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Standing Committee B
Tuesday 30 March 2004
Mr. Win Griffiths in the Chair]
The Minister for Pensions (Malcolm Wicks): On a point of order, Mr. Griffiths. I welcome you to the Chair. The hon. Member for Eastbourne (Mr. Waterson) raised a point of order at the beginning of play this morning. I thought that it would be helpful to reciprocate with my own point of order. I welcome the opportunity to clarify the position on the two points that he raised. He referred first to a weekend press report concerning Allied Steel and Wire workers and other workers that we discussed at length last week.
The hon. Gentleman may recall that I have already told the Committee—indeed, it was last Thursday—that we are working with the pensions industry to establish firmer estimates of the numbers and costs involved in such cases. I said that
''we are currently exploring with industry representatives a basis on which we can establish firm estimates of the extent of the problem of defined benefit schemes winding up underfunded. We are also assessing the numbers affected and the potential scale of losses.''—[Official Report, Standing Committee B, 25 March 2004; c. 446.]
I do not think that the Sunday newspapers added anything to what I said to the Committee.
Secondly, it seems that there has been confusion about the priority order. The hon. Gentleman and my hon. Friend the Under-Secretary may have been talking at cross-purposes last week. The Bill introduces a priority order that will broadly ensure that, for schemes that do not enter the pension protection fund because of their funding position, individual scheme members should not be worse off than if their schemes had fewer funds and entered the PPF. They were the priority order measures to which my hon. Friend was referred.
However, there is a separate question about the current priority order regulations. I wish to take the opportunity to remind members of the Committee that my right hon. Friend the Secretary of State for Work and Pensions said:
''I can confirm that we shall move forward in the very near future to rebalance the order so that the basic benefits of those in the run-up to retirement and other deferred members take precedence over the indexation of pensions in payment. That will achieve a substantial rebalancing. Many members may gain 20 per cent. of their pension, so it is a worthwhile interim change before the pension protection fund comes into effect.''—[Official Report, 24 February 2004; Vol. 418, c. 214.]
I hope that I have provided the necessary level of clarification sought by the hon. Member for Eastbourne. I shall be happy to write to him, so that we can all be absolutely clear about the two separate issues in respect of the priority order.
Pension compensation provisions
Amendment moved [this day]: No. 479, in
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schedule 7, page 200, line 41, leave out '27' and insert '25'.
The Chairman: I remind the Committee that with this we are taking Government amendments Nos. 481 to 485.
Malcolm Wicks: Under the chairmanship of Mr. Cran this morning, we were interrupted at the end of the sitting when I was talking about the Government amendments that deal with the cap on the pension protection fund. I was saying how we set out different types of compensation that are subject to the cap. I shall clarify the matter. The different types cover people under the normal retirement age of their scheme and who are not receiving an ill-health pension, but are pensioners at the assessment date. For example, they have taken early retirement. They also cover active and deferred members who are under the normal retirement age of their scheme at the assessment date and any future survivor's benefits in relation to those members will also be capped as the level of survivors' entitlement is calculated from the member's compensation.
The amendment sets out the details of how the cap will apply. For example, sub-paragraphs (6) and (7) introduce the annualised value of any lump sum payments, which will enable them to be treated consistently with any periodic payments. If the total of periodic payments and any annualised values of lump sum payments exceed the cap, all amounts of compensation will be reduced proportionately by the cap fraction, so that the total compensation is equivalent to the level of the cap. The compensation cap at age 65 will be set by the Secretary of State. In order to maintain flexibility, the PPF board will publish figures for the level of the cap at other ages. They will be actuarially equivalent to the level at age 65 and will therefore be lower when the compensation is payable at ages younger than 65 and higher at older ages.
The other amendments are minor drafting amendments either correcting references between clauses or making changes to improve the wording or clarity of the clause. Amendment No. 485 would delete paragraph 27 as the provisions in that paragraph are now subsumed into paragraph 25. I hope that members of the Committee will accept the amendments.
Mr. Nigel Waterson (Eastbourne) (Con): Welcome back to the Committee, Mr. Griffiths.
I am grateful to the Minister for writing to the Committee, and for his explanation. He was caught in mid-sentence this morning. I read in Mr. Peter Ustinov's obituary in The Times today that someone once asked him how he would prefer to die and he replied that he did not mind as long as it was not in the middle of a sentence. That was a good answer.
Malcolm Wicks: I hope that that does not happen to me in the middle of my remarks on amendment No. 414.
Mr. Waterson: Given the excitement in this Committee, would anyone notice? I am sorry; that comment was mean and below the belt, and I withdraw it unreservedly.
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Malcolm Wicks: I am a household name in my own household.
Mr. Waterson: I am grateful for the Minister's explanation, and I am delighted that I have not had to work out what the sinister-looking algebraic equation means; I take it entirely at face value that it means what the Minister says it means—that it is something to do with the annualised value. I can see the sense of trying to marry elements together so that there is one cap rather than a multiplicity of caps. That is right in general terms, but time will tell whether it wreaks unfairness in individual cases.
The Minister was perhaps a little too eager to defend the cap; this morning he blithely talked about 10 per cent. of employees. For higher-paid employees, that could mean a very significant loss from the pension promise that they were expecting. I hope that the Chancellor's redistributive instincts are not creeping in.
Mr. Steve Webb (Northavon) (LD): I hope that they are.
Mr. Waterson: I have just received a little yellow book on Liberal Democrat quotations, and I shall add that one to the collection. My party is not noted for its attachment to redistributive taxation. [Interruption.] Ah, the pension protection fund again.
The Minister might have been a little too glib. I hope that his sole motive is the honourable one of trying to contain the costs. Ultimately, that was his central argument on the 90 per cent. and 100 per cent. cliff edge that we discussed this morning. I hope that he is not also slightly gleeful that higher-paid employees will lose out significantly more than others simply because they are more highly paid. There is no sin in that; indeed, it may reflect some merit on their part, or commitment to their company. We should remember that, and that they will lose out disproportionately even under this scheme.
The explanatory note was helpful, and I hope that more of them are in the pipeline on future amendments. Having read that and listened to what has been said, I will not oppose the amendments.
Amendment agreed to.
Amendments made: No. 480, in
No. 481, in
schedule 7, page 203, line 21, leave out '27' and insert '25'.—[Malcolm Wicks.]
Mr. Waterson: I beg to move amendment No. 414, in
schedule 7, page 204, line 25, after 'may', insert
'(and in the case of children must)'.
This is a short point that slightly mirrors the debate on widows and widowers. There is no provision in schedule 7 for any children's pensions that might otherwise have been payable under the scheme. Paragraph 22 contains a general regulatory power to
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allow compensation to be payable to prescribed dependants, but it seemed right to have a clear obligation in the schedule giving statutory rights to children who would have been entitled under the scheme. I have a sinking feeling that this is already covered but, even if it is, we do not think that it is sufficiently covered.
Malcolm Wicks: I assure the hon. Gentleman that the purpose of the PPF compensation in the form of dependants' benefits, as set out in paragraph 22, is to provide security for children. The hon. Gentleman's amendment is thus well intentioned—my notes say that it is ''superfluous'' but that sounds rude, and I want to start the afternoon on a good note.
The detail of the provisions for PPF dependants' benefits will be set out in regulation, and that will encompass children. Provisions will be set out in regulations as flexibly as required when dealing with the complex area of dependants. With that assurance, I hope that the hon. Gentleman will consider withdrawing his well intentioned amendment.
Mr. Waterson: It is possible to be both well intentioned and superfluous. I plead guilty on both counts, and beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendments made: No. 482, in
No. 483, in
schedule 7, page 205, line 42, leave out paragraph 25 and insert—
'25 (1) Where—
(a) a person becomes entitled to relevant compensation in respect of a benefit (''benefit A'') under the scheme, and
(b) sub-paragraph (2)(a) or (b) applies,
the amount of the compensation must be restricted in accordance with sub-paragraph (3).
(2) For the purposes of sub-paragraph (1)—
(a) this paragraph applies if—
(i) the annual value of benefit A exceeds the compensation cap, and
(ii) paragraph (b)(i) does not apply, and
(b) this paragraph applies if—
(i) at the same time as the person becomes entitled to relevant compensation in respect of benefit A he also becomes entitled to relevant compensation in respect of one or more other benefits under the scheme or a connected occupational pension scheme (''benefit or benefits B''), and
(ii) the aggregate of the annual values of benefit A and benefit or benefits B exceeds the compensation cap.
(3) Where the relevant compensation in respect of benefit A is required to be restricted in accordance with this sub-paragraph—
(a) if that compensation is within sub-paragraph (4)(a), the protected pension rate for the purposes of paragraph 3(3)(a) is the cap fraction of the rate determined in accordance with paragraph 3(5),
(b) if that compensation is within sub-paragraph (4)(b), the protected notional pension for the purposes of paragraph 11(3)(a) is the cap fraction of the rate determined in accordance with paragraph 11(4);
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(c) if that compensation is within sub-paragraph (4)(c), the protected amount for the purposes of paragraph 14(3) is the cap fraction of the amount determined in accordance with paragraph 14(3A);
(d) if that compensation is within sub-paragraph (4)(d), the protected pension rate for the purposes of paragraph 15(3)(a) is the cap fraction of the rate determined in accordance with paragraph 15(4);
(e) if that compensation is within sub-paragraph (4)(e), the protected amount for the purposes of paragraph 19(3) is the cap fraction of the amount determined in accordance with paragraph 19(3A).
(4) For the purposes of this paragraph ''relevant compensation'' means—
(a) periodic compensation under paragraph 3 (in a case to which sub-paragraph (7) of that paragraph applies),
(b) periodic compensation under paragraph 11,
(c) compensation under paragraph 14,
(d) periodic compensation under paragraph 15, or
(e) compensation under paragraph 19.
(5) For the purposes of this paragraph, ''the cap fraction'' means—
C is the compensation cap, and
V is the annual value of benefit A or, in a case to which sub-paragraph (2)(b) applies, the aggregate of the annual values of benefit A and benefit or benefits B.
(6) For the purposes of this paragraph the ''annual value'' of a benefit in respect of which a person has become entitled to relevant compensation means—
(a) if the relevant compensation is within sub-paragraph (4)(a) and neither paragraph (b) nor (c) below applies, the amount of the protected pension rate for the purposes of paragraph 3(3)(a);
(b) if the relevant compensation is within sub-paragraph (4)(a) and is in respect of a pension of which a portion has been commuted for a lump sum, the amount which would have been the protected pension rate for those purposes had that portion not been commuted;
(c) if the relevant compensation is within sub-paragraph (4)(a) and the person became entitled to a relevant lump sum under the scheme at the same time as he became entitled to the pension to which that compensation relates, an amount equal to the aggregate of—
(i) the protected pension rate for the purposes of paragraph 3(3)(a), and
(ii) the annualised value of the relevant lump sum;
(d) if the relevant compensation is within sub-paragraph (4)(b), the amount of the protected notional pension for the purposes of paragraph 11(3)(a);
(e) if the relevant compensation is within sub-paragraph (4)(c), the annualised value of the protected amount for the purposes of paragraph 14(3);
(f) if the relevant compensation is within sub-paragraph (4)(d), the amount of the protected pension rate for the purposes of paragraph 15(3)(a);
(g) if the relevant compensation is within sub-paragraph (4)(e), the annualised value of the protected amount for the purposes of paragraph 19(3);
and for the purposes of determining the annual value of a benefit any reduction required to be made by this paragraph is to be disregarded.
(7) In this paragraph—
''annualised value'' of a lump sum or amount means the annualised actuarially equivalent amount of that sum or amount determined in accordance with actuarial factors published by the Board;
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''the compensation cap'', in relation to the person who becomes entitled to relevant compensation in respect of benefit A, means—
(a) the amount specified by the Secretary of State by order, or
(b) where the person—
(i) has not attained the age of 65, or
(ii) has attained the age of 66,
at the time he first becomes entitled to that compensation, that amount as adjusted by the Board in accordance with actuarial adjustment factors published by it;
and for the purposes of this paragraph, except in prescribed circumstances, the scheme is connected with another occupational pension scheme if the same person is or was an employer in relation to both schemes.
(8) For the purposes of sub-paragraph (6)(c) a lump sum under the scheme is a relevant lump sum if the person's entitlement to the lump sum—
(a) is attributable to his pensionable service under the scheme or another scheme, and
(b) did not arise by virtue of any provision of the admissible rules of the scheme making special provision as to early payment of pension on grounds of ill health.
(9) Regulations may provide for this paragraph to apply with prescribed modifications where a person becomes entitled to relevant compensation in respect of a benefit and he has previously—
(a) become entitled to relevant compensation in respect of a benefit or benefits under the scheme or a connected occupational pension scheme, or
(b) become entitled to one or more lump sums under the scheme or a connected occupational pension scheme.
(10) Regulations may prescribe sums which are to disregarded for the purposes of this paragraph.'.
No. 484, in
schedule 7, page 206, line 44, leave out 'rate' and insert 'amount'.
No. 485, in
schedule 7, page 207, line 2, leave out paragraph 27.—[Malcolm Wicks.]
Amendment proposed: No. 506, in
schedule 7, page 207, leave out line 36.—[Malcolm Wicks.]