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Madam Deputy Speaker : With this it will be convenient to discuss the following:
Government new clause 13—Restoration orders: supplementary.
Government new clause 14—Content and effect of a restoration order.
Government new clause 15—Contribution notice where failure to comply with restoration order.
Government new clause 16—Content and effect of a section [Contribution notice where failure to comply with restoration order] contribution notice.
Government new clause 17—Debt due from the employer in the case of multi-employer schemes.
Government amendments Nos. 74, 75, 77, 88, 100, 107 to 110, 112 to 118, 127, 128, 133 and 136 to 142.
Malcolm Wicks: These new clauses represent a further tranche of provision designed to mitigate the risks of moral hazard for the pension protection fund. They add to and complement the new powers introduced in Committee that aim to safeguard the integrity and sustainability of the PPF and avoid placing an unfair burden on responsible levy payers.
As I said in Committee, there are a number of forms of moral hazard that we must address. The admissible rules and "recent discretionary increases" provisions in schedule 7 of the Bill are designed to protect the PPF against actions taken by schemes in order to increase the benefits that could be payable by the new fund. New clauses 20 to 22, which we will debate later today, also bolster that aspect of protection.
Clauses 35 to 46, which we introduced in Committee, are designed to protect the PPF and scheme members from another type of moral hazard: the risk posed by unscrupulous employers who might seek to use company structures and business transactions as a cover for side-stepping their pension obligations. Many of the amendments in this large group follow on from those new clauses and make consequential amendments to other aspects of the Bill to ensure consistency.
The purpose of new clauses 12 to 16 is to protect the PPF against actions that reduce the assets in a scheme that could potentially be taken into the PPF. The clauses allow the regulator to issue a restoration order directing that the position of the scheme be restored where the scheme has entered into a "transaction at an undervalue" within a two-year period leading up to an insolvency event—as set out in clause 110—or application or notification under clause 115. The clauses provide for enforcement of the restoration order, if necessary, via a contribution notice.
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A transaction at an undervalue is exactly what it says—a transaction involving scheme assets that results in the scheme receiving no consideration, or consideration that is less than the market value, in return. That could include, for example, trustees being persuaded to purchase a property on the basis of planning permission for a development that does not actually exist, or a director of a company persuading trustees to offer him a transfer on a very generous basis to prevent his benefits being reduced by the compensation cap should the scheme enter the PPF.
There is currently provision in insolvency legislation retrospectively to undo "transactions at an undervalue" involving company assets, which occur in the run-up to insolvency. New clauses 12 to 16 introduce similar provision in respect of transactions involving scheme assets, in order both to protect scheme members from having the assets of their scheme unfairly depleted and to guard against the possibility of the PPF having to assume responsibility for such schemes where it otherwise would not have done so.
In common with the anti-avoidance provisions introduced in Committee, the new clauses will be operated and enforced by the regulator in the context of meeting its objectives to reduce calls on the PPF and protect the benefits of scheme members. The pensions regulator will have the intelligence and expertise as a result of day-to-day monitoring work on pension schemes to deal proactively with the risks of moral hazard. The powers in new clauses 12 to 16 are reserved to the determinations panel and exercised by standard procedure; they are also subject to the powers to vary and revoke contained in clause 90.
In line with clauses 35 to 38, which give the regulator power to issue contribution notices where there is evidence of avoidance of employer debt, the power to issue restoration orders where there is a scheme transaction at an undervalue will apply to actions taken after 11 June 2003, when the proposal to introduce the PPF was announced. It will ensure that where a transaction at an undervalue has taken place since that date, the scheme's position can be restored and members' pensions protected. As my right hon. Friend the Secretary of State clearly warned:
"We will have to introduce protection against engineering designed to circumvent the intent of our proposals."—[Official Report, 11 June 2003; Vol. 406, c. 696.]
New clause 17 enables us to take forward the proposal to reform the position in relation to the application of debt on withdrawal from associated multi-employer schemes that I announced in Committee. The provision complements the new powers in clauses 39 to 46, which allow the regulator to issue financial support directions where an "insufficiently resourced" or service company is the sole sponsoring employer of a pension scheme.
The current legislation on withdrawal from multi-employer schemes provides for circumstances where, provided there are other companies left in such a scheme, a company can withdraw from the scheme and cease to be a sponsoring employer so that it will not be liable for any shortfall if the scheme winds up in the future. Currently, employers can do that relatively cheaply, as the withdrawal debt is based on the minimum funding requirement—the MFR.
New clause 17 introduces a new provision that enables section 75 of the Pensions Act 1995 to be modified to provide flexibility in calculating the section
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75 debt when a participating employer withdraws from a multi-employer scheme with associated employers. The detail of that provision will be set out in regulations; that mirrors the approach taken in legislation governing multi-employer schemes where provision is made in secondary legislation to reflect the diverse and complex nature of such schemes.
The regulation-making powers in new clause 17, which will not be retrospective, will provide that a full buy-out debt should be triggered unless an appropriate support arrangement is put in place and approved by the pensions regulator, in which case the debt will be recalculated and a scheme-specific debt will be payable.
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The financial support arrangements will be similar to those outlined in clauses 39 to 46. For example, joint and several liability for pension liabilities could be applied across the whole company group, so that the debt on the employer in the event that the scheme should wind up in the future could be claimed against any member of the group. Alternatively, the ultimate parent company in the group, whether or not participating in the scheme, could agree to meet the withdrawing employer's pension liabilities if the scheme were to wind up in the future.
In addition, there will also be the option to transfer pension liabilities to an appropriate new scheme when the employer withdraws. That would also reduce—in some cases, to zero—the debt payable, as any member's liabilities actually transferred out of the scheme will be included in the calculation of the debt.
Regulations under the new clause will provide that any person identified in the withdrawal arrangements must consent to them and that any breakdown in the withdrawal arrangements may lead to a contribution notice being issued to those identified in the arrangements.
In tandem with clauses 39 to 46, new clause 17 is designed to avoid situations where, whether by chance or design, withdrawal from multi-employer arrangements leaves pension liabilities in a company that is substantially weaker than the rest or other parts of the group. Such a situation increases the risk that the scheme will be abandoned without being able to recover the full scheme costs from the employer, leaving the PPF to pick up the bill and the risk that certain members will have their benefits cut, even if other parts of the group could meet the cost.
Finally, this group contains a number of technical amendments, consequential on clauses added in Committee. Those amendments will ensure consistency between the new moral hazard provisions and the rest of the Bill. For example, amendments Nos. 112 to 118 will ensure that amounts recovered in respect of debts due under any of the moral hazard powers can be subsumed into the pension protection fund once the PPF board has assumed responsibility for a scheme. Amendments Nos. 136 to 142 will add those new powers in relation to moral hazard that are reserved to the determinations panel under schedule 2, which lists the reserved regulatory functions.
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Hon. Members will appreciate how important it is that the regulator has the right tools to enable him properly to protect the PPF from abuse, and I urge hon. Members to accept these new clauses and amendments.
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