Amendment made: No. 322, in
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(a) the pension scheme is to be treated as having made an unauthorised payment in respect of the member (rather than to the member), and
(b) the person who holds the asset or is subject to the liability in relation to which subsection (1)(b) is satisfied is to be treated as having received the unauthorised payment.'.[Ruth Kelly.]
Clause 163, as amended, ordered to stand part of the Bill.
Clauses 164 and 165 ordered to stand part of the Bill.
Authorised surplus payment
Question proposed, That the clause stand part of the Bill.
Mr. Osborne: This will be another brief stand part debate. This clause about surplus payments from schemes to employers consists of only one sentence, but it signifies a major change in the law. It says that the rules under which such payments can be made will be ''prescribed by regulations.'' I have not actually seen the regulations; perhaps they were sent to me but got lost in the mound of paper on my desk to do with this Bill, in which case I apologise.
The change in the clause is significant because, under the current regime, the Inland Revenue actually requires schemes to reduce an excessive surplus. New clauses that were chucked into the Pensions Bill late in the day at Report stage said that the Department for Work and Pensions will make regulations to preclude employers' receiving payments from a defined benefit scheme unless the scheme is funded to a sufficient level to afford a full buy-out; that is, unless annuities and deferred annuities to secure the rights of all members and beneficiaries could be purchased. There are also to be new rules for defined contribution schemes. In other words, the Inland Revenue will no longer be required to approve scheme payments to employers, provided such payments come within the rules.
I merely ask the Financial Secretary how much consultation there was with the industry about the new rules. Because of the way in which they were introduced in the Pensions Bill, there was no consultation at all with the industry, but there is a great deal of concern about them. Indeed, it is worth asking the Government how the rules will interact with the new EU directive on pensions. We are now all familiar with EU matters. It is good to see the fourth party of British politics alongside me. [Interruption.] No, I think the results put you behind UKIP.
The EU directive on pensions requires schemes at all times to hold sufficient assets to pay out all benefits promised to members. The National Association of Pension Funds suggests that that could cost British pension schemes, which operate on a more flexible approach and are protected from the day-to-day ups and downs of the stock market, up to £300 billion a year. I raise that point under this clause, which is about surplus payments, and I would be interested to hear what the Financial Secretary has to say.
The Chairman: Order. First, I did not want to interrupt the hon. Gentleman, but of course nobody is
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behind me. Secondly, I remind the Committee that this is a very narrow clause indeed.
Ruth Kelly: Thank you for your guidance, Mr. McWilliam. I hope to keep my remarks to the point.
The hon. Member for Tatton has no need to apologise for not finding something among the papers on his desk. In fact, it is up to me to apologise to the Committee for not yet having been able to produce draft regulations. However, he often accuses us of lack of joined-up government and not working closely enough with the DWP. On this occasion, my Department is working very closely with the DWP so that, when we do publish the draft regulations describing an authorised surplus payment, they will as far as possible mirror the description given in the regulations accompanying the Pensions Bill. I know that he is familiar with the debate on that issue and that he follows such issues closely.
I hope that the issue will be picked up in the debate on the Pensions Bill, as I think that that is the right place for it. I promise that, if it is not debated sufficiently during the Pensions Bill, I will ask my hon. Friend the Minister for Pensions to discuss it with the hon. Gentleman or to write to him setting out the views of the Department for Work and Pensions.
While I apologise that it has not been possible to let members of the Committee see draft regulations under the clause, I reassure them that they will be published and consulted on well in advance of the implementation date, which is, as they should be well aware, 6 April 2006. That is well in time for the introduction of the simplified regime. I commend the clause to the Committee.
Question put and agreed to.
Clause 166 ordered to stand part of the Bill.
Clause 167 ordered to stand part of the Bill.
Authorised Employer Loan
Mr. Osborne: I beg to move amendment No. 281, in
The Chairman: With this it will be convenient to discuss amendment No. 275, in
Mr. Osborne: In the previous debate, the Financial Secretary referred briefly to the fact that the clause will allow schemes to lend up to 50 per cent. of assets to an employer. Actually, I think that she made a different point, which I will come on to, about how much schemes can borrow, but the clause allows schemes to lend up to 50 per cent. of assets to an employer and requires the loan to be secured and repaid within five years at a rate that is the average of the base lending rates of the major high street banks. Those regulations I did receive from the Financial Secretary.
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My first question is: why the change from the consultation document? In that, there is a suggestion that the rate would be 1 per cent. more than the Bank of England's base rate. Why have the Government changed to use an average of the base lending rates of high street banks?
Even with those welcome safeguards, is the overall concept a good idea? Is there not a risk to members if a scheme lends 50 per cent. of its assets to an employer? At present, as I understand it, only a small number of schemes can make loans to sponsoring employers. Do we want pension schemes to become a major source of loan finance? If an employer is unable to secure finance on commercial terms, it is probably not in good shape. Is it sensible to have provisions that encourage employers in such difficult circumstances to consider a raid on their pension funds? Is that not exactly what happened with the former Labour MP, Robert Maxwell? How does that interact with the pension protection measures in the Pensions Bill?
There may, of course, be circumstances in which doing that is fine. For example, there may be a small, self-administered scheme where there are only a few members and all agree that it is a good idea to make such a loan. However, should not those circumstances be clearly prescribed rather than trying to create a one-size-fits-all approach that would run the risk of employers raiding their pension scheme for large sums of money and putting the members' pensions at risk? Amendment No. 281 would give the Inland Revenue a chance to prescribe the circumstances and restrict such loans to small, self-administered schemes. I have no doubt that the Financial Secretary will accept it.
Amendment No. 275 is to schedule 30, which is one that I am sure that all members of the Committee are familiar with. We all know what DLRP over DFY times 100, minus 100, divided by 100, and then times by AO is all about. That formula is just one of many that schedule 30 contains. By the way, one of the general criticisms of the Bill that I touched on at the beginning of our discussions was that there are many complex and unfamiliar formulae in it. I can see the hon. Member for Wolverhampton, South-West is trying to decipher the equation I just mentioned.
Most people will accept that, although schedule 30 is long and probably over-complicated, it seems to work—in all but one important respect, that is, and that is where my amendment kicks in.
In practice, if an employer has any sort of borrowing arrangements, even overdrafts, it may well be that the borrowing is not only secured by the fixed charge—that is, against a specific asset or assets—but is swept up by a floating charge that covers all assets. Those will almost inevitably be stated to be the first priority. Therefore, it is almost impossible in practice for an employer to satisfy condition C of the schedule, which is
''that the charge takes priority over any other charge over the assets.''
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Unless condition C is effective, it all seems rather pointless. In part, that goes back to what I asked earlier about the sort of schemes that can lend to an employer. If we are talking about giving the power to smaller schemes, in which all members agree on the risk that comes from a loan, condition C is not really needed. My amendment would go some way to addressing the member protection issues that I raised at the beginning of my remarks.
Mr. Flight: May I briefly add comments on amendment No. 281? It has been long accepted that where self-administered schemes invested in premises for the relevant business that employed the members, it was an arrangement for relatively sophisticated entrepreneurs. If the business ended up going down and the pension fund lost money, it was hard luck—those involved were big enough to look after themselves.
It is not just the idea of a Maxwell situation that worries me. I am concerned that, when a company goes down, perhaps because of macro-economic conditions—globalisation and businesses migrating elsewhere, for example—premises are likely to suffer, too. Therefore, the concept of ''secured'' under the clause does not make the asset at all safe. One could easily have a situation in which the commercial premises could only be disposed of at half the sum that the pension fund lent. The clause seems to permit open-ended lending. The notion that that is safe because of security could open the door to all sorts of nightmares, and we have already seen enough problems relating to the knock-on effects on pension schemes when a company goes down. In the interests of one size fits all, the risks involved in the measure are not worth running. Amendment No. 281 is extremely important, and the Government would be wise to adopt it.