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Session 2003 - 04
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Standing Committee Debates
Pensions Bill

Pensions Bill

Column Number: 399

Standing Committee B

Thursday 25 March 2004


[Mr. James Cran in the Chair]

Pensions Bill

Clause 90


9.30 am

Kevin Brennan (Cardiff, West): I beg to move amendment No. 272, in

    clause 90, page 55, line 36, leave out 'other than', and insert 'and'.

The Chairman: With this it will be convenient to discuss the following:

Amendment No. 275, in

    clause 135, page 83, line 8, leave out 'other than' and insert 'including'.

Kevin Brennan: This is an innocuous-looking pair of amendments. Amendment No. 272 would remove two words from the clause and replace them with one word. I am sure that the Minister will congratulate my hon. Friend the Member for Ayr (Sandra Osborne) and me on its simplicity and elegance, and accept it. The Committee must consider it in conjunction with other amendments that we shall discuss later, when we reach clause 98.

The aim of the amendment is to achieve justice for people who have lost the final salary pension schemes that they were promised. Although it is small, I intend to discuss the issue in some depth as we debate it. That is appropriate now, Mr. Cran, because the amendment would allow the Government to pay money into the pension protection fund to assist people who have lost their final salary occupational pension schemes. The Bill is designed to assist such people in future, but the amendments would make it possible to provide compensation for those who were affected before the introduction of the Bill.

It is probably best to explain what the amendments would achieve technically. Clause 90 allows the Secretary of State to pay grants to the board of the pension protection fund. However, those grants may not cover the cost of providing benefits out of the PPF or the fraud compensation fund. Those benefits must be paid for from the levy introduced under the Bill. The clause is authorised by the money resolution, and in particular by the Ways and Means resolution, which has been interpreted as permitting the raising of money for the purposes of the pension protection fund only, but not for the purpose of any additional fund created especially to deal with prior claims.

The amendment would allow the Secretary of State to pay grants to the board of the pension protection fund to meet claims for compensation. Taken in conjunction with other amendments, it would restore benefits for members of schemes that are in wind-up on the appointed day, or have already been wound up. The costs involved for schemes that go into wind-up after the appointed day would be met out of the levy as

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contemplated under the Bill, which is what later amendments would achieve. If accepted, my rather innocuous-looking amendment would therefore have massive ramifications affecting the pension protection fund.

I make no apology for dealing in some depth with the issue, which is one of the key issues in the Bill, nor for repeating the story of hard-working honest citizens, who made the fateful and unforgiving error of trusting their employers, and the state, with their final salary occupational pension schemes. They put their money in on the basis that those schemes were guaranteed—a word that appeared throughout the literature that they were given about the schemes. That word was used legally by employers and by Governments and their agencies in that literature.

I will not repeat the examples that I gave on Second Reading from the leaflets that people might have consulted to discover whether their final salary occupational pension schemes were safe. Those leaflets contained assurances from employers, Government agencies, the equivalent of the Department for Work and Pensions, and so on.

My interest in the matter has been triggered by the now well known case of Allied Steel and Wire, which affected my constituency. I will not repeat any of the stories of personal hardship that have arisen from the insolvency of the company and the winding up of its final salary pension scheme. The workers, who in many cases had worked for the company for decades, found that their final salary pension schemes and comfortable, reasonably secure retirements were snatched away from them. That happened for a number of reasons, one of which was the flawed nature of the Pensions Act 1995.

It is wrong to blame the people involved for trusting their employers and the state, because many of my constituents had little choice. Governments of all political strands permitted compulsion by the employer; they allowed employers to force workers to join final salary pension schemes as a condition of employment, and did not permit them to join any alternative scheme. In 1988, that requirement was finally relaxed. However, many of those most severely affected joined their final salary pension schemes well before that date, and had often been subject to that compulsion.

How is it that 60,000 people can find themselves with a so-called guaranteed pension that is not worth the paper it is written on? The amendments are needed to put that right. If we look back at the Standing Committee debates on the 1995 Act, we see how the situation came about.

That Act had its genesis in the Maxwell scandal. It appears that nobody at that time envisaged that a situation could arise in which these amendments would be needed to allow the state to compensate people. As far as I can ascertain, no one fully envisaged the possibility of this crisis emerging. It is true that some organisations, including the TUC, lobbied for a pension protection fund exactly like the one that this Bill would introduce. However, it is clear

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that no one then envisaged the scale of the losses faced by workers today.

When the possibility of schemes winding up without being able to meet their liabilities was discussed, it was generally assumed that that would be very rare, and that the minimum funding requirement, which we discussed earlier, would limit those losses to a relatively small amount. In Committee on 13 June 1995, my right hon. Friend the Member for Southampton, Itchen (Mr. Denham) said:

    ''There is an important point of principle, with which I am sure all members of the Committee would agree; in the event of a shortfall in a pension fund, when it will be difficult to meet pension obligations, whatever the cause of the shortfall, the members are innocent parties, although it is they who will suffer.''—[Official Report, Standing Committee D, 13 June 1995; c. 526.]

The point is that the members are innocent victims. It should not be possible for workers to become innocent victims of a flawed legislative framework and the other circumstances that have arisen.

The problem is that the 1995 legislation made the situation worse for those workers—although that was not the intention—by devising an inadequate minimum funding requirement and by putting the rights to deferred pensions at the bottom of the order of priority. The 1995 Act made no distinction between people who were on the point of retirement and people who had just started with the company.

Mr. Nigel Waterson (Eastbourne) (Con): I am following what the hon. Gentleman says closely. Does he not agree that the priority order could have been tackled months ago on a cross-party basis? Does he agree that the cliff-edge point between those who have just retired and those who are about to retire should have been dealt with already?

Kevin Brennan: I do not know the technical reason why that has not been possible. I know that the Government announced their intention to deal with the situation. It is well understood that it is not acceptable that somebody who is 30 minutes away from retirement should be treated the same as someone who is 30 years away from retirement, and it is important that that matter be dealt with.

It is important to dispose of the ACT argument—the argument that the shortfall has been caused by the removal of advance corporation tax. I shall kill that stone dead once and for all by quoting Dr. Ros Altmann, who is a well known authority on this subject; we have all got to know her name in this Committee. In a letter, she said:

    ''the removal of ACT relief is just a very tiny part of the problem. If there are, indeed, 60,000 members affected . . . and if we say that there are 10 million members of occupational pension schemes in the UK, that means only one sixth of 1 per cent. of members have been affected by this.''

She continues:

    ''The £5 billion relates to all pension schemes. Furthermore, the removal of ACT relief affected only 20 per cent. of the dividend income of the portfolios of these funds. If we assume that the dividend income was 4.5 per cent. of each of the pension funds affected, that means that the dividend income was reduced by just 0.9 per cent. of the fund at the most.''

Column Number: 402

There is good reason to believe that the figure is even less than that, because we are talking about UK equities only.

Dr. Altmann goes on:

    ''So the removal of ACT relief simply reduced income by 0.9 per cent. at worst. Yet schemes require far more than 0.9 per cent. extra to have enough to meet their liabilities . . . these schemes are underfunded by 30 per cent., 50 per cent. or more on a buyout basis and, therefore, the ACT argument is simply trying to make a political point but is of negligible size in this debate in practice. Even if they still had the ACT relief, there would not have been enough in the funds to pay the pensions. I certainly do not want to be associated with any argument that says this problem was caused by the removal of ACT relief.''

Mr. Waterson: I do not for a moment accept Dr. Altmann's analysis; she is straying away from her undoubted expertise into the realm of politics. She and the hon. Gentleman fail to make the distinction between schemes that have gone bust because their sponsoring employers have gone bust, and the many schemes, which are often big and well run, that have substantial deficits but are still going concerns. Does he not accept that, at least for them, ACT must have made a significant difference?

9.45 am


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