Kevin Brennan (Cardiff, West) (Lab): Does the hon. Gentleman accept that without the regulation that he mentioned, there will be no point in opening final salary pension schemes, as the pension promise contained in them will be meaningless? That is why we need the regulation introduced by the Bill.
Mr. Waterson: Yes; that is the dilemma at the centre of the Bill. We all accept that we need better and more focused regulation and a scheme—whether the proposed one is the right one is a matter for debate, but not yet—to protect people. As the hon. Gentleman and several Labour Members said on Second Reading, all that matters in all 248 clauses and the myriads of potential regulation is confidence. The issue is about trying to reinvest confidence in pension provision. The Bill should aim not so much at the people in existing schemes, although they are important, or even—there will be some debate about this, I am sure—at the 60,000 who have lost out and will not be covered by the legislation, as at the generation of young people who are completely turned off pensions in any shape or form.
Are those young people going to be attracted to private pension provision? There is not much in the Bill that will turn them on to pensions, and there is not a great deal to encourage hard-pressed employers to keep schemes open. We are already seeing a clear trend away from final salary, defined benefit schemes to other types of scheme, including defined contribution schemes in particular. That trend may be unstoppable; the Bill will certainly not stop it.
Mr. Webb: The two amendments tabled by the hon. Gentleman and Government amendment No. 9 raise the issue of the proportionality of regulation. At first glance, amendments Nos. 153 and 154 seem entirely sensible: we want a regulator who will minimise the impact of his actions on the schemes that he regulates and who will keep the cost of running the regulation as low as possible.
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I was interested in the hon. Gentleman's discussion of the closure of final salary schemes and the impact of the Bill in that regard. Clearly, the regulator's scope covers both final salary and defined contribution schemes. With regard to defined contribution schemes, the regulator will presumably try to ensure that the money physically gets into the pension fund, and as no promise is attached to a money purchase scheme, that is where the regulator's interest will end.
However, a promise is attached to a final salary scheme, so the onerousness of the regulation will be greater. In a final salary scheme, the employer makes a promise to the worker that goes far beyond that involved in a money purchase scheme. Running a final salary scheme, which has that promise attached, will induce greater regulatory intervention, and that might be a reason for employers to decline to offer such a scheme. That is the case at present; the question is whether the new sort of regulator will make that distinction even more acute.
One hopes that if the guidelines for the new regulator say that it should go for high-risk schemes—the ones where the employer is close to the wall or the funding level is too low—the intention of amendment No. 153, which is that the regulator should not be a burden on well-run schemes with sponsoring employers, should be fulfilled. The Government might even accept the amendment because it is very much in the spirit of what the regulator will do; largely, it will leave well-run schemes alone and concentrate on the dodgy ones. Amendment No. 153 is in the spirit of what the Government think will happen anyway, so it will be interesting to see whether they object to it. It would certainly reinforce what they are trying to achieve.
I note that Government amendment No. 9 clarifies the reference in clause 5 to stakeholder schemes. I hinted at that issue when I made some general remarks under clause 1, but I now want to pin the Minister down. One of the concerns about regulatory burden, which is the subject of this group of amendments, is that the same issue gets covered by more than one regulator.
Amendment No. 9, which clarifies clause 5, says that the regulator deals with aspects of stakeholder pensions—but so does the Financial Services Authority. Where is the dividing line? Is it the case that if I buy a financial product I will be covered by the FSA, which will ensure that I was sold it properly, but if I access it through an employer rather than as an individual, the regulator will have oversight?
There might not be an employer contribution; I might be using payroll deductions through the employer for a stakeholder pension, although there was no requirement for the employer to put any money into it. I could therefore be simply putting in my own money by means of the employer's payroll deduction. Does that come under the pensions regulator because the money has passed through the employer's bank account? If I take out the same stakeholder pension, but put my money straight into
Column Number: 046it, that would not be covered by the pensions regulator, because no employer would be involved.
It will be strange if the purchase of the product comes under one regulator, but the oversight of the money in the fund comes under another. I could work for an employer with many employees, and have a personal pension that, rather than being part of a group pension, is an individual stakeholder product. Will the regulator be concerned with that? When the Minister speaks to Government amendment No. 9, it will help if he says where the dividing lines will be. Is there a danger of having more regulation than is needed? Will two different regulators be dealing with stakeholder pensions, and different bits of the same products?
My other observation is about double regulation. With amendment No. 154, we keep coming up against references to the pension protection fund while reading about the regulator. The amendment says
I realise that that is not a Government amendment, but a lot in it relates to the Government amendments. The regulatory burden will be greater if the pensions regulator and the pension protection fund are both placing burdens on schemes. We know that the pensions regulator can ask schemes for information, and the guidance notes assure us that that will not be onerous, because schemes have had a trial and they did not mind the requirements.
We know that the pensions regulator can ask for information to pass on to the pension protection fund. Can the pension protection fund initiate its own inquiries with schemes directly, or will the pensions regulator act as a clearing house for requests, to avoid duplication? Could a scheme find itself with the regulatory burden of receiving requests from both the pension protection fund and the pensions regulator? The FSA could be involved as well. Would the regulatory burden of all that not be disproportionate?
We all accept the need for regulation in such areas, but I hope that the Minister can reassure us that there will not be duplication, overlap and confusion about where the responsibility lies.
Kevin Brennan: This group of amendments and the clause give me the opportunity to raise an issue that was raised with me by an employer who runs a large utility company. He is keen to maintain the final salary occupational pension scheme, and is keen on the Bill and its provisions, including the pension protection fund. He is also sympathetic to those who have lost out as a result of firms becoming insolvent.
The issue that that employer raised with me, which I had not come across before, was about the regulator of his industry—in this case, the gas and electricity regulators—and the role of the new pensions regulator. Under the responsibilities outlined in clause 5, and the additional responsibilities referred to in the Opposition amendments, will the pensions regulator have a role, and the responsibility and ability, to discuss help for occupational pension schemes with the regulators of other industries, that are making pricing decisions in those industries?
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The point that the employer raised with me was that in the utilities industries, decisions on what to do about price—whether to pass costs on to the consumer or back to the company—are often thought of simply in terms of the cost to the consumer and the profit of the company. However, if companies wish to maintain their final salary pension schemes, that could be a material factor. Will the pensions regulator be able to act a little more widely than just inspecting the books of pensions schemes, and talk to other industry regulators about the necessity of keeping final salary occupational schemes healthy? Would that fall within the powers outlined in the clause?
Malcolm Wicks: We have had another useful discussion. I thought that the comments of the hon. Member for Eastbourne occasionally had Second Reading tinges to them, but there is no doubt that the debate has been helpful. I might reflect on some of his remarks towards the end of my contribution, although I will not be drawn too much into a full Second Reading debate, because we have already had that, and we can no doubt have it again—on Third Reading, for example.
I was struck by the hon. Gentleman's remarks about regulation, and the fact that regulation is not generally liked by industries. Words such as red tape, burdens and intrusion come to mind, yet when there is a great scandal—and the House discussed the Penrose report on Equitable Life yesterday—everyone suddenly attacks the lack of regulation, the lack of intrusion and the lack of record keeping. They talk about the feebleness of the systems. Obviously, as with so many other things, we must get the balance right, but I am not sure that this is quite the week in which to talk about the regulation of pensions simply in terms of red tape and burdens. Indeed, the Penrose report itself said that the regulatory system
''failed policyholders in this case'',
although as we know, it also said that
to the failures of the company.
We have to learn lessons. When we think that regulation needs to strike a balance between proper record keeping for massive companies and a harder, tougher approach for companies that look risky, we should not be afraid of ensuring that that is what happens. Indeed, this Government established the FSA partly because we thought that toughening up was needed in that sphere. Lord Penrose recognised its importance when he said that the FSA's regulatory reform had
No doubt there were people who thought at the time that the FSA approach was too tough.
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