently that the best they can receive is between zero and a third of what they expected. I gather that about 60,000 pensioners throughout the country are in a similar situation. The scheme that my right hon. Friend is outlining is extremely welcome, but those pensioners have lost out because they took Government advice to join a pension scheme. What proposals does my right hon. Friend have for my constituents?
Mr. Smith: First, I understand and echo my hon. Friend's concern about workers affected by the dreadful impact of insolvency on their retirement prospects. As I said at length in the debate last week, and as I have set out on previous occasions, we are looking very closely at what may be done. I have to tread a very fine line here, on the one hand not closing down the possibility of some discretionary assistance and on the other not raising expectations that might subsequently not be fulfilled. I shall have more to say about this matter later.
I was responding to points raised in the letter from the hon. Member for Havant. The Bill is explicit about what we mean by risk. In setting the risk-based levy, the PPF board must take into account scheme underfunding. It will also be able to consider other specified factors such as credit rating and investment strategy.
As I have said in reply to interventions, the PPF's independent board must have operational freedom, within this framework, to use its expertise and judgment effectively to meet its obligation to keep the fund's finances on a sure footing in evolving economic conditions. The board will consult closely with business in developing the levy, and—here I pick up a point made by the hon. Member for Havant—it will publish the detail within the first year of operation.
Mrs. Lait: I am very grateful to the Secretary of State for giving way to me again, but I am afraid I remain mystified. If I have correctly interpreted the brief from the Association of Consulting Actuaries, the association believes that a number of pension funds are, shall we say, saving up claims against the fund until it is established. That indicates to me that it is highly likely—especially given a flat-rate contribution system for the first year—that the fund could go bust before it was up and running.
Mr. Smith: It sounds to me as though the hon. Lady supports the fund's establishment in principle, although she is equivocating a little. We look forward to hearing from Conservative Front Benchers whether they really support it or not.
The hon. Lady mentioned demands in the early period of the fund's existence. Then and subsequently, the fund will take over the remaining assets of any schemes that have become insolvent. It should also be borne in mind that in the early years the fund will almost certainly need to pay out less than it will in subsequent years. I approve of the balance between the timing of its liabilities, and the extent of those liabilities, and the income that it can raise. I approve of the arm's-length relationship that will operate: we are giving the board responsibility for sorting out its affairs, within the general constraints that I mentioned earlier.
The hon. Member for Havant referred to the estimate of the amount that the levy would need to raise. The estimate is based on actuarial modelling of PPF finances over the next 20 years given a range of assumptions about several factors, including pension scheme funding levels and rates of insolvency. The baseline scenario, in which a £300 million levy is required each year, involves some rather gloomy assumptions: for example, it includes the risk of several insolvencies among the largest FTSE companies over the next two decades. In the extremely unlikely event that things turned out even worse for the PPF—this too relates to the question asked by the hon. Member for Beckenham—the fund would still have the capacity to fulfil its duties, as it has the right to increase the levy above the baseline should that prove necessary. Indeed, it has the right to double it.
Let me now deal with what was said by my hon. Friend the Member for Aberdeen, Central (Mr. Doran). As I told the House in last week's debate, and have made clear on previous occasions, I am—like many other Members—acutely aware of the awful plight of workers whose companies have gone bust and left their pension schemes underfunded. That is, in fact, an important reason for the House to get on and establish the PPF. It is sometimes suggested that we should make it operate retrospectively, but I do not think that that option bears serious scrutiny. The PPF is essentially an insurance
scheme, and no insurance scheme can protect against events that have already happened. None of us, taking out car insurance next week, would expect it to cover us for an accident that we had last week.
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