Eleventh Standing Committee on Delegated Legislation |
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Mr. Webb: I have a few brief questions. To keep the Minister on his toes, I will take the statutory instruments in the following order: ombudsman, followed by levies, and then cap. One of our concerns when we considered the Pensions Bill, which has led to the PPF ombudsman order, was the multiplicity of ombudspeople. Whenever one creates a new institution, there is a danger that one creates an ombudsman to go with it. Baroness Hollis said in another place that we were not really talking about much money—just a few million. I understand that the Department for Work and Pensions tosses that sort of money around in a lunchtime, but we have yet another ombudsman for yet another institution. How important is the ombudsman and do we need a separate one? I understand that the pensions ombudsman—[Interruption.] That noise is unconnected with me. The pensions ombudsman and the PPF ombudsman are, at least initially, to be the same person. Will the Minister clarify something for us? He referred to Mr. Laverick, the pensions ombudsman. I understand that he is swamped with work and having tremendous difficulty doing the job that he already has. There have been a huge number of referrals to the pensions ombudsman because of all the problems with occupational pensions. Yet under the order the Government are giving him another job to do—whether that be in the evenings or at weekends, I do not know. Do Mr. Laverick and his staff have the capacity to carry out the role that we are asking of them under the order? Malcolm Wicks: It might be useful to respond to the easy points straightaway, although I cannot promise to respond to the more difficult ones so quickly. In response to the hon. Gentleman’s point, that is why we have announced the appointment of a deputy PPF ombudsman. It might help if I quote Mr. David Laverick, the ombudsman. He said:
That is why we have taken that step. Mr. Webb: Mr. Laverick’s comments reinforce the point that I was making. I think that he would be the first to say that his office has struggled in recent years. It has been under-resourced. It remains to be seen whether the appointment of a deputy will deal with problem. One hopes that it will. The suggestion is that it will cost a couple of million pounds to pay for the new ombudsman. Will the Minister clarify whether it is his intention that in the long-term the PPF ombudsman and the pensions ombudsman should be the same person? Is that essentially the Government’s policy or is it a convenient way of getting the PPF ombudsman’s post off the ground? Does the Minister foresee the roles eventually diverging? Perhaps he can let us know his thoughts on that. Column Number: 14 I intervened on the Minister about the levies regulations. Perhaps in my speech I can clarify the point that I was making. There are two levies in the regulations: an administration levy and an initial levy. The administration levy varies according to the size of the scheme, but essentially, for two schemes of similar size it is identical. The initial levy is an amount per scheme member, which, again, does not depend on the type of scheme; it is just an amount per scheme member. My point about hybrid schemes is that if a person has a pure, defined-benefit occupational pension, the PPF insurance is for the whole thing—the whole shooting match, the whole package of benefits offered by the pension. In a hybrid scheme, the PPF insures only part of the benefits package. I hope that the Minister agrees with me thus far. The price for that insurance is the sum of the levies: of the administration levy, the initial levy, the risk-based levy, eventually, and probably the PPF ombudsman levy. Regulation 17 states that
In other words, those flat-rate, per-member levies would apply to a 100 per cent. defined-benefit scheme and, if such a thing existed, to a 1 per cent. defined-benefit scheme. That was the point that I was trying to make, and I hope that the Minister will not demur from it. However, a person will get very different things for their money. Two schemes with the same number of members—100 members in each case—would pay identical administration and initial levies, but one will get a lot of insurance for that, and the other practically none. My question was about whether hybrid schemes that are predominantly money purchase schemes will take the view that, given that they would have to pay the levy for practically no insurance benefits, they will go completely defined-contribution. Malcolm Wicks: It might be useful for me to intervene now, although I shall say a little more about this issue later. I may have been misleading when I tried to respond to the hon. Gentleman’s earlier intervention; I think that I was looking ahead beyond these regulations to the risk-based levy, in which such things will be sorted. The hon. Gentleman is right to say that the initial levy—£5 for deferred pensions, £15 for others—is, I am afraid, broad-brush and can be said to have the effect that he suggests. Mr. Webb: That was a very helpful intervention, for which I am grateful. This matter raises a more difficult PPF issue on hybrid schemes. Yesterday, I shared a platform at a pensions conference with the hon. Member for Havant (Mr. Willetts) and the Minister’s noble Friend Baroness Hollis of Heigham. She raised the problem of hybrid schemes in the context of the Pension Protection Fund, and that is relevant to these regulations. The Minister made the point that hybrid schemes are getting ever more complex and that there are not one, two or three models of such schemes; every one is different—tailored, customised and so on. Column Number: 15 The mention of hybrid schemes in the regulations prompts me to ask the Minister whether he is confident that it will possible to draw up a schedule of levies that will properly reflect the element of risk. In other words, the Pension Protection Fund would have to identify in every single scheme what bit is the defined benefit, and insure that bit and work out the risk element for that bit alone. I would have thought that that could be fiendishly complicated when there is just a pot of money to pay for the whole thing. At the conference yesterday, Baroness Hollis appealed to the industry to draw up two or three template hybrid schemes. Presumably, the intention was that the people running such schemes would pick one off the shelf, and that that would make the PPF’s life easier. However, I am not sure that the job of people who design pensions schemes is to make the PPF’s life easier. I suspect that such people will design packages of benefits that work for their employees. Assuming that that other Minister’s exhortations are not heeded and that we end up with an increasingly hybrid, complex world, is the Minister confident that levies of the risk-based variety, which are coming down the track, could be calculated effectively by the PPF? Mr. Waterson: Is this not a perfect example of the Government’s hide-bound attitude? In the Pensions Act, we freeze in aspic the defined-benefit schemes that have gone before, while dynamic changes are going on in the pensions industry all the time. Hybrid schemes in their various forms are the best example of those. Mr. Webb: I am not sure that I entirely follow the hon. Gentleman’s point, but it is certainly the case that schemes are evolving all the time, and that any regulatory and legislative framework must be capable of responding to that. I take that point. On the cap, a couple of issues arise. Can the Minister say something about the indexation of the cap? The order sets the cap at £27,700—or whatever it is. Will it be that indefinitely, or will there be an annual indexation provision, and if so, will it be indexed to earnings or pensions? Will he clarify that? There is an issue of consistency: the cap is intended to be set at such a level that 90 per cent. is £25,000 a pension, but in the parallel financial assistance scheme, the cap is £15,000, 80 per cent. of which is £12,000. The Government’s argument for choosing £12,000 in the financial assistance scheme is that they would not want to support high-flying executives who would probably ditch their pension fund just before everything went belly up, to which the taxpayer might object. Why is their definition of a high-flying executive for the financial assistance scheme £12,000-worth of pension rights, but for the Pension Protection Fund £25,000? The argument for a cap is presumably the same for both, so why is the answer so different? Is it not a case of cheese-paring on the financial assistance scheme? Otherwise, should not the cap in that scheme be the same as that in the order? Column Number: 16 We have been through the detail and the principle of the Pension Protection Fund and are not really dealing with that this afternoon, but there are concerns about how it will work in practice, about the incentives that will arise from it and about the justification for some of the structures that have been chosen. I am grateful to the Minister for his assurance that, in responding to the debate, he will be able to dwell slightly longer on some of the points that have been raised. 3.17 pmMalcolm Wicks: I hope that I do not respond to the points in too higgledy-piggledy a way; that is partly our fault for trying to take three statutory instruments together. Before turning to the comments of the spokesman for Her Majesty’s loyal Opposition, the hon. Member for Eastbourne (Mr. Waterson), I shall deal with the intervention of the hon. Member for Northavon, because, as I say, I suspect that I may have confused things, which was not my intention. There is a distinction between the initial phase, which has to be broad-brush, when we need to raise £150 million—£5 for deferred members and £15 for the others—and moving over time to 80 per cent. of the levy being risk-based. It is our intention and therefore that of the PPF board to move to that as soon as possible. It is true that a member of a hybrid scheme, perhaps with only a small DB entitlement—I take the example cited by the hon. Member for Northavon—and a much larger DC entitlement will pay for the first year the initial levy of £5 or £15. It could be argued that that is just the same as a member of a full DB scheme who nevertheless has a low benefit entitlement. The provision is broad-brush; it is not ideal, but we thought that it was not unreasonable for the first year. Levy work is particularly crucial to the PPF. I know that it is appointing some very able people to assist it, but it will have to get to grips primarily with the risk-based issue. That will be a major challenge for it, but we want it to be introduced as soon as possible. As we recall from debates on the Pensions Bill, much depends on the schemes themselves. There is the triennial review, and the question of whether some might want to bring that forward if they think that they might benefit because they are relatively low-risk, and so on. There is the added complication raised by the hon. Member for Northavon of how one not only considers the risk-based but separates the DC from the DB. It is a difficult and complex task, but I do not think that it is impossible. Clearly much work will be going into it. I am grateful that I have had the opportunity of clarifying that. Mr. Waterson: The Minister reminds me that very late in consideration of the primary legislation he hinted that some penalty would be imposed on schemes that were—perhaps for understandable reasons—slow to sign up to the full risk-based levy. Whatever became of those proposals? Have they been worked up and published? How will that work? Malcolm Wicks: I will see whether I can recall anything more useful than what I am about to say, but I do not think that we discussed about a penalty; we do
I would like to consider the issue of the levy and the point made by the hon. Gentleman. The TPR, as our bureaucrats call it—I call it the pensions regulator—will invoice schemes for the initial levy after April, and the 6 April date is important because the liability arises at that point. The levy collection will be outsourced by the pensions regulator, but the name of the successful supplier is not yet in the public domain. I presume that discussions are continuing. The impact of the levies on business was reflected in the Pensions Act regulatory impact assessment—the hon. Gentleman is a keen reader of those—and that continues to apply. The other PPF measures before the Committee are sustained by the levies but do not have an impact on business. There is a critical issue regarding the sustainability of our pension promise of 100 per cent. for pensioners and 90 per cent. for other scheme members in the longer term. We have considered that carefully and are as confident as any reasonable person can be about its sustainability. We are assuming that a big scheme, such as a FTSE 100 company, will come in every four years, so we have not been cavalier about the levy assumption. Can the hon. Gentleman name a FTSE 100 company that has gone bust during the past four years? If he will pardon the term, we are basing our arithmetic on rather old-fashioned, conservative assumptions. To clarify, the cap of £25,000 applies at age 65, and not the normal pension age; I thought that it was worth clarifying that. The issue of death benefits was also raised. Life-only members—members whose benefits are simply death benefits—are excluded from the levies. I refer the Committee to regulation 5(6); I am sure that people will look that up in their leisure time. To return to the point made by the hon. Member for Northavon on hybrids, we simply do not have the data in this first year to go into the matter with the sensitivity that we would all want. It is a complex matter, which is why we need time to consider it. A couple of points were raised about the cap. The financial assistance scheme is different from the PPF, as the hon. Gentleman knows; the PPF is designed for the long term. We know how we are going to raise the money—through the levy and by the taking over of scheme assets, which will often be considerable and will be invested under the guidance of the PPF board. For such a scheme, it is more reasonable to say that we shall meet the pension promise of 100 per cent. or 90 per cent. The financial assistance scheme is funded by the taxpayer and it is not possible in that more emergency, short-term situation to be as generous with the cap. Column Number: 18 I was also asked about indexation. The cap will be indexed annually—sorry, not annually. It will be indexed, although my answer has been such a fine one that I wonder whether I might be allowed to write to hon. Members on that point. With those words, I have shown a touch of humanity and revealed my imperfect knowledge. That said, paragraph 27 of schedule 7 to the Pensions Act comes to mind—this had better be the right note. Paragraph 27 says that, under paragraph 26, the Secretary of State will, by order, specify the amount of the compensation cap. That amount will be increased annually in line with earnings—as I knew all along. Paragraph 27 also states:
It is useful to have second thoughts, and I think that they confirm my initial impression. Mr. Waterson: The Minister might have found that using the word “bureaucrat” had the desired effect on his officials, who initially gave him the wrong steer. Before he sits down, however, can I press him on the invoices for the levy? They are due from 6 April, and he confirmed that collection will be outsourced, possibly to somebody with a really good track record, such as EDS or Capita. Given that he has not even named the provider, however, is he confident that, as I asked earlier, the invoices will go out on time, to all the right people and with some accuracy? Malcolm Wicks: Here we are; we passed the Pensions Bill despite a particular political party declining to give it a Third Reading— Mr. Waterson: A Second Reading. Malcolm Wicks: It is good to get confirmation of that. A particular party declined to give the Bill a Second Reading, but we took the Bill—and the Opposition—kicking and screaming through the whole process, and it came into effect in November. I cannot think of another instance in which, just months after a major and complex piece of legislation has received Royal Assent, we are within sight of establishing two new institutions: the regulator and the Pension Protection Fund. Mr. Waterson: So what is the answer? Malcolm Wicks: The answer is that those of us in government know that these are complex matters. It is impossible to get everything in place when one has had only a few months to do so. We will outsource collection and we will obviously do so to someone who is competent and who will do the job properly; that goes without saying. I pay tribute to my officials—I rarely use the word “bureaucrat” pejoratively—for getting this thing up and running. It will mean that, in just a few weeks’ time, people in final salary or defined-benefit schemes will have new insurance and new protection. If their
Question put and agreed to. Resolved,
Resolved,
DRAFT OCCUPATIONAL PENSION SCHEMES (LEVIES) REGULATIONS 2005 Resolved,
Committee rose at twenty-nine minutes past Three o’clock. |
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