Examination of Witnesses (Questions 160-179)
RT HON
JOHN HUTTON
MP AND MR
CHRISTOPHER EVANS
28 JUNE 2006
Q160 Chairman: It is the one referred
to in paragraph 22.1 of the Government's response. It says the
changes including the development of the MFR had been introduced
as "the Government wanted to remove any worries people had
about the safety of their occupational pension following the Maxwell
affair." It then went on to add that the minimum funding
requirement "was intended to make sure that pensions are
protected" and then the next bit is in emphasis "whatever
happens to the employer". That could not be clearer as an
indication about the safety of these schemes, could it?
Mr Hutton: That was a specific
reference of course to fraud and Maxwell had defrauded his company
pension schemes and the Act did introduce a fraud compensation
scheme.
Q161 Chairman: I am not sure you
are convinced by that reply, John, even as you give it.
Mr Hutton: As far as we are aware,
none of the schemes involved in this investigation involved fraud.
You have chosen a particular passage of PEC3 which relates to
fraud.
Q162 Chairman: It was designed to
be illustrative because one only has to read, as I say, the exhaustive
textual analysis of these leaflets the Ombudsman has given us
to see that it cannot be sustained that the Government was giving—let
us just be clear what the DWP's own guidance was in relation to
information. Its guidance was that the information given had to
be "accurate and up-to-date, with no significant omissions".
That is what the DWP had said in the wake of inherited SERPS.
The Parliamentary Ombudsman says, having looked at all the information,
that it was "sometimes inaccurate, often incomplete, largely
inconsistent and therefore potentially misleading", and that
this constituted maladministration. It is pretty straightforward,
is it not?
Mr Hutton: That is a very straightforward
allegation and there is a very straightforward rebuttal of that
in the two letters to the Commissioner from the Permanent Secretary,
where we set out in some detail why we did not feel that was a
full and fair description of those leaflets. It is very clear
these leaflets were designed as a brief summary of the changes,
not a complete and authoritative statement of the law. In relation
to the point about significant omissions, I do not believe there
were significant omissions, given the declared purpose of this
particular leaflet which was, as I say again, a brief summary
of all the changes in the Pensions Act which was intended as general
guidance. That is to re-run the argument about whether these were
maladministrative or not. We have set out a full explanation as
to why we do not accept that these leaflets were in the letters
of the 27 January and 28 February, and the fuller argument is
contained in the response we laid before the House in June. That
is the Government's view of the leaflets and the issues raised
by the Ombudsman's report.
Q163 Chairman: When Lord Turner was
here last week he said he thought it was very important not to
use the language of guarantees in relation to schemes that were
not guaranteed and yet we do find these words "safe",
"protected by law", "guaranteed" in what the
Government was saying. It should not have done, should it? The
fact that it should not have done is evidenced by the consequences
of doing so, and the failure to mention the inherent risks which
the actuaries had pointed out in pretty stark terms just emphasises
the point.
Mr Hutton: I have set out the
Government's argument in relation to all of this. We felt and
we still feel that the leaflets were a fair and accurate description
of the policy intention at the time. They were not described and
designed as a detailed and comprehensive statement of the law.
We were very clear that people should take proper advice before
they enrolled or joined or remained in an occupational pension
scheme. I know there is a very clear recommendation to the Ombudsman's
report that these were maladministrative and we can go on rehearsing
the arguments about why you say they are and why I say they are
not, but the argument is clearly set out in those letters from
the Permanent Secretary and I cannot add anything to the argument
that we have set out.
Q164 Chairman: I understand what
you are saying and I do not want to keep going round the same
circuit, but we had a trade union representative here last week
and we had a trustee here last week telling us how they had been
seen as a source of authority for their members and they had referred,
as they would, to all the literature that was available, and that
gave them the assurances that everything was going to be fine
and what a huge sense of responsibility they now felt because
they felt that they in turn had misled people about the security
of these schemes?
Mr Hutton: This was quite clearly
a responsibility that was shared between the government to have
the right legislative framework in place, and the then government
tried to do that, and then to explain the policy intent in the
way that they did. There is clearly a set of responsibilities
on scheme trustees to operate within the law to discharge their
common law responsibilities as well. I am not surprised—because
they are decent, honest people involved in scheme administration—that
they did feel that sense of dismay as to what has happened, we
all do, but the issue for government and taxpayers is were the
leaflets maladministrative? The Ombudsman says yes. We disagree
strongly. And even if they were maladministrative, were they the
cause of people's financial loss? Again, I am afraid, on that
occasion too we do disagree with the causal argument that is contained
in the report. It is for the combination of those two reasons
that we have not been able, as I said, to accept her recommendations.
Q165 Chairman: Ann Abraham?
Ms Abraham: Only to say that the
causal argument is not in the report. The report does not say
that the maladministration which has been talked about in terms
of the leaflets caused the financial losses. It did not say that.
Chairman: Thank you for that.
Q166 Kelvin Hopkins: Can I pursue
that point a little. We had from the real world a former convenor
of shop stewards, who had advised his own trade union members
to carry on with their occupational schemes. They lost their money
but he lost out as well. Describing himself as a "lifelong
Labour man", he felt very hurt by what had happened. Even
if he had gone to his full-time union pensions officer, would
they not have looked at that leaflet and said, "You're all
right. We have got a Labour Government now. The leaflet says it
is okay. Carry on"? If someone of a more middle-class inclination,
not a union member but someone who was a Member of Parliament
or whatever, goes to their accountant and says, "Am I okay?"
they might say, "Yes, the Government has given a guarantee
now. You're okay." I am sure that that sort of thing happened
and the Government has a responsibility to people who suffered
as a result.
Mr Hutton: We are rehearsing the
argument again about the cause of loss and so on and so forth.
In relation to the leaflets that the Ombudsman has said are maladministrative,
and therefore that does create the obligation on government to
compensate, I dispute very strongly the argument that having looked
at leaflet PEC3 a professional would just rely on the leaflet
to advise his or her professional clients; absolutely not. They
have a wider set of responsibilities in advising clients professionally
than simply to refer to a general leaflet produced by government.
Again, this comes to the heart of argument about responsibility
for loss and whether the leaflets were a significant cause of
loss. We have set out our arguments fully as to why we do not
accept that they were.
Q167 Kelvin Hopkins: In the light
of the Chairman reading out the words of advice, how many accountants,
how many shop stewards, how many union pensions officers would
have said, "Ah, well, don't believe any of that. When it
comes to the crunch the government will let you down and it is
all very dodgy"? How many would have said that in the light
of that advice?
Mr Hutton: Said what, sorry?
Q168 Kelvin Hopkins: Would have said,
about joining a scheme or carrying on with an occupational scheme,
"You will be on your own in the end, so be very careful."
How many would have actually given negative advice, countering
the advice being given by government which has been read out very
carefully by our Chairman?
Mr Hutton: As I think you probably
know, I am not in a position to give you an answer to that question.
Q169 Kelvin Hopkins: I suspect the
answer is none.
Mr Hutton: But neither are you.
You did not sit in on any of these conversations between accountant
and client. It is quite impossible for anyone to come to a definitive
answer to that question. I just come back to my original observation.
The heart of this argument, as I see it—and maybe I am wrong,
maybe I have got it wrong—is that because the leaflet said
the words that Tony said, it implied a guarantee that things were
safe and that was a sufficient condition on which people could
then make investment decisions, when the leaflets themselves made
very clear that was not so, that there was a need to take proper,
independent advice, and that they should do so. That is one of
the hubs of this particular argument.
Kelvin Hopkins: I do not know too many
workers in schemes who would have chosen to pay an accountant
to advise them.
Q170 Jenny Willott: Could I ask one
quick question on that point which Kelvin was raising. You say
that they should have taken further advice. Presumably one of
the people they would have turned to was the members' trustee
on the board of the pension fund who would be relying on the information
in the Trustees' Handbook, which was also completely misleading
and I read you a quote from it earlier. How would you expect people
to be able to understand truly what the situation is when not
only the information they are getting is inaccurate and incomplete
and therefore misleading but the information that their member
trustees are getting as well is inaccurate, incomplete and misleading?
Mr Hutton: As I say, we do not
accept that the information was inaccurate, misleading or incomplete,
and therefore it is quite obvious that if you are a scheme trustee
the scheme would be receiving professional advice and it would
be entirely appropriate for scheme trustees to seek professional
advice about the investment strategies, the minimum funding requirement,
what it meant for their schemes and so on. It is quite difficult
to argue that the leaflet absolved everyone at all points in the
system from taking any responsibility for seeking professional
advice.
Q171 Jenny Willott: I am not talking
about the leaflets. I am talking about the Trustees' Handbook
and the fact that—
Mr Hutton: Or the Trustees' Handbook.
Q172 Jenny Willott:— and the
fact that if a scheme was up to 100% MFR and the Trustees' Handbook,
which is what they are supposed to be basing their decisions on,
refers to the minimum amount of funds that would be needed in
order to meet the scheme's liabilities, do you not think it would
be justified if they assumed therefore that if they were at 100%
MFR that the money in the scheme would meet the scheme's liabilities?
Mr Hutton: No, for the reasons
that we have already set out very clearly and the leaflets themselves
made very clear, that people have to have a responsibility for
taking proper advice themselves.
Q173 Jenny Willott: These were the
people who were giving the advice. I am talking about the trustees
not the members reading the leaflets. I am talking about the trustees
reading the handbook.
Mr Hutton: They have a responsibility
to take proper professional advice themselves about the MFR. The
MFR certificate that every scheme is required to have would make
it very clear what the extent of liabilities were in the scheme
and the extent of cover of MFR. Again it is a fundamental argument
here. The essential underpinning, as I see it, of your argument
is that because there was a leaflet produced to scheme trustees
that absolved the scheme trustees from any further obligation
to seek or obtain professional advice about the scheme, particularly
in relation to MFR.
Q174 Jenny Willott: With respect,
that is not what I said.
Mr Hutton: You were saying it
would be appropriate for the scheme trustees to rely on the leaflet.
Q175 Jenny Willott: No, I said the
information they had been given by the Government not in a leaflet
but in the Trustees' Handbook says specifically that the MFR is
the minimum amount of funds that should be in the scheme to meet
the scheme's liabilities. If you are saying that is not enough
and instead they should have read the MFR certificate, I think
that is a very peculiar argument. You are saying that the basic
information that is being given to all trustees of pension funds,
particularly the member trustees who are not experts in the area,
that they should not be able to rely on the information being
given in a handbook on their role as a trustee because it is not
accurate and instead they have to read the small print on the
MFR certificate?
Mr Hutton: There is no question
of small print anywhere. The requirement is very clear and specific
in the legislation about what a MFR certificate must include and
contain. I am saying yes I do believe it is and was a responsibility
of scheme trustees to take proper advice about what MFR meant
for their scheme and to make sure that that was properly understood
and communicated amongst the trustees and, yes, amongst the members.
That is one of the reasons why we have a difficulty with the Ombudsman's
report here which says it is ultimately the responsibility of
the taxpayer to address these issues of compensation. I do not
believe it is and I think there is a responsibility on the part
of the scheme trustees, a very clear one, in fact the Handbook
itself makes it very clear, to take proper advice.
Jenny Willott: We have got to come back
to this. That is not what it says.
Chairman: I am going to suspend the Committee
for 10 minutes.
The Committee was suspended from 3.18 pm
to 3.38 pm for a division in the House.
Chairman: Let us continue where we left
off. I am afraid it was a politician's promise about 10 minutes.
We thought there would be two divisions but, in fact, there turned
out to be only one. I apologise for that. I think, Jenny, you
had just finished a question.
Jenny Willott: Yes.
Chairman: Could I move on to Grant.
Q176 Grant Shapps: You mentioned
previously you have the leaflets with you.
Mr Hutton: Someone has got them.
Q177 Grant Shapps: Perhaps whilst
I am asking some other questions Christopher can find out about
them. Which of these leaflets actually warn members that the scheme
needs to be at the minimum funding requirement savings level to
be protected? Perhaps you can find the reference in these leaflets.
Mr Evans: Yes.
Q178 Grant Shapps: If I carry on
and perhaps someone can have a look at that.
Mr Evans: Yes.
Q179 Grant Shapps: Great. In 1997
the chancellor famously raided the pensions funds by abolishing
the tax credit for dividends income. That has been repeated every
year and there has been a resultant loss in liquidity in the stock
market. So to quite a large degree the government is responsible
for a lot of these private pension losses, are they not?
Mr Hutton: No.
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