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Standing Committee Debates
Pensions Bill

Pensions Bill

Column Number: 355

Standing Committee B

Tuesday 23 March 2004

(Afternoon)

[Mr. James Cran in the Chair]

Pensions Bill

Clause 181

Actuarial valuations and reports

Question proposed [this day], That the clause, as amended, stand part of the Bill.

2.30 pm

Question again proposed.

Mr. Nigel Waterson (Eastbourne) (Con): Welcome again to our deliberations, Mr. Cran.

I was in the process of referring to comments made by the National Association of Pension Funds. We have already dealt with the amendments to the clause, and I was referring to the overlap of the old minimum funding requirement valuations with the transitional provisions and the first actuarial valuation under the new system. The association wanted to put the word ''material'' before the word ''developments'' in clause 181(2)(c), and I would have tabled an amendment to that effect if I had received the briefing in time. That point is self-evident, so I will not bother explaining it.

The NAPF is a little concerned about the phrase

    ''within seven days of . . . receiving it'',

in subsection (7). It says that the phrase ''as soon as reasonably practicable'' would make more sense, and that it is important that trustees or managers have an opportunity to see and consider the valuation report at least as soon as the employer does, which is a fair point. That very phrase appears elsewhere in the Bill, so it is not unfamiliar to the draftsmen.

The Minister for Pensions (Malcolm Wicks): Good afternoon, Mr. Cran.

I shall deal with some of the hon. Gentleman's specific questions. He asked whether trustees should make an actuarial valuation or report available to the employers as soon as is reasonably practical, instead of within seven days of receiving it. However, clause 181 carries forward a similar requirement to the legislation that currently applies to the minimum funding requirement. It is important to ensure that the employer is kept fully informed at key stages of the valuation process. It is appropriate to ensure that that seven-day period applies equally to the new scheme funding provisions, so we would like to stick to it.

On the question whether schemes must do a scheme-specific valuation straight away, we will ensure that appropriate arrangements are in place to allow schemes to make a smooth transition to the new requirement. Those arrangements will be set out in regulations, and we will consult on the detailed proposals before the regulations are introduced. We intend that there will be a transitional period to allow

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schemes to maintain the three-year valuation cycles if they wish to do so.

The hon. Gentleman also asked whether the requirement for actuarial reports should be restricted to covering material developments since the last valuation. We do not believe that such a restriction would be necessary or appropriate. The European pensions directive requires actuarial reports to cover developments in the schemes' technical provisions and changes in the risks covered. The detailed framework for the calculation of a scheme's assets and technical provisions will be set out in regulation. We will consult interested parties as we finalise those detailed requirements.

Question put and agreed to.

Clause 181, as amended, ordered to stand part of the Bill.

Clause 182

Certification of technical provisions

Amendment proposed: No. 320, in

    clause 182, page 115, line 21, leave out from 'with' to end of line 22 and insert 'regulations under section 179'.—[Malcolm Wicks.]

The Chairman: With this it will be convenient to discuss Government amendments Nos. 321 to 323.

Mr. Waterson: It may be because I was considering the amendments late at night, but I cannot get my head around what they are designed to achieve. Will the Minister talk us through them?

Malcolm Wicks: As it happens, I prepared a note over lunch in anticipation of that question. Government amendments Nos. 320 to 323 amend the requirements in clause 182 relating to the actuary's certification of the scheme's technical provisions. Government amendment No. 320 to subsection (2)(a) clarifies the fact that the certificate must state that the calculation of the technical provisions has been made in accordance with regulations made under clause 179. Clause 179 provides for regulations to specify ''alternative . . . methods and assumptions'' and to specify that

    ''it is for the trustees or managers to determine which methods and assumptions are to be used''

in accordance with prescribed principles.

Government amendments Nos. 321 and 322, which apply to subsection (2), remove the requirement that the calculation must be consistent with any prescribed guidance. We agree with the professional body for scheme actuaries, the Faculty and Institute of Actuaries, that there is no need for additional prescribed guidance, as the requirement will be set out in the regulations. Government amendment No. 323 removes the power in subsection (3) to prescribe further requirements, as it is considered that the requirements of subsection (2) are sufficient.

Amendment agreed to.

Amendments made: No. 321, in

    clause 182, page 115, line 23, leave out from beginning to ', and'.

No. 322, in

    clause 182, page 115, leave out lines 25 to 27.

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No. 323, in

    clause 182, page 115, line 28, leave out subsection (3).

No. 324, in

    clause 182, page 115, line 31, leave out

    'as soon as is reasonably practicable'

    and insert

    'within a reasonable period after the end of the period within which the valuation must be received by the trustees or managers'.——[Malcolm Wicks.]

Question proposed, That the clause, as amended, stand part of the Bill.

Mr. Waterson: I am grateful to the Minister for that explanation. I am sure that it is because of my slowness on the uptake that I required an explanation of the amendments. It seems that they simply shrink the amount of prescription allowed under the clause. As I said, it is difficult to get one's head around what is likely to emerge, simply because there is to be so much prescription in subsequent regulations. I hope that we will see those regulations one day.

I wonder whether the Minister saw a report a few days ago saying that Standard and Poor's, the ratings agency, is launching a service to identify the likelihood of a company pension scheme remaining in deficit when a company goes bust. I will tell him a little bit more about that, in case he has not heard the reports. To assist any official who might be scribbling a note on this issue, I would like to know to what extent such certification can be sub-contracted. Many of the certifications, recovery reports, actuarial reports, funding principles and other things required will create a significant burden, particularly for smaller schemes. Clearly, they do not pose a problem for those running the Marks and Spencer or British Airways pension scheme. However, there is at least the possibility of a private sector solution.

According to the report, Standard and Poor's, which is reputable and long-standing in its field, as the Minister will know, has spent two years developing a service that uses complex models to measure the likelihood of large companies defaulting on debt obligations, and it applies that to their current situation. Apparently, its reports will have three strands, which to some extent reflect what is in the Bill. The first strand assesses the financial strength of the company, and the solvency of its pension scheme and the adequacy of the contributions being made to it. The second strand looks at whether the investments made by the scheme are likely to meet its requirements. The third strand assesses institutional asset managers.

The bad news is that S&P will award companies up to five stars, depending on the strength of their pension schemes, although given the relative lack of success of star schemes—or at least those run by the Government—we might perhaps persuade it to make the stars rosettes or spanners or something else. S&P says that its rating system will enable trustees to communicate the company's findings easily to employees. There is some merit in that, and I am sure that the Minister would agree that the public sector does not have a monopoly on wisdom in these matters. Although I am not suggesting that he should

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give me a definitive answer now, perhaps I may ask him to consider whether certification and compliance with some of the technical provisions could be met with arrangements such as those in the S&P scheme. Malcolm Wicks: I saw S&P's proposals in outline, although I have not studied them in detail. In response to one of the hon. Gentleman's points, our current approach is a private sector solution. We are not asking the Government Actuary's Department to do this work. I am happy to consider the implications of what he proposes. However, the scheme is responsible for itself, subject to the provisions that we are discussing the powers of the regulator, and so on. I would not want anything to take away responsibility from the trustees for the governance of their own scheme or from the scheme actuary, for example, but I shall look further into his question.

Question put and agreed to.

Clause 182, as amended, ordered to stand part of the Bill.

Clause 183

Recovery plan

Amendments made: No. 325, in

    clause 183, page 116, line 8, after 'must', insert

    ', except in prescribed circumstances,'.

No. 326, in

    clause 183, page 116, line 9, leave out

    'as soon as is reasonably practicable'

    and insert

    'within a reasonable period after it is prepared or, as the case may be, revised'.—[Malcolm Wicks.]

Clause 183, as amended, ordered to stand part of the Bill.

Clause 184

Schedule of contributions

Amendments made: No. 327, in

    clause 184, page 116, line 25, after 'reviewed', insert

    ', and if necessary revised,'.

No. 328, in

    clause 184, page 116, line 29, leave out subsection (5) and insert—

    '(5) The schedule of contributions must be certified by the actuary and—

    (a) the duty to prepare or revise the schedule is not fulfilled, and

    (b) the schedule shall not come into force,

    until it has been so certified.'.

No. 329, in

    clause 184, page 116, line 36, leave out 'prescribed date' and insert

    'effective date of the last actuarial valuation'.

No. 330, in

    clause 184, page 116, line 40, leave out 'prescribed date' and insert

    'effective date of the last actuarial valuation'.

No. 331, in

    clause 184, page 116, line 43, leave out 'prescribed date' and insert

    'effective date of the last actuarial valuation'.

No. 332, in

Column Number: 359

    clause 184, page 116, line 45, leave out

    'as soon as reasonably practicable'

    and insert

    'within a reasonable period after it is prepared or, as the case may be, revised'.

No. 333, in

    clause 184, page 117, line 6, leave out

    'as soon as reasonably practicable'

    and insert

    'within a reasonable period after the end of the period within which the schedule is required to be prepared or, as the case may be, revised'.

No. 334, in

    clause 184, page 117, line 10, leave out 'and (3)' and insert ', (3) and (5)'.—[Mr. Pond.]

Question proposed, That the clause, as amended, stand part of the Bill.

 
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