Kevin Brennan: On that point, does the hon. Gentleman acknowledge that that should not be a bar to the Government's doing anything with regard to compensation, as the argument would apply equally when the pension protection fund was introduced?
Adam Price: Yes, I certainly accept that and I would not want to provide the Government with any comfort in compensating the workers of ASW and other companies, as that is the Government's responsibility. There are several reasons why it would be prudent—to use the word of the day—to look again at preferential debt treatment of pension deficits. That was one issue on which the Government invited responses in the technical paper that accompanied the publication of the Green Paper.
In an Adjournment debate in the Chamber called by the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt), the then Minister for Pensions, who has now plummeted to the top as the chair of the Labour party—I am not very good on constituencies—
Kevin Brennan: Makerfield.
Adam Price: I am grateful to the hon. Gentleman. The right hon. Member for Makerfield (Mr. McCartney) responded to that debate, saying:
''Certain unpaid pension contributions may be pursued as a preferential debt in the event of insolvency of the employer. It seems to me that the issue is whether the contribution that employees have made—often over many years—to the success of their company and to the running of their pension fund, should enjoy a preferential status.''
He went on to say:
''I believe that the answer to that is self-evident, and I assure my hon. Friends that I will raise the matter with ministerial colleagues at the Department of Trade and Industry.''—[Official Report, 16 October 2002; Vol. 390, c. 440.]
He said that the answer was self-evident; unfortunately he did not say which way he came down on the issue. Very canny; I can see why he was promoted—well, if it is a promotion.
In the Under-Secretary's response it would be interesting to hear what was the view of the consultees about the issue of preferential debt and what the Department of Trade and Industry said in response to the then Minister's comment.
Mr. Pond: I understand the hon. Gentleman's concern, which is shared by other Members. It is because the Government take such concerns so seriously that moving pension schemes up the order of priority for payment was one of the options considered in the December 2002 Green Paper, as he has reminded the Committee. It was one of the biggest ever consultations on pensions, and we receieved
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about 800 responses from a wide range of groups and individuals.
The hon. Gentleman asked what were the responses. There were various views among the respondents about the option. The trade unions were unanimously in favour, as were the majority of voluntary and consumer organisations and members of the public. There was a mixture of views among the other respondents. Among the seven employers who responded, most were in favour. The CBI said that it was
''strongly opposed to moving pension schemes up the order of priority. This could have serious and unintended consequences''.
It then said:
''Employers with DB schemes will find it harder to obtain secured loans or see the cost of loans increase . . . it could hinder future overseas investment into the UK''.
''Other unsecured creditors would lose out and find themselves penalised through no fault of their own.''
With a difficult decision to make on the balance of those arguments, we decided that it was not sensible to move forward with the option for the reasons outlined in the CBI's response.
Mr. Webb: The list of creditors includes the taxpayer—the Inland Revenue. Although I can accept that there are problems with prioritising the pension fund debt above banks, with its implications for the cost of borrowing, surely society might want to step in behind the members of an underfunded pension scheme. It would not affect the cost of capital or any of the issues raised in the passage that the hon. Gentleman just quoted.
Mr. Pond: No, although the hon. Gentleman recognises that in 2002, as the hon. Member for East Carmarthen and Dinefwr (Adam Price) pointed out, Crown preference was abolished as part of the move away from preferential treatment. The reason is that in those circumstances it is unlikely that anyone will get very much at all. In addition, to push one group ahead of another can create unintended priorities. While we recognise how important it is that we do everything possible to protect the interests of scheme members, in those circumstances we are not convinced that this measure is the best way forward. I ask the hon. Member for East Carmarthen and Dinefwr to examine it in the context of all the other protections that exist in the Bill, and on that basis to agree that it is not an essential or a necessary way forward and to withdraw the amendment.
Adam Price: I am saddened, but not surprised, to see the Government siding with the CBI against the trade union movement and consumer organisations. However, I do not want to detain the Committee unduly. This is a fight that we must win another day, and I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 209, as amended, ordered to stand part of the Bill.
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Resolution of disputes
Question proposed, That the clause stand part of the Bill.
Mr. Waterson: The fact sheet on the clause has not reached me, but I have two questions. First: how does this measure improve on the protections in section 50 of the 1995 Act? The second question is something that, if I had got round to it, I might have tabled an amendment on. However, as I did not, let me cast it as a suggestion, which Ministers might or might not wish to take up.
We have debated the issue of trustees today and the question of recognised pensioner associations and their power to nominate member-nominated trustees for particular schemes. I envisaged some dispute about whether those people are who they claim to be, whether they are truly representative and on what basis they can be recognised. I wonder whether consideration could be given to whether one of the disputes that could be part of the resolution procedure could be the recognition of a pensioners' association in respect of a particular scheme.
Mr. Pond: On the face of it, the proposal made by the hon. Gentleman seems reasonable. I hope that it is not an attempt to go back on the debate that we have had this afternoon. On the assumption that he is merely making a constructive proposal for something else that we should reflect on, we would be happy to do so. Given the assurance that we will examine that idea, perhaps we could move on and agree that the clause stand part of the Bill.
Question put and agreed to.
Clause 210 ordered to stand part of the Bill.
Clause 211 ordered to stand part of the Bill.
Annual increase in rate of certain
Mr. Waterson: I beg to move amendment No. 293, in
clause 212, page 140, line 37, at end insert—
'(5A) After subsection (6), insert—
''(7) Regulations may provide that this section does not apply to schemes falling within a prescribed class or description, or applies to them with prescribed modifications''.'.
The Chairman: With this it will be convenient to discuss New clause 7—Annual increase in rate of certain personal pensions—
'Sections 162 and 163 of the Pensions Act 1995 (c26) (annual increase in rate of certain personal pensions) shall cease to have effect.'.
Mr. Waterson: The amendment and the new clause are linked. They seek to deal with what I understand to be quite a technical, narrow, but nevertheless important issue. This will not be an occasion where there will be no other matters that I want to raise in the clause stand part debate.
The amendment and the new clause relate to money purchase schemes, as opposed to defined benefit or final salary schemes. As I am informed, it is a question
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of possibly unnecessary complexity—although one must accept that in this field there is much necessary complexity—and whether there is an unintended consequence in the drafting. In as brief a way as possible I will take hon. Members through the point.
It seems that someone retiring from a money purchase scheme after April 2005 and who has been a scheme member since before April 1997, might need to buy six different types of annuity with what is effectively one pot of money. As my briefing says with admirable understatement, that is confusing and complex for consumers to understand and there will be costs attached to that complexity. One way of overcoming the requirement to buy different types of annuity is to transfer the fund to a personal pension. Those with larger funds will often get access to the advice needed to make that transfer, but those with smaller funds will not and will therefore be the main sufferers from the proposals. As there is no objection to such transfers in principle, there cannot be an objection to the amendments.
The second problem with indexed annuities is that they generally do not represent good value for money compared with level annuities. The current version of indexation—limited price indexation as it is known in the trade—requires pensions built up from 1997 to be increased in line with inflation up to 5 per cent. That represents full inflation linking in the current market on short and long-term inflation expectations. In other words, an LPI annuity costs the same as one that provides full retail prices index protection.
The people briefing me have obligingly produced figures based on the average private money purchase annuity pot of £23,000. To receive the same total payments from an RPI annuity as from a level annuity, a 60-year-old male must live to the age of 94. Sadly, the average 60-year-old male in the UK lives only to the age of 79. One of the changes that the Bill introduces is a cap on LPI annuities at 2.5 per cent. rather than 5 per cent. That should reduce the break-even age to 90, but that is still 11 years longer than normal life expectancy.
There is also a sub-issue of whether the problem affects the public finances. With the growth in means-tested benefits, a reduction in real private pension incomes should result in an increase in state-funded top-ups for the group that we are discussing. However, it is an issue of complexity and we are trying to get to the bottom of the intentions behind the proposals.
I should explain that the issue applies in a different way from defined benefit or final salary schemes. In those cases, compulsory indexation is of real value to the employee as the initial benefit is fixed, unlike in a money purchase scheme. Although the different bases for indexation still make administration more complex, we are not suggesting that indexation is removed from defined benefit pension schemes. I hope that that is reasonably clear. It is a genuine attempt by those in the industry, particularly in DC schemes, to probe the exact intentions of the provision.