Pensions Bill

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The Minister for Pensions (Malcolm Wicks): Good afternoon, Mr. Cran. It is a pleasure to see you. Unlike my colleagues, I have curried favour with you; I hope that you will bear that welcome in mind if I stray.

We are considering a small group of clauses concerned with the entry rules to the PPF. I hope that Committee members agree that it would be helpful if, in addressing the amendment, I set the scene for those clauses.

I rather agree with the hon. Gentleman's argument, but in my own way. I hope that he withdraws his amendment because it is unnecessary and his objectives will be met in another way. Those schemes with a pension promise and on which people set their hopes of receiving a set amount of retirement income will be eligible for PPF compensation. Therefore, all private sector-defined benefit schemes, including hybrid schemes that have an element of defined benefit provision, will pay the PPF levy, except those schemes that have a Government guarantee and those that are currently exempt from the applications of the minimum funding requirement and are also exempt from the new scheme's specific arrangements. The PPF is intended to protect members whose companies have gone bust, where schemes are left underfunded and the companies cannot pay members their promised pensions.

2.15 pm

To qualify for PPF compensation, events along the following lines must occur. Entering formal insolvency or bankruptcy proceedings is classed as the qualifying insolvency event, which gets the PPF involved. That triggers the beginning of an assessment period in which the PPF considers whether a scheme rescue is possible, whereby another company takes over the insolvent firm and its pension scheme. The PPF also carries out a valuation of the scheme's assets. During that assessment period, members are paid scheme benefits equal to the compensation that would be payable by the PPF, so no one is left short of money in the meantime.

If a scheme rescue is possible, the scheme will be taken on by the new company and the PPF ceases involvement. If a scheme rescue is not possible and the scheme has enough assets to pay members at least a level of benefit that would be payable under the PPF, the PPF ceases involvement and the scheme will wind up in the normal way. Members will be refunded any difference between the benefit received during the assessment period and the pension that they should have received and will now receive according the original scheme rules. If a scheme rescue is not possible and a scheme does not have enough assets to pay members at least the level of benefit that would be payable by the PPF, the board will take over the scheme and members will continue to receive the PPF level of compensation.

As my right hon. Friend the Secretary of State made clear on Second Reading, given the time constraints it has been necessary to introduce some aspects of policy in Government amendments. I thank

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hon. Members in advance for their patience. Similarly, greater precision on PPF design, such as the exact nature of entry rules, will appear in regulations. Again, I trust that our debate will prove constructive in developing that next tier of detail.

Needless to say, it is hugely important that no one is tempted to take advantage of the PPF so that its funding position is protected and people have confidence in the PPF guarantee. Several moral hazard provisions are already in the Bill. We have recently discussed the safeguards in the new scheme-specific funding, which aim to limit calls on the PPF as well as on the pension regulator, who will have close relations with the PPF and a commitment to protect it. Hon. Members should be aware that further measures to reinforce protection of the PPF will be introduced when we consider new clauses after Easter.

We are all agreed that protection needs to be introduced sooner rather than later, which is why we are working hard towards introducing the fund in the first part of 2005, subject to the will of Parliament. It is vital, however, that we do not run before we can walk and rush through the design stage in our haste to meet a set deadline. That is why, as we embark on making the PPF a reality, we are continuing to engage with experts, who have helped enormously from the outset, and it is why I look forward to the chance to explain further our decision making during the forthcoming discussions. Having set out the context, I shall deal with clause 94.

Mr. Waterson: The Minister said that we are all agreed on the timetable. I do not think that Opposition Members are agreed. Later, I shall explain why we think that commencement should be postponed until the risk-based levy is firmly in place, and why the Government should look much more closely at the interim measures that we debated this morning.

Malcolm Wicks: Indeed, we had a good debate this morning. There might be an opportunity to have the discussion that the hon. Gentleman wants later today or next week.

Clause 94 sets out the insolvency practitioner's duty to issue to the PPF board, the pension's regulator and trustees or managers of the pension scheme notification of when a insolvency event occurs in relation to an employer. The occurrence of the insolvency event triggers the PPF's involvement in a scheme and marks the beginning of the assessment period, during which the PPF board will establish whether a scheme should come into the pension protection fund. The insolvency practitioner's role, both in notifying the PPF board, the regulator and scheme trustees or managers of the occurrence of the insolvency event, and in determining the scheme's eventual status, is crucial to the entry rules for the new fund. It is imperative that the insolvency practitioner's role is clearly set out in legislation, including details of the various bodies that should be notified of the insolvency event in relation to the sponsoring employer of a scheme and the time frame in which that should be done.

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The amendment would require that trustees or managers of a scheme must copy certain notices received from the insolvency practitioner or the PPF board to members. Provision currently allows for those notices to be issued to the board, the regulator and the trustees or managers of the scheme.

As I told the hon. Member for Tatton (Mr. Osborne), I am sympathetic to his amendment's objectives. Indeed, similar amendments have been proposed to other parts of the Bill and I have replied in a similar way, because essentially they involved the same question. His proposal is not necessary because clause 165(1)(b), which deals with the provision of information to scheme members, ensures that regulations will require trustees or managers of a scheme to inform members of all appropriate information. That will include most notices, applications or determinations that relate to a scheme and its status as regards entry to the PPF. Thus the amendment would needlessly replicate existing provision. Perhaps the hon. Gentleman will withdraw it.

Mr. Osborne: It is useful to have the Minister tell us what will be in the regulations, since we have not seen them, so the debate has been worth while. We take him at his word and that the regulations issued under clause 165 will require trustees and managers to keep scheme members fully informed.

I have a final question for the Minister. Will the events prescribed by regulations under clause 165—detailing where scheme members will have to be contacted—cover all the amendments: the events under clause 94, which requires the insolvency practitioner to give notice to the PPF and the trustees; the events under clause 96, whereby the insolvency practitioner issues a notice; the event set out in clause 97, when the insolvency practitioner has failed to issue a notice and the board steps in to do that; the events under clause 102, when the board receives an application from trustees and managers; and, indeed, the events under clause 117, which details the circumstances in which the board ceases to be involved with the scheme?

Malcolm Wicks: Yes.

Mr. Osborne: Good. That is the kind of crisp answer that one prays for in Parliament. In view of such a clear assurance that all the things that we were concerned about will be covered in regulation, and because we hope that scheme members' interests will be protected in the sense they will be kept fully informed of what is happening to their pension during what will inevitably be a period of great anxiety, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 94 ordered to stand part of the Bill.

Clause 95

Insolvency event, insolvency date and insolvency practitioner

Amendment made: No. 366, in

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    clause 95, page 58, line 23, at end insert—

    '( ) a meeting of creditors is held in relation to the company under section 95 of that Act (creditor's meeting which has the effect of converting a member' voluntary winding up into a creditors' voluntary winding up);'.—[Malcolm Wicks.]

Clause 95, as amended, ordered to stand part of the Bill.

Clause 96

Insolvency practitioner's duty to

issue notices confirming status of scheme

Amendment made: No. 367, in

    clause 96, page 60, line 15, at end insert—

    '( ) Regulations may require notices issued under this section—

    (a) to be in a prescribed form;

    (b) to contain prescribed information.'.—[Mr. Pond.]

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

Mr. Waterson: I have some unrelated points on the issues surrounding insolvency. The term ''issues surrounding'' is a phrase that we are not supposed to use any more because it irritates people. It certainly irritates me if somebody else uses it. Nevertheless, it is appropriate to raise such issues on this clause now.

Scheme rescue is the main subject of the clause. The National Association of Pension Funds has flagged up a concern about the definition of a scheme rescue. The explanatory notes say that that

    ''occurs when a solvency practitioner in relation to the employer is able to confirm the pension scheme has or has not been rescued and therefore will or will not enter the PPF.''

That suggests that the PPF may not be called on despite the employer being insolvent. I am sure that that is not the intention, but it is worth getting the Under-Secretary to clarify it.

The NAPF is also concerned about how we define insolvency, which pertains to this clause and related clauses. The definition could go wider than what is meant by the word ''liquidation''. It says that as drafted

    ''it appears possible that where a company voluntary arrangement is proposed, a cash-strapped employer with an underfunded scheme could dump it on the PPF but continue to trade, having cleared some of its non-pension debts. There needs to be greater clarity.''

There is anecdotal evidence that a number of schemes are tottering on in the hope of being parked in the PPF once it is up and running, despite the challenging time scale for getting everything organised.

There is a third suggestion, which did not lend itself to an amendment. I am not convinced that it is fair to deal with it now, but the Under-Secretary may want to reflect on it and write to me. The British Chambers of Commerce says that it could be in the worst possible interests of scheme members for it to be wound up because the company has become insolvent

    ''at a time when the assets are significantly below the level of liabilities.''

It thinks that that could be temporary. I am sure that many companies that are not going bust also fervently hope that that is the case, despite the effects of FRS 17.

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The British Chambers of Commerce wants a provision so that if there is a proposal to wind up a scheme, an application is first submitted to the regulator for authorisation so that he can examine the merits of the application. If the accrued liabilities exceed the current value of the assets by, say, more than 10 per cent., and if the regulator thinks that there is a reasonable chance that the scheme could meet a higher proportion of those liabilities by continuing as a closed scheme, he should be able to instruct the trustees to do just that. If they are not willing to continue the scheme on that basis, the regulator should have the power to employ an independent trustee company, which already happens in some circumstances, to act on the scheme's behalf.

Such a provision could help to rescue a scheme which was not in the most serious of difficulties. It could also reduce the cost to the PPF and, consequently, the levies proposed for other pension schemes as a result. The British Chambers of Commerce feels strongly about that and has more general reservations, and its idea is worth considering. Perhaps if the Under-Secretary has considered and discarded it, he might share his reasons for doing that with the Committee.

 
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