Malcolm Wicks: The clause requires that trustees prepare and keep under review a statement of funding principles. That important new document will be one of the key elements of the new scheme funding arrangements.
The statement will set out the trustees' strategy for ensuring that their scheme is appropriately funded. Subsection (2) requires that it shows the trustees' decisions about what methods and assumptions the scheme actuary should use when calculating the scheme's technical provisions, and about how, and over what period, any funding deficits will be corrected. Regulations under subsection (1) will specify certain other key information underpinning the funding of the scheme that will need to be included in the statement. That could include whether, and under what conditions, funding surpluses may be paid to the employer. As with other clauses in this part of the Bill, the regulator may impose penalties for breaches of the requirements or for unreasonable failure to comply.
The statement will play an important role in improving the transparency and understanding of the funding of defined benefit pension schemes. Our main purpose is that it should set a framework for the parties involved in the funding of the scheme—the trustees, the sponsoring employer and the scheme actuary—to develop an appropriate funding strategy, but we also intend to require trustees to send a copy of the statement to any scheme member who wants to see it.
Committee members will know that schemes are already required to prepare a statement of investment principles. Complementary information about funding is a logical and consistent step. Trustees will be able to
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combine those two documents if they consider it appropriate for their scheme. As hon. Members will see when we consider later clauses in this part of the Bill, trustees will need to obtain the advice of the scheme actuary and the agreement of the sponsoring employer when preparing the document. The statement will, for the first time, set out clearly and transparently how the funding of each scheme will operate.
The hon. Member for Eastbourne asked about the time period. Regulations will specify minimum review requirements for the statement. It is intended that, as a minimum, trustees will be required to review the statement in line with each full three-yearly actuarial valuation, but they will also be able to review it at any other time that they consider appropriate. I think that that answers his question. He is right to say that we have been through a period of fluctuation. We do not want to impose a more regular requirement, such as an annual requirement, but what I have said about the importance of trustees being able to review it is an important qualification.
Question put and agreed to.
Clause 180, as amended, ordered to stand part of the Bill.
Actuarial valuations and reports
Amendment made: No. 319, in
clause 181, page 114, line 43, leave out from 'and' to end of line 44 and insert '—
(a) the effective date of the first actuarial valuation must be not more than one year after the establishment of the scheme, and
(b) the effective date of any actuarial report must be not more than one year after the effective date of the last actuarial valuation, or, if more recent, the last actuarial report.'.—[Malcolm Wicks.]
Mr. Webb: I beg to move amendment No. 281, in
The Chairman: With this we may discuss the following:
Government amendment No. 324.
Amendment No. 265, in
clause 183, page 116, leave out lines 8 and 9 and insert—
'(6) The trustees and managers of the scheme must send a copy of any recovery plan to—
(a) the Regulator, and
(b) organisations representing the pensioner members of the scheme, and
(c) recognised trade unions,
as soon as reasonably practicable.'.
Government amendments Nos. 325, 326, 332, 333, 335 and 340.
Amendment No. 255, in
clause 188, page 119, line 39, at end add—
'(5) In exercising any of the powers conferred by this section the Regulator must inform—
(a) recognised trade unions, and
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Amendment No. 260, in
Amendment No. 261, in
Amendment No. 263, in
Mr. Webb: I am sorely tempted to go through each amendment and to set out the basis for Government amendments Nos. 324, 325 and so forth. However, I do not want to deny the Minister that pleasure, so I will refrain and simply speak to amendment No. 281.
The amendment stands in my name and that of my hon. Friend the Member for Chesterfield (Paul Holmes). However, during this afternoon's sitting I will be elsewhere, responding to the Budget debate, and may not be present at the end of the debate on this group of amendments. If it is in order for him to do so, the hon. Member for East Carmarthen and Dinefwr (Adam Price) will judge whether the Government have responded properly to the amendment and whether to withdraw it. I hope that that is acceptable.
The Committee will recognise the form of words in the amendment. It relates to actuarial valuations and reports in the particular context of clause 181. Subsection (7) states:
''any actuarial valuation or report obtained by''
the trustees or managers should be
''made available to the employer within seven days of their receiving it.''
The amendment would require the valuation or report to be supplied not only to the employer, but to recognised trade unions and groups representing retired scheme members. We are not asking for what might be a lengthy document to be sent to potentially hundreds of thousands of scheme members; that would clearly be impractical. However, we think that sending a handful of copies of a detailed report to organisations such as trade unions or pensions organisations would be a reasonable obligation.
The benefit of discussing the amendment is that we might also get a clearer sense from the Minister of the enhanced information flow to scheme members that will arise. My understanding is that, under the Bill, scheme members may start to get more information, perhaps about the funding position of schemes. If the Minister gave a reassurance that scheme members would get annual information about not only their individual rights but about the overall funding position of the scheme in a form that was intelligible
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to them—I stress those last few words—then the amendment would not be necessary.
Two different things are going on. Under the amendment, a technical actuary's report, as mentioned in the clause, would be sent to organisations that might reasonably be expected to understand it, such as trade unions or pensions organisations. It may well not be appropriate to send such information to individual scheme members, who would probably not be able to understand such a report. If the Minister gave an assurance that scheme members would get a regular and clear picture of whether their fund is well funded, and, if it were not, what would be done about it, then the amendment would become less important.
The requirement under the amendment is unonerous—if there is such a word. Simply sending the report to two or three organisations to complement the information that individual scheme members will receive seems a fairly modest request.
Malcolm Wicks: I will not make any comment on the new alliance between the Liberal Democrats and Plaid Cymru—what with the Conservative party trying to move Government amendments formally, a new alignment in British politics seems to have started today.
I will concentrate on the amendments tabled by the hon. Member for Northavon. We agree with the amendments in principle. We know where the hon. Gentleman is coming from and we have the same objectives. As he said, they require certain information about scheme funding to be sent to trade unions and organisations representing pensioner members of schemes. I shall not go through all the different amendments. They have much the same purpose.
The Government wholeheartedly support the view that members of defined benefit pension schemes should receive information about how their pension scheme is funded and its funding position. As I said in my opening remarks on part 3, we shall require much greater transparency about those issues, using existing powers to make regulations concerning information that must be made available to all members and to recognised trade unions. We already require actuarial valuations to be made available on request. The Bill will put actuarial reports and recovery plans on the same footing, so that they, too, will be available to anyone who wants to see them, as will statements of funding principles.
We also intend, by regulations under clause 165, to require trustees or managers to disclose to members and recognised trade unions information relating to the exercise of the functions of the board of the pension protection fund. We shall consider those provisions under part 2. Further provision in that respect, which the amendments would bring about, would be unnecessary duplication.
The amendments would also require disclosure to organisations representing pensioner members. However, in contrast to trade unions, pensioner representative groups have no precise legal definition,
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which would make it difficult for scheme trustees to determine their status. As I said, trustees will anyway be required to disclose the information to all scheme members, including pensioner members.
Nevertheless, I accept that where recognised pensioner organisations exist, it is important for schemes to communicate properly with them. As hon. Members will remember, we had a lengthy debate about that last week, with respect to consultation about arrangements for member-nominated trustees. The procedures in the provisions that we are now considering may give us a basis for thinking further about increasing the involvement of pensioner organisations in relation to information on scheme funding and perhaps other things such as member-nominated trustees.
There may be scope for regulator guidance to encourage best practice. In the case of scheme funding, that could be achieved by enabling members or their representatives in trade unions or pensioner organisations to register to receive the documents automatically and regularly. We shall certainly consider what could be achieved for pensioner members in that way.
Additionally, and most importantly, we shall require the trustees of all defined benefit schemes to send all members, including pensioner members, an annual statement on the funding position of their scheme. I think that that directly answers the point made by the hon. Member for Northavon and it will be welcomed in the Welsh valleys. The report will be based on the last full valuation, supplemented by any actuarial reports for intervening years, but it will be an assessment of those reports, rather than the reports themselves. Alan Pickering made the point in his report that
''communication with members should be tested to see whether it is understandable'',
which reinforces the point that has been made about plain English.
While the full actuarial valuations and reports will be available to those members who want to see them, we recognise that in that form they are unlikely to be of much direct use or interest to most scheme members. Our intention is that the amendments to the disclosure regulations will require that the funding statement give members clear information about the funding position, including whether a recovery plan is in place and, if so, what steps are being taken, over what period, to make up the deficit.
The statement will also say whether the regulator has made any directions on the funding of the scheme, using any of its powers under clause 188 or other provisions in the Bill. In addition, we shall require the funding statement to contain information on the likely position of members if the scheme were to wind up with funding at its current level, including the protection offered by the pension protection fund.
I assure hon. Members that we shall consult interested parties as we develop detailed proposals for the disclosure requirements for secondary legislation. In short, I trust that hon. Members will now see that the proposed measures will introduce a
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wider and more meaningful process of disclosure than simply copying the scheme actuary's advice to representatives groups. I put a lot of emphasis on the way we as individuals communicate, and I will ensure that the provisions are written in a way that folks can understand. They are, after all, those with the most direct interest in the matter. I ask the Opposition Members to withdraw their amendments.