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19 Oct 2004 : Column 207WH—continued
Private Sector Pension Schemes
Mr. Deputy Speaker : Before we proceed, let me tell hon. Members that I shall suspend the sitting for about 15 minutes should there be a Division in the House. Any time lost will be added on at the end of the debate. I call Mr. Webb.
2 pm
Mr. David Laws (Yeovil) (LD): Thank you, Mr. Deputy Speaker. I am glad that I have become so well known in the House.
Mr. Deputy Speaker : I apologise to the hon. Gentleman. Sometimes, with bifocals, you can end up looking in the wrong place because the lens is split.
Mr. Laws : I have the same problem.
I am pleased to secure the debate, and I welcome the Minister and other hon. Members to their places. It is traditional in my party to leave certain pension issues to my hon. Friend the Member for Northavon (Mr. Webb), who speaks so effectively on them for us in the House. Therefore, I do not want to raise the wide policy issues that seem to have opened up in recent weeks. Instead, I want to focus on the pensions debate as it relates to those of my constituents who have been affected by the problems that have arisen in private sector pension schemes over the past couple of years.
Without wanting to tread too much on the toes of the hon. Member for Halifax (Mrs. Mahon), who will speak in another debate later, I want to mention the experiences of 87 members of the Turner and Newall pension scheme at Daido Industrial Bearings Europe Ltd. in Ilminster, most of whom are constituents. I also want to talk about the 108 members of the Varta Ltd. pension scheme in Crewkerne, who have also encountered some problems that have affected private sector pension schemes in recent years.
I am sure that those cases are the tip of the iceberg and that other schemes in my constituency have been affected by a variety of problems. Indeed, I have had representations from 67 people who work at Doncasters in Chard and who are members of Allied Signal's reserved membership final salary pension scheme. However, I shall not focus on that issue today, because it is being dealt with through the courts; we hope that there will be a settlement. Instead, I shall focus on the first two cases.
Although I said that I wanted to leave many of the big-picture issues to my hon. Friend the Member for Northavon, it is clear that this is not just a constituency issue and that problems with private sector pension schemes have been experienced across the country over the past couple of years. Therefore, the Government not only face the challenge of achieving a fair settlement for individuals such as my constituents who have been affected by problems with their pensions. They also have a strong public policy interest in reinforcing the credibility of the private pensions industry and their own pension provision. If they do not do so, I fear that the worrying trend that we have seen over the past couple of years may develop further, with an increasingly widespread perception among members of
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the public that pensions are not a good investment, that they are not safe and that people should put their money into the housing market instead.
A cursory review of the personal finance sections of newspapers is enough to show that the view that private pensions are no longer safe, reliable or a sound investment is not limited to the many individuals who already have difficulty finding the money to save. Such views go far wider and include groups that traditionally have regarded pensions as a safe and sound investment but that, after their experiences with pensions over the past three or four years and with property prices over the past decade or so, are shifting their asset portfolio in a way that could turn out to be extremely dangerous in years to come if there is a significant downturn in the housing market, and particularly if everyone in the current generation saves through the housing market and ends up having to sell at the same time to fund their retirement.
The reasons for the recent problems with private sector pension provision are well known, and several have impacted directly on my constituents in the T and N and Varta schemes. Briefly, they include the introduction of controls on pension fund surpluses from 1987, which encouraged employers to take contribution holidays. That issue is of particular relevance to my constituents in the T and N pension fund. Also, of course, the abolition of tax credits paid to pension funds, in the Chancellor's first Budget, has had an adverse impact on many private schemes. The introduction, from June 2001, of the new accounting standard, FRS 17, had a further impact. Obviously, the fall of the stock market since 2001 has had a major effect on the valuation of many private sector pension schemes.
One could add further factors to that list of major elements affecting private sector pension provision, not least of which perhaps is the fact that longevity is increasing. The consequences of that must be dealt with not only in the private sector but, increasingly, in the public sector.
For those reasons, there have been significant problems in many private sector pension schemes—the beginning of the end for many defined benefit schemes. The Government have responded to that—in some cases, under quite a lot of pressure from other parties in the House—by introducing their pension protection fund, starting in April 2005, and the financial assistance scheme, which, on my understanding, will be backward-looking from May 2004.
We accept that the Government have taken two desirable steps to help many of the people who are affected by the problems with private sector pension schemes. We also accept that there are many difficulties in framing the schemes in ways that will not create incentives for private sector employers to dump their pension liabilities on the public sector. Whichever party was in government would have to be conscious of the issues and concerns that the Minister described, in the recent Conservative Opposition-day debate on pensions, as the problem of moral hazard. It is understandable also that those constituents of ours who find that they are at risk of losing all, or almost all, their
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pension are not interested in esoteric arguments about moral hazard, but want to know what action will be taken to assist them.
Mr. Nigel Waterson (Eastbourne) (Con): I am following the hon. Gentleman's arguments closely. Does he agree that the individuals concerned cannot for the life of them see a rational distinction between those who are caught up in a solvent wind-up of a pension fund and those caught up in an insolvent wind-up? From their point of view, they are equally unable to control events. Does he think, as I do, that they should be treated the same?
Mr. Laws : That is a real issue. I agree that the individuals concerned may not see the distinction that the Government and others want to draw. I believe that it is important, however, that the Government frame legislation in a way that does not open opportunities for the private sector to shift its liabilities to the public sector.
The two pension schemes that I want to talk about are both affected by another problem in the Government's proposals: the well known problem of the gap between the two Government schemes. Some people will be protected in part by the financial assistance scheme, up to May 2004, and others may get protection beyond April 2005 through the pension protection fund.
I bring to the attention of hon. Members today two cases involving the problem of pension schemes—and affected constituents—that fall into the gap in between. The wind-ups of the schemes in question are starting in the period between the operation of the financial assistance scheme and that of the pension protection fund. I want to press the Minister on what progress is being made on whether Government compensation will extend to people who fall into the gap. There is a strong sense among those of my constituents who are affected, but also in the mind of the average man in the street who is interested in such issues, that it would be ridiculous for one cohort of people to be trapped and, because of what happens in one year of the Labour Government's term of office, excluded from compensation. That is what would happen to the 87 members of the T and N pension scheme at Daido Industrial Bearings Europe Ltd.
In the past couple of days and in today's press, there has been hopeful news about the T and N pension fund. It seems that the unions and others have done a good job in trying to negotiate a better deal from those who are seeking to buy the company out of chapter 11 bankruptcy. Let us hope that the private sector will find a solution to the T and N problem, rather than the obligations for 40,000 individuals in the UK being transferred to the Government and the taxpayer.
I understand why the Minister has been reticent in respect of giving an undertaking on what will happen if there is no private sector solution to the T and N pension fund problems. Understandably, he does not want to encourage anything that would transfer those liabilities to the public sector, but I seek at least some encouragement that he understands the position of the people who may fall in the gap between the Government's two schemes and that he is considering their situation sympathetically. I would also be grateful if he gave us more information about the timetable that he envisages for making decisions on how such people will be affected.
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I note that the Government have already made some comments on the record in the past month, indicating that they are looking at people who fall between the schemes sympathetically. Baroness Hollis of Heigham said:
"We have not yet ruled out help in respect of schemes that start to wind up between May 2004 and the introduction of the PPF—what I call the sandwich year."—[Official Report, House of Lords, 7 September 2004; Vol. 664, c. GC132.]
I raised with the Minister the issue of my constituents at Daido Industrial Bearings Europe Ltd. who are affected by the T and N pension scheme. He replied in a letter dated 20 September that
"the details of the Financial Assistance Scheme have yet to be finalised and we have not yet ruled out help in respect of schemes which start to wind up between May this year and the introduction of the Pension Protection Fund. We will take final decisions on requirements for the Financial Assistance Scheme once further research and consultation has been concluded."
Today, I want him to give not a cast-iron guarantee—I know he will not do that—but something a little more positive than "not yet ruled out" that shows that he understands that people caught in the gap between the schemes deserve proper protection from the Government. I would also like him to indicate how the research and consultation are proceeding and when we can expect a decision. I am sure that he understands that those who may be affected and who stand to lose a large amount of their provision for retirement are extremely worried about this issue and seek some guidance from the Government about how they intend to pursue it.
My constituents who are in the T and N pension fund understand that, beyond those two important points, there is a limit to the extent to which the Government can comment on the private negotiations taking place. However, when I contacted them about the debate, they asked me to raise several other issues with the Minister regarding their frustrations about how the problems in the T and N pension scheme arose. I hope that the Minister will give his views on those issues. First, in their minds, the main reason that the fund ran into problems was the long pension holiday that it had—I believe that it was almost a decade. We understand why, in the 1980s, the Government decided that a restriction to avoid losing taxation was needed, but, with the large swings in financial markets, surely we want to ensure that we do not deter any companies or pension funds that want to run up reasonable surpluses as a cushion against the bad times.
The second point raised by my constituents at Daido was whether there should be a stronger obligation on the trustees of some pension funds to have an actuarial evaluation more regularly than every three years and to give clearer information to scheme members, so that they can understand some risks that are developing and how well funded their pension scheme is. I suspect that, for many individuals in this position, the problems that they end up with and the near collapse of their scheme often come as a complete surprise. They will not have appreciated some problems as they built up—sometimes over the short term, but usually over a couple of years.
The third issue that constituents raised was whether there should be some special secure status for pension fund assets in the break-up of companies going into liquidation. One can obviously anticipate some
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problems that might arise, but it is a legitimate issue to raise with the Government and I hope that the Minister touches on it.
The fourth and final point that the constituents raised, which is becoming increasingly relevant in the world of international ownership for private sector employers, was how the Government intend to protect UK workers in foreign-owned companies from the application of foreign pension laws. I will return to the situation faced by T and N members at Daido. Essentially, we have a Japanese firm, decisions that are made in America about a US-based pension fund and an English firm. The way in which we co-operate with other countries to agree a common set of rules, regulations and procedures in relation to pension law could be important in such cases.
I suspect that the Minister will not be as familiar with the second case as he is with the major issue of the T and N fund. It affects a large number of people in my constituency, and a much smaller number across the UK. It is the position of the 108 employees in the Varta Ltd. pension and life assurance scheme who were employed by Varta Ltd., a battery company in Crewkerne in my constituency. After the debate, I will send the Minister additional details about that particular case, so that he can respond. However, I would like briefly to raise the Varta case, not least because I suspect that it demonstrates some problems that the Government are grappling with and some that will need to be grappled with, and some measures that businesses are taking to try to reduce the pension liabilities that would otherwise fall to them.
The Varta Ltd. pension and life assurance scheme was established as a final salary scheme in 1971, and was historically funded by contributions from both the company and employees. Varta Ltd. was a subsidiary of Varta AG, a German company, and Varta AG was in turn sold to DB Investor, a company substantially owned by Deutsche Bank, in 2000. There was a further change in October 2002, when Varta AG sold a retail supply business to a US company, Rayovac Corporation. At that time, the Varta Ltd. business had to be split to separate the two bits: the part that was being purchased by the US entity and the part that was not.
It was no secret prior to the Rayovac purchase that the pension scheme, like many others, was in deficit on the basis of the minimum funding requirement and US and UK accounting standards. The deficit was about £2 million. Following the purchase of Varta Ltd. by Rayovac, the decision was made to close the Varta Ltd. site at Crewkerne and to transfer the business to the existing Rayovac operations in the United Kingdom. That took effect from 31 May 2003, at which time the employees and directors left the company.
Rayovac has met its statutory debt obligation to the scheme, as required by law, and Varta Ltd., although still nominally the principal employer, is likely to be wound up. However, Rayovac has so far proved unwilling to discuss who will negotiate any further assistance to the scheme's 108 members.
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Varta Microbattery Ltd. continued to pay into the scheme after 31 May 2003, up to 31 December when its Inland Revenue approval expired. Consequently, as the last employer, the company became liable to make up any shortfall, which by that time had to be measured on a fully bought-out basis, as there were no contributing members left. When Varta Microbattery realised that that amount was £4 million in total, which the company could not afford to pay, it used the legal loophole left last year by placing the company into administration in February 2004, making all its employees redundant. The business was then immediately re-opened as a branch office of Varta Microbattery GmbH, and the company re-engaged those employees it wished to retain. By that process, it is likely to avoid its responsibility to the members of the Varta Ltd. pension scheme, unless the trustees of the scheme succeed in claiming from the German parent company. In August 2004, Varta Ltd. triggered the winding-up of the scheme, with the consequence that deferred members can now expect only about 45 per cent. of the pension that they earned.
That presents the Minister with several different issues to address, as the Government will no doubt be concerned to ensure that the pension protection legislation is very carefully put together. I do not necessarily expect him to have grasped all the details in this short debate, so I hope that, by writing separately to him, he can guide us as to whether any measures could be taken to pursue some of those obligations.
Obviously, what concerns constituents of mine who are affected by this situation is that, although they have heard about the Government's widely trumpeted scheme to offer compensation to people who have lost out in private sector schemes such as these, they now find that they fall between the pension protection fund and the Government's compensation scheme up to May 2004. This is yet another case that shows that a large number of deserving individuals fall between the two Government schemes. I hope that the Government will think again about whether they can deal with the needs of those individuals, which would not happen under the proposed schemes.
The desperation and frustration felt by many of these people, who have not always been properly informed about problems with their pension schemes and whose parent companies, with responsibility for their pension scheme, are often international, are summed up at the end of a note sent to me by a constituent, Mr Bailey, who is still employed at Daido Industrial Bearings Europe Ltd. in Ilminster and is a member of the T and N pension fund:
"Here at Ilminster we find ourselves to be a Japanese owned Company sited in England. Our pension is based in England but appears to be effectively controlled from America. We have employees who have been with the Company for anything up to forty years. Some, myself included, are within a few years of retirement. We were encouraged by all and sundry to join the Company scheme which was promoted as the way to a financially secure retirement. Through no fault of our own- we now find ourselves in a situation where, at best, a significant percentage of our pensions may well be lost. All this to support an ailing American Company that we no longer work for!"
That is a good example of the frustration felt by people today.
We accept that many of these problems date back even further than the period of office of the Labour Government and that there are challenges for all parties.
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We also accept that the problems in those two pension schemes cannot simply be put down to one or two of the Government's decisions. The ultimate solution to many problems will involve a change in the whole architecture of pensions policy. We hope that the indications from the Secretary of State for Work and Pensions in the past few weeks are that the Government may be rethinking their existing complex pension scheme, which relies too much on means-tested benefits. While the Government are doing that long-term thinking, we hope that the Minister will offer more reassurance to individuals such as my constituents who are facing great losses in income in retirement. We hope that we can work with him over the next few months to give real comfort to people in that situation.
2.23 pm
Mr. David Drew (Stroud) (Lab/Co-op): I arrived at the debate with no intention other than to intervene on the hon. Member for Yeovil (Mr. Laws). I want to say a few things, however, particularly about the administration process to which he referred, which will not surprise my hon. Friend the Minister.
I thank the Minister for receiving a delegation from Amicus, the Transport and General Workers Union and the work force of Lister-Petter, a couple of whose members graphically described the problems that they face. I share Lister-Petter with the hon. Member for Northavon (Mr. Webb): some of his constituents are part of the same pension fund as my constituents. The only thing that has changed since I last saw them is that the outcome of the administration is known. Members of the pension fund will receive less than a penny in the pound. With the best will in the world, that outcome was the biggest kick in the teeth that one could imagine. The Minister will remember that one of the gentlemen worked for Lister-Petter for 37 or 38 years, yet the workers stand to get next to nothing from the administration process.
I pay due regard to the Minister's previous boss, my right hon. Friend the Member for Oxford, East (Mr. Smith). He, too, saw me and took up some issues with the Department of Trade and Industry.
The Minister knows the arguments, and he knows what I shall be asking him to do. I know that he will reflect on what I say, but I accept that it will not be easy. The Lister-Petters of this world are prime examples of what can go wrong when companies get into difficulties and pension funds are sacrificed as a result. I know that he can say nothing about who will be included in the pension protection fund, but, if the Lister-Petter work force are not part of it, I do not know who will be. It is important to recognise that the state has a role as lender of last resort, but it should not be quite like that. Perhaps lessons can be learned and ideas taken forward to prevent a recurrence of such cases.
Mr. Steve Webb (Northavon) (LD): The hon. Gentleman has been diligent in pursuing the interests of Lister-Petter pensioners. Does he share my concern that the Government have asked such schemes for information to help to construct the financial assistance scheme but have offered no help to meet the costs of supplying that information, and that the trustees can meet those costs from the pension fund, which will leave
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the workers with even less? Does he think that the Government should have met the cost of obtaining that information?
Mr. Drew : The state should certainly have a role in arbitrating on how the process of administration or receivership is taken forward. I was about to say that secured creditors should not have it as easy as they seem to, and that unsecured creditors should not be sacrificed. However, when push comes to shove, often the reality is that little is left—except, dare I say it, for the Exchequer. The state may have to take on such responsibilities. It is wrong to expect the workers to carry the entire burden. It is completely unfair.
I have used Lister-Petter as a case history, but it is a good example as it demonstrates what we need to learn from such a wrong set of circumstances. From the outset, however, my investigation of the Lister-Petter pension fund showed no evidence of maladministration. The company was unfortunate in as much as there was a stock market blip at exactly the wrong moment, and the problems that the company faced were mirrored by those that faced the pension fund. Although the pension fund needed outside support, the company should have been doing more. However, the state should have a role to play in trying at least to get a fairer settlement.
The main problem when it comes to the process of administration, let alone a full winding-up, is that the power that we invest in the administrator or receiver is so great that the pension fund is left at the bottom of the pile. The way in which the assets are settled leaves the pension fund as the most unsecured of creditors. It is bound to lose. As far as I can make out—I will be careful in how I word this—it pays the administrator very little to be fair to the pension fund, whereas for the banks and other prime creditors the administrator is, for all sorts of reasons, seen to be unduly helpful.
We face a closed circle. I have raised the issue on a number of occasions. I know that it is not the Minister's responsibility, but I will continue to bang on about it. The Department for Work and Pensions and the Department of Trade and Industry must between them tackle the secret garden of the administration process and, dare I say it, receivership. The process needs to be opened out. Too often, the pension fund loses out because it is unclear what decisions are taken on behalf of whom, except that in a number of cases we can see who loses out.
In the case of Lister-Petter, the pension fund was already in difficulties when, roughly a year ago, the company began to experience serious difficulties itself. The hon. Member for Northavon talked about the issue. I have had a lot to do with the case, but I do not want to labour the point about how much of my time the issue has taken up. More important are the repercussions in a company town such as Dursley, which was based around Lister-Petter .
At its height, the pension fund was about £12 million in the red. By the time of the closure, that figure was reduced to less than £10 million and was moving in the right direction. Again, there is a question about the administrator and, dare I say it, the independent trustee appointed by the administrator to consider the grounds on which a decision to close the pension fund might be
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taken. I accept that such legal and financial decisions must be taken, and one trusts that they are taken for all the best reasons. In the case in question, there was no real alternative in the view of the trustees of the pension fund.
The killer is that, when a pension fund is, say, £9 million in the red, the real cost of trying to keep it going is about three times that, because the money in the red must be annuitised. Again, the issue relates to the confidence of the market and what it expects. In due course, as the stock market improved, the pension could have come back. Why does that matter?
Mr. Webb : Of course, there is an alternative to annuitisation, which is for the financial assistance scheme to take over the assets—it does not have to cash them in and therefore buy a poor-value annuity. I do not know whether the Government have ruled that option out, but does the hon. Gentleman share my view that that should happen? The FAS should take over the assets, not force people to buy poor-value annuities.
Mr. Drew : I do not disagree at all. My point is that, when you look for a potential suitor—it is the role of the administrator to try to keep a company as a going concern—the pension fund is seen as a great dead weight. If an administrator can lose the pension fund, that is seen as something that makes the company more attractive. The administrator's motivation is therefore completely at odds with the continuation of the pension fund. The hon. Gentleman proposes a way to overcome that, which is something that the Minister might want to talk about. The danger is that you could end up with the state picking up a rather hefty bill, but something has to be done.
The reason the issue is so important is that it concerns the prioritisation of the security of the assets when a company experiences difficulties.
Mr. Deputy Speaker : Order. May I warn the hon. Gentleman that when he says "you" he means me? Normally, I am quite relaxed about that, but, as a former chairman of a pension fund, it could be embarrassing.
Mr. Drew : I apologise. I shall try to talk in the plural. In the situation that I described, everything is stacked against the pension fund that has to try to survive. As I have said—we accept that it is not the responsibility of the Minister—part of the solution is to persuade the DTI. I am looking for more of a level playing field, so that the pension fund is not seen to be the makeweight of any administration process. The people whom one would want to protect are those who are most unprotected. The sad thing in the case of Lister-Petter is that the people who have had the boot put in are those who stayed with the company through thick and thin and who may have foregone their pension because they preferred to stay as deferred pensioners. They have lost out completely.
2.36 pm
Sitting suspended for a Division in the House.
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2.50 pm
On resuming—
Mr. Drew : I shall conclude promptly. I know that the Minister will argue against the case that I have advanced—this time in public—that there is a danger that companies will take this as an opportunity to get rid of their company schemes and that those who could be in the game of taking them over would have every reason to object if they believed that such a move would leave them responsible for a punitive pensions fund.
In these days of corporate social responsibility, there is no clearer way for a decent business to behave than to recognise that its pension fund is a critical measure not only of how effectively it does business, but of how it cares for its work force. At a time when the quality of a business is determined by the quality of its work force, we should pay far greater attention to fairness in pension funds. I hope that the Minister will give us good news. If nothing else, he should take our concerns back to the DTI and nail down the gross unfairness that we are debating.
2.51 pm
Adam Price (East Carmarthen and Dinefwr) (PC): I congratulate the hon. Member for Yeovil (Mr. Laws) on having secured the debate. He approached the issue in his typically forensic, measured and analytical way. I also congratulate him on the timing of the debate—although, as the hon. Member for Eastbourne (Mr. Waterson) said, if one misses one pensions debate these days, there will always be another over the next week.
We have focused of late on the long-term pensions crisis, in the wake of the Turner review, so it is timely that this debate concerns not the ticking pensions time bomb but the crisis that is already with us. There have been some developments in recent months. The unions are suing the Government; the Lords are in Committee considering the Pensions Bill in a state of some confusion about the Government's proposals; the parliamentary ombudsman might be about to launch an inquiry, following complaints by 47 Members of Parliament—including, I am led to believe, the Secretary of State for Work and Pensions—and there is even a criminal investigation by South Wales police. We cannot wait for all those inquiries to reach their conclusions. As we have heard from the hon. Members for Yeovil and for Stroud (Mr. Drew), the problem is ongoing for people in many constituencies. I shall accede to the Minister's request to keep my comments brief if he will agree to answer my questions, by return of post if not during the debate.
There is a link between the long-term debate and the short-term crisis, and that is the issue of trust, as the hon. Member for Yeovil said. Public confidence in the pensions system has collapsed, largely because of the myriad crises in occupational pension funds. In addressing the crisis, the Government have an opportunity to restore that confidence. I remember the debate in May when the Government announced the financial assistance scheme, to a chorus of halleluiahs from all over the House. Unfortunately, some of that good will, and the trust that was beginning to be restored by their acceptance of responsibility, has been frittered away by the Government in the subsequent
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months. Presumably, that is why the union has taken the action that it has, and why MPs have made an application to the ombudsman.
One of the critical worries is the adequacy of the funds. Many independent commentators have come to the conclusion that there is not enough money to make adequate provision for those whose pensions have been stolen. Any figure that one cites is dwarfed by the £5 million that the Chancellor still receives every year as a result of having removed the tax credit that pensions received on company dividends. Surely the Government can do more than they are doing.
As the hon. Member for Northavon (Mr. Webb) said, in the context of the complaints and the concerns that have been raised about administrative fees, it is absurd that the Government are asking pension schemes—which are suffering gaping holes in their provision and cannot pay some of their deferred pensioners—to pick up the tab for filling in the Government's 11-page questionnaire. All that the Government have done is ask the administrators to keep charges to a minimum. No control has been put on that. The members of the schemes, who are the innocent parties, have to suffer for something that is the Government's responsibility. The Government decided to bring in the financial assistance scheme; surely they can see fit not to fritter away further the funds in the schemes. Some have already lost 10 or 15 per cent. of their available funds in fees. Surely the Government can do better than that.
The question of who will be covered has been raised. There is a lot of uncertainty. All that the Government tell us is that some people will be helped, somewhat, at some time. That is all we can say with any certainty. Surely we need to give some response to companies. People who belonged to schemes before April 1997—10 per cent. of those identified in the Government's paper, which I think was released in June—would not be covered. I cannot see any moral, legal or other argument for excluding those people, who are in exactly the same situation as the others.
The Government risk creating a new injustice and a new set of people who feel that they have been wronged first by their companies, then by successive Governments who—unlike almost every other Government in the world—did not put measures in place to protect them, and now by a financial assistance scheme that arbitrarily excludes them. The same applies to the so-called sandwich year of the company insolvency scheme for the 300 workers of the German paper company, Felix Schoeller. That company has turned its back on a £12.5 million pension fund deficit, although its parent company made a reported profit of over £100 million in the last year. How can the members of that scheme, who have done no wrong, be excluded?
The company is to blame, and yes, the Government should be going after the company, but surely provision should be made for the members, and for those at Turner and Newall in Wales, and at the former Ferodo plant in Caernarfon, now Dynamex Friction. The workers there fought the longest-running industrial dispute in British history and now face the prospect, on top of that, of losing up to 70 per cent. of their pension fund. Surely the Government have to provide some support for those workers.
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I would like the Minister to tell us whether there have been any changes to the timetable that he outlined in May, now that further work has to be done on the numbers until 12 November. Will that have any impact on the timetable? Will we still see the first payments in the spring? When will we get the affirmative procedure vote on the detailed regulations that we were promised, and will there be a debate as well as a vote?
I agree with the right hon. Member for Birkenhead (Mr. Field), whose idea of using unclaimed assets was taken up by the Opposition. I do not care where the money comes from so long as we find some for the people who, as the Minister acknowledges, believe that their pensions were stolen. Perhaps it is not such a bad idea that the South Wales police have launched an investigation. That money belonged to the scheme members.
The Government pride themselves on evidence-based policy making, but they announced an arbitrary figure before the work was done on eligible numbers. That does not make sense. They must revisit their cost assessment so that we can provide real security for all those who are deserving and who have lost out, and whom successive Governments have failed. The Government have an opportunity to restore confidence I hope they do not miss it.
3 pm
Mr. Steve Webb (Northavon) (LD): I congratulate my hon. Friend the Member for Yeovil (Mr. Laws) not merely on securing this debate—that seems an odd custom—but on his wise choice to speak on behalf of his constituents who have lost some of or all their occupational pension rights. I have struggled to come up with the right analogy, but the situation is rather like looking at a window pane in the winter when it starts to snow. Initially there is one flake of snow on the pane and then another until, suddenly, it is snowing heavily and the entire pane is covered. It is rather like that for hon. Members who become concerned about occupational pension schemes.
Most try not to know anything about such schemes, but we have all been dragged kicking and screaming into that arena, because in more and more constituencies more and more hon. Members who, for understandable reasons, have never looked into such matters are drawn in because constituents have lost their pensions. While listening to departmental questions we have the macabre sport of spotting new MPs raising for the first time issues that have been raised month after month as the problem continues to spread. My hon. Friend spoke up powerfully for his constituents who worked for Turner and Newall and Varta—I am sure that I have bought its batteries in the past, but am not sure that I would have done if I had known what it has done. My hon. Friend raised some important issues, and I hope that the Minister will respond fully.
I shall touch on the four key points that my hon. Friend raised. He asked about pension contribution holidays. That may sound like a quaint throwback to some bygone era, but it would be interesting to know whether the Government have any plans to deal with pension fund surpluses if they re-emerge—whether they remain of the view that surpluses should be capped or
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whether there are plans for funds to build up healthy surpluses again, if the opportunity arises, to cushion funds against bad years and prevent a return to the rollercoaster.
My hon. Friend referred to the role of trustees and asked whether, in his local case, they had kept the workers properly informed and whether there should have been more frequent valuations. We touched on those issues when discussing the Pensions Bill. The Government have put a new onus on trustees to understand pensions—that is a novelty—but I am not wholly convinced that they have put any onus on the trustees to ensure that scheme members are better informed. I hope that the Minister will respond on that point.
My hon. Friend also talked about the priority order of creditors when a company goes into receivership; the hon. Member for Stroud (Mr. Drew) properly raised that important issue also. If the pension fund is at the bottom of the pile, many individuals lose out badly. One could understand why the banks, if they were at the bottom of the pile, might turn round and say that that increased their risk so they must charge more interest whenever they lend money to a company. Balances must be struck. I remember the priority order of creditors being raised in one of the endless stream of Green Papers that we have seen. Perhaps the Minister will clarify whether the Government have rejected making any changes on that front.
My hon. Friend the Member for Yeovil raised that most intractable set of issues raised by the question of what happens, in this increasingly global market, when a company that takes over another company is not based in the UK. It may be split off and there are liabilities hanging around from companies that no longer exist and so on. I hope that the Minister will do more than simply say that the matter is complicated. Can he offer us an assurance that any of our constituents who work for companies that are taken over by a foreign-owned parent company will enjoy the same pension rights protection that UK employees otherwise enjoy? Do British workers need to worry about their occupational pension rights if their company is taken over by an overseas employer? What will the impact be on their pension rights?
I shall touch briefly on the financial assistance scheme and some detailed points that were made. We heard from my hon. Friend and the hon. Member for Stroud about the sandwich year. The Minister's response to an intervention on the subject last week was that he could not really say what would happen; he was worried about moral hazard.
Will the Minister clarify what he meant? Is he worried that firms considering going into receivership might hasten to do so, knowing that the pension fund liability would be, to some extent, picked up? Does he think that that might be going on at the moment? Moral hazard has many dimensions. I wonder what bar there is on the Minister giving my hon. Friend's constituents—as well as people from Lister-Petter and other companies—some reassurance.
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We have had almost no information about how the financial assistance scheme will be run. The logic is that the financial assistance scheme would take over the assets of Lister-Petter, or whoever was involved, rather than converting them into poor-value annuities. Is that what will happen? Will the financial assistance scheme have assets acquired from the firms that have been wound up, topped up by the taxpayer? Who will run that? Will there be a new financial assistance board, or a quango or something similar? Surely the logical approach would be for the shadow pension protection fund to run it. It performs an almost identical function.
It has been suggested to me, rather cynically—obviously I reject the analysis—that the Government have not said that the pension protection fund will run the financial assistance scheme because that might lead people to think that there was a connection between the two. I do not accept that cynical approach; I know the Minister to be a man of principle. I hope that he will reassure me that the taxpayers' interests, and those of scheme members, will be best served by the PPF running the FAS.
Why will the FAS run for only 20 years? If I am 55 now, presumably I can expect to live another 25 or 30 years. What will happen when the money runs out? Why did the Government think that 20 lots of £20 million was the right number? As the hon. Member for East Carmarthen and Dinefwr (Adam Price) said, the Government are only now doing the research and asking the questions—but they have already worked out the answer. Where is the evidence that the figure is adequate? We all know that it is not, and that the Government started with the answer and worked back to the question.
It was interesting to watch the Minister's facial expressions when the hon. Member for East Carmarthen and Dinefwr was asking why the Government do not bear the cost of obtaining the information. If I read those expressions correctly, a paraphrase of what he was saying from a sedentary position without moving his lips was, "What do you want? The Government are already putting in £20 million and the members are benefiting from it, so they can lump it." I do not accept that analysis.
The Minister for Pensions (Malcolm Wicks) : My experience of Hansard is that, although it is excellent in many ways, it is not good at facial expressions or irony.
Mr. Deputy Speaker : Order. Before the hon. Gentleman resumes his seat, I assure hon. Members that the transcription of the debate is not even happening in this building, let alone taking account of facial expressions.
Mr. Webb : Thank you, Mr. Deputy Speaker. It has been suggested that it is regrettable that the written English language lacks a type-face known as ironic bold, which might have been appropriate just now.
The serious point is that the schemes in question, which already do not have enough money in them, have to bear a burden. The Minister gave a written answer on Thursday to a question from me about how many letters had been sent out—he could not tell me—and about the burden of the cost of supplying the information. He said that it would depend on
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"the extent to which those involved in administering the schemes are able to absorb any costs incurred".
Why should they? They are profit-making organisations. Have the Government rung them up and said, "Oh go on, don't charge us for this"? What incentive do they have for not passing on the costs? Allied Steel and Wire was the classic case in which scheme administrators and independent trustees were charging £100 to answer a phone call.
Adam Price : Is not part of the problem the fact that there is no guarantee, once the cost has been borne, that the scheme will benefit? The letter that has been sent says:
"Neither the provision of the information, nor any subsequent contact from the DWP, is to be taken as an indication that a scheme or its members will be entitled to assistance".
The scheme bears the cost of providing the Government with the data, but there is no guarantee of any benefit.
Mr. Webb : It would be particularly harsh to supply the information, thereby taking money out of the fund, and then find that the scheme was not covered in the first place.
In the written answer, the Minister continued:
"The Government is still seeking"—
desperately seeking, one senses—
"industry contributions to the Financial Assistance Scheme and this is an opportunity for members . . . to provide one."
Well, we will see, will we not? The written answer ends:
"We encouraged those involved to keep costs to a minimum."—[Official Report, 14 October 2004; Vol. 425, c. 343W.]
Nudges, winks and encouragement. The cost to an individual scheme could be significant; the cost to the Government is negligible. Given that those workers— those scheme members—have suffered enough already, could the Government not have said, "We will meet the costs of the extra information-gathering exercise"? As the hon. Gentleman said, that exercise should feed into the scale of the financial assistance scheme, not the other way round.
We could talk all day about those issues, but I hope that we receive some concrete answers from the Minister, first to the specific questions about pension scheme management that my hon. Friend the Member for Yeovil quite properly raised, and secondly, about how and under whose auspices the financial assistance scheme will be run. There is no moral hazard in providing answers to those questions, and I hope that the Minister will do so as comprehensively as he can.
3.11 pm
Mr. Nigel Waterson (Eastbourne) (Con): I will not take up the snowflake analogy of the hon. Member for Northavon (Mr. Webb), although the Government are doing what the Americans call a "snow job" on pensioners and would-be pensioners.
I congratulate the hon. Member for Yeovil (Mr. Laws) on securing the debate. As the hon. Member for East Carmarthen and Dinefwr (Adam Price) pointed out, this is not exactly a rare opportunity to debate problems in pensions, but it is nice to have a period of calm
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reflection in Westminster Hall after the frenetic activity last week, with a full day's debate, departmental questions and the Turner report to keep us busy.
It is worth stepping back from the frenetic discussions that we have weekly and sometimes two or three times a week about the purpose of Government policy. In a sentence, it should be to reinvest pensions with the confidence of different groups of the British public. People saving for their retirement in company schemes want some reassurance, which I guess is supposed to be the role of the pension protection fund. There is also the vast raft of young people who are simply not interested in pensions, whom the hon. Member for Yeovil touched on. They are turned off by the whole idea of pensions and must be encouraged to take an interest again.
The other part to reinvesting pensions with public confidence is to demonstrate to those groups that we are treating as fairly as possible those people who have already got into difficulties through no fault of their own—the people at Turner and Newall in Ilminster and the constituents of the hon. Member for Stroud (Mr. Drew). I add my warm welcome to the news that the Turner and Newall problem is apparently on its way to being solved, but I am sure that there are still some loose ends to tie up. I recently met a delegation from Derbyshire, where there is a high concentration of Turner and Newall employees, and they were extremely concerned about the future. However, it seems—fingers crossed—that a solution might have been found, so that the scheme can continue on a properly funded basis. That is excellent news.
That brings us to what Baroness Hollis of Heigham has called the sandwich year, or, as it has been called more accurately, the gap year in help for people who have lost all or a large part of their pension rights. The financial assistance scheme was met with a chorus of welcome and approval from many quarters. We were sceptical and have become more sceptical, but many groups that have worked and lobbied hard were on the face of it pleased with the announcement. As more detail has oozed—the only word that covers my point—out about the likely parameters of and exclusions from the scheme, that enthusiasm has rapidly evaporated.
The hon. Member for East Carmarthen and Dinefwr said that the £400 million figure was arbitrary. I do not believe that anyone could argue with that. I have yet to hear Ministers even try to explain where the figure came from, but one thing that everyone seems to agree about is that it is not nearly enough to deal with the potential problems, let alone the additional problems that may arise between now and the PPF's coming into effect, subject to an issue that I shall deal with in a moment.
It is alarming that successive attempts by many right hon. and hon. Members, including the hon. Member for Northavon and me, to extract more detail from Ministers have met with almost complete stonewalling. As has been explained, the main reason put forward for not vouchsafing the details is moral hazard. Perhaps one can understand that. The Turner and Newall situation was vast, potentially affecting some 40,000 people and involving a shortfall—at least on paper—of nearly £900 million. That in itself was a reason for Ministers to be cautious. It is certainly the reason that Ministers have clung to in the recent past, but let us hope and expect that the good news is indeed good news, that Turner and Newall's problems will be
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manageable and that that particular problem will disappear from Ministers' desks—in which case, what other good reason is there for not giving us the details?
As I pointed out in the debate last week, it is now five months since the FAS was announced—in a bit of a flurry, I must say. I asked the Minister a series of questions. Sadly, he seemed unable to answer them then, so I shall repeat them now. I intend to keep repeating them in the hope that eventually he might give me the answers or even come up with the immortal words, "I will write to the hon. Member."
When does the Minister expect the first payment to be made? My suspicion is that it will be after spring next year, which is a date that may have some significance. Will victims of solvent wind-ups be included? Apparently, the answer is no. What is to happen about the Baroness's sandwich year? Is it really the case that a decision has been made that any wind-ups that start between May this year and April next year will not come within the FAS and, by definition, within the PPF? Will the payments be means-tested? Will they be taxed? Can the Minister report any progress in extracting voluntary contributions from industry, or the industry? Will he reconsider a bit more seriously our proposal to top up the £400 million—inevitably, it will have to be topped up—by using unclaimed assets?
It is clear that there could be a very large gap. In trying to recreate confidence in pensions, it is no good at all if Ministers are not prepared to be totally frank about such matters, particularly if a specific reason for not being so appears to have been removed from the scene.
Although the action of the steel union caused some procedural difficulties with the ombudsman's inquiry, it was not wholly unexpected. Apparently, the union looked closely at the FAS and what was on offer and was distinctly unimpressed. Some 200 cases have been referred by hon. Members to the ombudsman. I very much hope for and would urge an early decision by the ombudsman to make it clear that there will be an investigation of maladministration.
Let me touch briefly on one other issue. Again, it relates to confidence. It looks to the Pensions Bill, which this House will have the pleasure of receiving back from the other place probably just before we finish this Session, and the nature of the guarantee. I have made this point before, but it bears repeating. Hon. Members and Ministers must not oversell what is being offered in that Bill. The US model on which it is based, the Pensions Benefit Guaranty Corporation, gives a total guarantee that someone whose pension fund goes pear-shaped will get the amount to which they would have been entitled. However, we know from the detail in the Bill that that is not what is on offer in this country: the fund does not have Government backing; there is a cap on individual payments; there is only 90 per cent. for those who are still working when the problem arises; the Government are changing the rules on indexation; and, of course, as has not been lost on the newly appointed chairman of the PPF, there is a clear power to cut benefits if the funds are not available. In the interests of confidence, it is important either that some such things are changed—who knows what may happen in the
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debates in the House of Lords—or that we are open and honest with people about the fact that the scheme is not a guarantee and is not a complete lifeboat.
I return to the points made by the hon. Member for Yeovil. If any kind of confidence in the pension system is to be rebuilt, it is desperately important that we start to get clear details about the FAS, such as how it will be administered and by whom; how the payment of claims will be approached; how many pence in the pound people are likely to get; and when payments will start to come through. We also need answers to the other questions that I have raised again today. I promise the Minister that I will keep raising those questions until we get some answers.
3.21 pm
The Minister for Pensions (Malcolm Wicks) : The hon. Member for Yeovil (Mr. Laws) introduced the debate in a measured and analytical way, and I thank him for setting the tone. I also enjoyed the challenges in the speech of my hon. Friend the Member for Stroud (Mr. Drew), and the contribution of the hon. Member for East Carmarthen and Dinefwr (Adam Price). As ever, the hon. Member for Northavon (Mr. Webb) made a valuable contribution. Among Liberal Democrat pension snowflakes, he is primus inter pares. The hon. Member for Eastbourne (Mr. Waterson) also made a challenging contribution.
I think we are all agreed that a crucial challenge for the Government, and Parliament, is to restore confidence and security in the pension system. Certain factors are largely out of our control, an obvious example being the huge decline in world share prices. Whenever it seems legitimate for the Government to intervene to introduce, or reintroduce, security and confidence, we must debate how to do so.
Although it is tempting to do so, this is not the occasion on which to re-debate the whole Pensions Bill. We have had opportunities to do that, and we will have further opportunities to do so, but I will try to touch on the more urgent issues that have been raised.
We have all met workers who have been adversely affected by the collapse of their companies and the terrible realisation that their pension dreams seem to have been shattered. Although I resist the vogue to call every issue and challenge a crisis, there is a real crisis for those groups of workers, which needs to be addressed. Part of the answer lies with the Pensions Bill and the establishment of the pension protection fund, which will come into force in April 2005—subject to the will of Parliament. The fund will ensure that compensation will be available for members of UK-based schemes whose companies go bust, leaving pension schemes underfunded. More than 10 million scheme members will benefit from the security of the new fund.
We also believe, as do more far-sighted business leaders, that business will benefit because the PPF will increase confidence in defined benefit schemes, and will increase their effectiveness as a recruitment and retention tool. The more successful we are in returning Britain to a land of full employment in which vacancies become the challenge rather than unemployment, the more people will ask serious questions about pension schemes at job interviews.
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If we learn the lessons from it properly, the Pensions Benefit Guaranty Corporation gives a reasonable guide to how we should establish the fund, although we have brought in flexibilities, in terms of the levy, that are not available to the US scheme. Questions of moral hazard mean that there will inevitably be some differences in treatment between groups and companies. We have taken the utmost care to minimise the effect of that.
By providing 90 per cent. compensation subject to PPF rules for members under the scheme's normal pension age, we will ensure that compensation remains meaningful, while incentivising key decision makers to keep their schemes outside the PPF. Regulations in force in advance of the PPF mean that the debt on a solvent employer whose scheme winds up underfunded is calculated on the basis that the scheme should be able to meet the full benefits that scheme members have accrued and expect to receive, as well as the full costs of winding-up. Trustees can use the regulations if their scheme started to wind up on or after 11 June 2003.
For schemes that start to wind up on or after 10 May this year, we have also amended the priority order to ensure that assets are shared more fairly between non-pensioner and pensioner scheme members. That has been achieved by moving pensioners' future indexation down the priority order, after the accrued rights of non-pensioner members. That has a significant impact on the rights of non-pensioner scheme members.
Importantly, the new pensions regulator—another feature of the Bill—will build further security and confidence, providing an early warning system of possible problems in scheme administration, assisting in protecting members and helping to limit calls on the PPF. The regulator will build on the expertise and experience of the Occupational Pensions Regulatory Authority, but will be more flexible and more proactive. It will concentrate its efforts on schemes where it assesses that there is a high risk to members because of bad governance, poor administration or fraud.
We are making real and substantial reforms to protect scheme members for the future, but we acknowledge that the PPF will not help some members. We have not ignored them. Through the financial assistance scheme, we will offer help to people who have lost out on their final salary pension due to their scheme winding up underfunded. Our commitment—at £400 million of public money—provides a sound basis, we would argue, for a worthwhile assistance scheme for those who face the most significant losses to their pension benefits.
The hon. Member for East Carmarthen and Dinefwr asked about the assistance scheme. Hon. Members will be aware that it is our duty to ensure that it is workable and affordable. It would be wrong for us rashly to announce details of the scheme without full and proper consideration. That would adversely affect those who have already been subjected to enough speculation and would be both unfair and misleading. We will not be pushed into making statements before the scheme has been fully formulated. It is a difficult and complex area of work, and we want to ensure that we get it right.
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Hon. Members, of course, have particular schemes on their minds that affect their constituents. I respect that, and there are some high-profile schemes. However, when I note that we have had to seek information from about 250 different company pension schemes, it might give hon. Members some idea of the scale of the challenge and the complexity of the task before us.
We can say that we are making progress. In May, I gave a clear timetable for how the scheme would develop. We are sticking to that timetable. I understand why hon. Members ask, "When will we hear?" but I have set out the timetable and we are on track.
As promised, a data report giving our initial estimate of people affected was laid before Parliament in June. We have been in discussion with stakeholders, trade unions, key representatives from business and the pensions industry, and scheme members affected. In addition, we have been advised by a group of pensions experts who have met us regularly over the summer.
The hon. Member for Northavon asked whether I could give details about the nature of the scheme. I cannot yet. Our plan is to produce more details at the end of this year and to have the scheme in place by the spring, with payments being made as soon as possible thereafter. I have already stated those things, and that is the timetable to which we are working. By spring, we intend to have the legislative framework in place with a view to being able to make the payments.
I have been asked about the so-called gap year, and the hon. Member for Yeovil was particularly concerned about two schemes. Various people have mentioned Turner and Newall. As far as that situation is concerned, we understand that discussions are ongoing. It would be wrong for me to pre-empt the outcome of those discussions, or for us to assume that the scheme will wind up.
We are of course sympathetic to the Turner and Newall pension scheme members, who are left in great uncertainty at present. I have met several hon. Members to discuss the scheme. We continue to monitor the situation closely and look forward to positive developments. Only last week, as has been noted, I was pleased to hear about further progress—namely, the new offer from US investors, which is being considered by the administrator and trustees of the scheme. We hope that the company will meet its obligations to the employees and achieve a beneficial outcome for all parties concerned. However, the recent developments support our view that, until those discussions are complete, it would be wholly inappropriate for any of us to draw conclusions about the future of the schemes.
The hon. Member for Yeovil mentioned another scheme and promised to write to me about it. I will respond to that, which is the appropriate way to deal with a scheme that I am not knowledgeable about at this moment.
Mr. Laws : Leaving aside the Turner and Newall scheme, does the Minister agree that it would be wholly unfair if a group of individuals fell between the two forms of compensation and protection that the
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Government are putting in place and therefore received no compensation at all? How would he justify that to the affected individuals?
Malcolm Wicks : As I have noted, schemes winding up after 10 May 2004 will be helped by the changes to the priority order. However, I do not want to exaggerate the proportion of support that that brings; it is not the whole answer. We have said before that, for that year, we have not ruled out support from the financial assistance scheme, and of course we are sympathetic. We are closely monitoring the situation as it develops for that one-year period.
Mr. Webb : Will the Minister give way?
Malcolm Wicks : May I carry on?
We need to take moral hazard seriously. For wholly British companies and companies that are foreign owned and that have a complexity of ownership because of globalisation, we must be careful that we do not say things too rashly that might encourage companies to dump their pension liabilities on the British taxpayer. They as companies should be responsible. That is what I mean by moral hazard in this situation. We must all be careful of how we speak about the issue to avoid such difficulty. There is also an implication not only for the financial assistance scheme but for the PPF as we approach the April period, when it might be difficult, or require some analysis, to determine whether the FAS or PPF might be liable for one scheme or another. There is complexity to the matter.
I use the word "sympathy" but I realise that sympathy butters no scones. However, when we have talked about our sympathy, we have followed it up with action—with the PPF and the FAS. I am concerned about, and sympathetic to, those who will fall in that year. I hope that the hon. Member for Yeovil understands my meaning.
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