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Standing Committee B
Thursday 11 March 2004
[Mr. Win Griffiths in the Chair]
Mr. George Osborne (Tatton) (Con): I beg to move amendment No. 137, in
clause 20, page 12, line 14, leave out 'interests' and insert 'rights'.
The Chairman: With this it will be convenient to discuss the following:
Amendment No. 138, in
clause 20, page 12, leave out lines 16 and 17.
Government amendments Nos. 19 to 22.
Amendment No. 139, in
clause 20, page 13, line 6, leave out paragraph (g).
Government amendment No. 23.
Amendment No. 140, in
clause 20, page 13, line 15, leave out subsection (6).
Amendment No. 141, in
clause 20, page 13, line 34, leave out paragraph (b).
Amendment No. 142, in
clause 21, page 13, line 42, leave out subsection (2).
Amendment No. 143, in
clause 21, page 14, line 40, leave out subsection (8).
Amendment No. 144, in
clause 22, page 15, line 4, leave out subsection (3).
Amendment No. 145, in
clause 22, page 15, line 6, leave out subsection (4).
Government amendments Nos. 24 and 25.
Amendment No. 146, in
clause 24, page 15, line 34, leave out subsection (4).
Government amendments Nos. 26 and 27.
Amendment No. 147, in
Amendment No. 148, in
clause 27, page 17, line 33, leave out subsection (5).
Government amendment No. 28.
Amendment No. 149, in
Government amendment No. 90.
Government new clause 2—Effect of determination to wind up scheme on freezing order.
Mr. Osborne: I welcome you to the Chair, Mr. Griffiths. I shall speak to the amendments that
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deal with clause 20 and the new freezing order power that the Government propose to give to the regulator. In your wisdom, Mr. Griffiths, you have also selected amendments to later clauses, which deal with the consequences of the freezing order, its period of effect, the validation of actions in contravention of such an order and so on. If possible, I would also like a brief stand part debate so that we can talk about the effect of the new order and whether it is necessary—but first I shall speak to the amendments tabled in my name.
Amendment No. 137 would substitute the word ''rights'' for the word ''interests''. The point of a freezing order is so that the regulator can act when, in the words of the clause, there is
''(i) an immediate risk to the interests of members under the scheme or the assets of the scheme, and
(ii) it is necessary to make the freezing order in order to protect the interests of the generality of the members of the scheme.''
I felt, as did my hon. Friend the Member for Eastbourne (Mr. Waterson), who is not with us this morning, that the word ''interests'' was rather vague and woolly, particularly when it is further diluted by the phrase,
''the generality of the members of the scheme'',
which could be taken to mean almost anything. It could be used to justify things that are to the detriment of a minority of members. One would assume and hope that the regulator would not do that, but it is possible.
We thought that the word ''rights'' in this context was more specific, and a more familiar term in the pensions world. Presumably, rights are what the regulator would be trying to protect when it stepped in with a freezing order to help members.
Amendments Nos. 138, 139 and 140 are all probing amendments. Amendment No. 138 also relates to subsection (2), and would remove its last two lines, which state:
''no freezing order may be made in relation to a scheme during an assessment period''—
that is the period when the pension protection fund is considering the scheme and whether to act. Why is it necessary to say that the power to issue a freezing order should not be removed from the regulator in those circumstances? Is it because, under clauses 104 and 105, the PPF has equivalent freezing order powers? Can the Under-Secretary explain why the Government are restricting the scope of a freezing order?
Amendment No. 139 would delete subsection (4)(g). We tabled the amendment because we were not clear why statements of entitlements should not be sent to members. I would have thought that when a scheme is frozen, that is, or could be, a period of enormous uncertainty and anxiety for members. They may be keen to know what their entitlements are under the scheme. It therefore seems curious that there could be a direction that no statement of entitlements is to be provided. Will the Under-Secretary explain that?
Amendment No. 140 would remove subsection (6), which says that a freezing order may not reduce benefits payable to a member
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''below the level to which the trustees or managers of the scheme would have power to reduce them''
if there had been a winding-up order. When I was reading the Bill, it was not clear to me what was envisaged. I should have thought that the point of the freezing order was to give the regulator the power to intervene immediately when there is
''an immediate risk to the interests of members''.
In other words, it is an emergency power.
When we come to later clauses, we shall discuss how the effect of the order is time limited. The power is envisaged only as a short-stop, while a longer-term solution is sought, which could include winding up the scheme. Subsection (6) may suggest that the scheme can stop paying out reduced benefits during the time of the freezing order. Surely it would be better to wait until the future of the scheme is clear before making such a decision.
Amendment No. 141 would prize the tentacles of the Secretary of State off at least a small part of the Bill. Subsection (7) states that a
''freezing order may also require the trustees or managers of the scheme to obtain an actuarial valuation within a specified period.''
That is a perfectly reasonable proposal. We do not dispute that. However, subsection (9) defines an actuary by saying that it is either the scheme actuary or, if there is no scheme actuary,
''a person with prescribed qualifications or experience''—
that is reasonable—
''or—a person approved by the Secretary of State.''
That could be anyone. It could be you, Mr. Griffiths. It could be me. It could be the Secretary of State's crony. As I understand it, there is no requirement for that person to have any qualifications or experience. We assume that, being a wise man, the Secretary of State would not appoint someone without the necessary qualifications, but that is not in the Bill. There is no requirement for the person who may be required to provide an actuarial valuation under subsection (7) to be an actuary.
We are familiar with the tendency at the highest levels of the Government to appoint people with little experience and qualifications to important posts, but surely at the coal face—the junior ministerial level, say—where there is much more experience and more qualifications, they should be more tempted to insist that people have the necessary qualifications and experience.
Amendment No. 142 is a probing amendment. What is the point of subsection (2) of clause 21, which is about the consequences of a freezing order? It states that a freezing order does not prevent an increase in accrued benefit, yet subsection (3)(a) of clause 20 states that
''no benefits are to accrue''
when there is a freezing order. I am sure that there is a sensible explanation for that, and it would be interesting to hear the Under-Secretary explain it.
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Amendment No. 143 is similar to amendments Nos. 146 and 148, which I shall deal with as a group. They refer to the penalties that will be put in place if someone fails to comply with the orders of the regulator, be they about the freezing order in general, the process of winding up a scheme or the notification requirements under clause 27. The penalties follow the powers under the Pensions Act 1995. They include hefty fines, and before we give the regulator to power to levy them, we should ask whether they are necessary, whether the Government considered reviewing the powers in section 10 of the 1995 Act, what is the maximum fine, and whether it has been uprated since the Act was passed. The maximum fine under the Act was £5,000 for an individual and £50,000 for a company.
Amendments Nos. 144 and 145 are more substantial than the three previous amendments, and relate to clause 22, which deals with the period of effect of a freezing order. Should the Committee agree my amendments—I am always an optimist, Mr. Griffiths—they would prevent the regulator from extending the freezing order beyond three months, thereby restricting the total period in which a freezing order can be put in place to three months instead of six months. One has to remember that the freezing order is an emergency power and is brought in only when there is an immediate risk to scheme members. A regulator should be able to decide after three months what to do with the scheme and how to proceed—whether to allow it to continue, wind it up, or do whatever it feels is necessary.
Anyone with constituency cases relating to the winding up of schemes will know how long they can take, how frustrating they can be for our constituents, and that they are a cause of great anxiety to them. One hopes that the whole point of having the regulator in place is to speed up some of the processes. That would be great for all of us. However, the six-month freezing order could add to the delay and add to the anxiety of the people whom we represent at a time when their scheme is in trouble. Three months is enough.
The Government implicitly accept that three months should be the normal period. Clause 22(2) says that the initial order cannot exceed three months, so why not limit the overall freezing order to three months?