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Mr. Waterson: This is another anti-avoidance measure, and the Minister was kind enough to nod in the direction of the provenance of this new clause, which was one of the amendments we tabled in Committee. Ill health is a way of getting round the 90 per cent. rule and the cap. The issue was originally raised at the behest of the National Association of Pension Funds, which suggested the amendment to allow a review of early retirements.
Our amendment did not specifically mention ill health, but it is likely to be the most obvious course to achieve what is called inappropriate early retirement, unless the Minister can think of any other ways around the requirements in the Bill. The three-year rule is not without some sense. Practical difficulties will arise in the enforcement of such moral hazard powers, as the explanatory note calls them. That term may stretch matters a little far: we are talking about anti-avoidance
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measures to stop people taking advantage of the scheme. Indeed, in Committee, the Minister referred to the episode involving a famous individual who apparently acquired Alzheimer's disease and then made a full recovery. I am sure that there have been other, less well-publicised instances of people suffering ill health and then—thanks to the wonders of medical science—making a full recovery after they have put together a satisfactory retirement package. That would be an obvious way out of the requirements of the PPF and that concerns the NAPF, which is why we tabled the original amendment. There should be a power to investigate such matters.
The new clause would give the board the power to revoke the award of a full pension on grounds of ill health. Perhaps the Minister could be a little more precise about how that would happen. The pension could be revoked some two or three years after the event, for example. Does the Minister envisage the board demanding a medical examination? What powers would the board have to require a medical examination if the person did not consent? What attention should be paid to any changes in medical condition in the intervening period? Those are practical issues, but the principle is right: we should not allow an obvious way around the PPF regulations and ill-intentioned people could use ill health to do so.
Mr. Drew: Ministers and Opposition spokesmen are trying to address an issue that we come across in our constituencies. Occasionally, people are encouraged to leave on grounds of ill health, but if that attempt fails they may be granted early retirement. That does enormous damage to pension schemes, and anything that can be done to tighten up procedures is welcome. However, does the hon. Gentleman agree that difficulties arise when people's situations are judged retrospectively? I do not know how we can reflect that in the law, because it comes down to the morality of the case. I am not sure about the term "moral hazard", but the problem needs to be addressed.
Mr. Waterson: That is a fair point. The decision to make the full award of a pension on grounds of ill health is taken at a certain moment in time, and the new clause would provide that that decision could be re-examined some years later. As I understand it, the board will try to put itself in the position of the scheme at the time that the decision was made, not at any other point in history. The obvious example is stress, the 21st century disease. In many cases, the effects of stress are very real, but it can also cover many other situations. Of course, it would be perfectly easy to argue that a high-flying executive had to retire due to ill health caused by stress, but that when the reasons for the stress were removed—whether the pressures of the job or worries about the pension—it would not be surprising that they made a reasonably good recovery.
Although we have no problem with the intentions behind the new clause, some real practical issues are involved and it would be helpful if the Minister could consider them in any further comments he makes. However, we broadly support the new clause.
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Mr. Pond: The hon. Gentleman and my hon. Friend the Member for Stroud (Mr. Drew) are right to raise the practical issues. We are all agreed on the principle. We need to make sure that the board acts fairly when making assessments. There will be people—described by the hon. Member for Eastbourne (Mr. Waterson) as "ill-intentioned" individuals—who may try to abuse the system, but many more will have had to retire early on ill-health grounds and we want to protect their position.
We shall introduce regulations that set out precisely the procedure that can be used. I do not want to anticipate the regulations in too much detail, but there could be circumstances where medical evidence will form part of the evidence needed by the board to make its judgment. The board will need to ensure that all relevant evidence is taken into account and that an award is not made on an incorrect basis, especially because in almost all cases such decisions will be made after the event, as my hon. Friend the Member for Stroud said. We need to ensure that judgments are made fairly and that people have confidence in the way that they are made.
Question put and agreed to.
Clause read a Second time, and added to the Bill.
5.30 pm
New Clause 21
'(1) This section applies where, during an assessment period in relation to an eligible scheme, the Board reviews an ill health pension under the scheme by virtue of section [Reviewable ill health pensions].
(2) Where the conditions of subsection (3) are satisfied, the Board may determine that the compensation payable in respect of the pension, in a case where the Board assumes responsibility for the scheme, is to be determined in the prescribed manner on and after the relevant date.
(3) The conditions are—
(a) that the annual rate of compensation which would be payable under this Part in respect of the pension at the assessment date, if the Board assumed responsibility for the scheme, exceeds the notional reviewed rate of compensation in respect of the pension,
(b) that the Board is satisfied—
(i) that the decision to make the award was made in ignorance of, or was based upon a mistake as to, a material fact relevant to the decision,
(ii) that, at the time that decision was made, the member knew or could reasonably have been expected to know of that fact and that it was relevant to the decision, and
(iii) that, had the trustees or managers known about, or not been mistaken as to, that fact, they could not reasonably have decided to make the award, and
(c) that the Board is not satisfied that the criteria in the admissible rules governing entitlement to early payment of pension on grounds of ill health were satisfied in respect of the member at any time after that decision but before the assessment date.
(4) For the purposes of subsection (2) "the relevant date" means the date during the assessment period on which a scheme valuation in relation to the scheme becomes binding.
(5) The power to make a decision in respect of the pension under subsection (2) may only be exercised at a time which falls—
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(a) during the assessment period but before the time the Board first approves a scheme valuation under section 128 in relation to the scheme, and
(b) within a reasonable period beginning with the assessment date or, where the decision to make the award was made at a later date, that date.
(6) Regulations made for the purposes of subsection (2) may, in particular, include provision applying any provision of Schedule 7 with such modifications as may be prescribed.'.—[Mr. Pond.]
Brought up, read the First and Second time, and added to the Bill.
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