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Session 2005 - 06
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Standing Committee Debates

Fourteenth Standing Committee on Delegated Legislation

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Fourteenth Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


Mr. Hugh Bayley

Benyon, Mr. Richard (Newbury) (Con)
Cohen, Harry (Leyton and Wanstead) (Lab)
†Cunningham, Mr. Jim (Coventry, South) (Lab)
Gidley, Sandra (Romsey) (LD)
†Heppell, Mr. John (Nottingham, East) (Lab)
†Jenkins, Mr. Brian (Tamworth) (Lab)
Johnson, Mr. Boris (Henley) (Con)
†Joyce, Mr. Eric (Falkirk) (Lab)
†Laws, Mr. David (Yeovil) (LD)
†Lepper, David (Brighton, Pavilion) (Lab/Co-op)
†McCafferty, Chris (Calder Valley) (Lab)
†Penrose, John (Weston-super-Mare) (Con)
Randall, Mr. John (Uxbridge) (Con)
†Soulsby, Sir Peter (Leicester, South) (Lab)
†Timms, Mr. Stephen (Minister for Pensions Reform)
†Waterson, Mr. Nigel (Eastbourne) (Con)
Alan Sandall, Committee Clerk

† attended the Committee

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Wednesday 13 July 2005

[Mr. Hugh Bayley in the Chair]

Draft Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations 2005

2.30 pm

The Minister for Pensions Reform (Mr. Stephen Timms): I beg to move,

    That the Committee has considered the draft Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations 2005.

The Chairman: With this it will be convenient to consider the draft Pension Protection Fund (Reference of Reviewable Matters to the PPF Ombudsman) Regulations 2005 and the draft Pension Protection Fund (PPF Ombudsman) Amendment Order 2005.

Mr. Timms: I bid you very warm welcome, Mr. Bayley, to the Chair of the Committee, as it is not only the first time that I have served under your chairmanship but the first time that any hon. Member has done so, this being your first appearance in the role. Given your full inside knowledge of the social security system, you will be able to put me straight if I go astray on any point of detail.

The three sets of regulations give detailed effect to the roles and responsibilities of the Pension Protection Fund ombudsman. As most hon. Members will be aware, the establishment of the Pension Protection Fund has been an important step in increasing the security of members of defined benefit pension schemes. It became operational on 6 April. It is a new non-departmental public body, which will pay compensation to pension scheme members if a company with a defined benefit scheme becomes insolvent and its pension fund is insufficiently funded to pay the PPF levels of benefits. It will therefore reassure pension scheme members that they will still receive a meaningful level of income in retirement if their employer fails.

In establishing the PPF we are making sure that we also establish a framework to deal fairly with problems or disputes that may arise. There is a list of the reviewable matters in schedule 9 to the Pensions Act 2004. A two-stage internal disputes process is already in place, allowing those affected by a PPF decision to dispute it. In the first instance, regulations provide that the PPF board must review its decisions when requested to do so. In the second instance, a committee of the board must reconsider those reviews if further requested. The PPF board can also review and reconsider decisions of its own volition.

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In much the same way, complaints of maladministration can be referred to the board for a two-stage complaints process. Regulations have established the procedure for those processes. Following the internal PPF process a party may, however, still not be content with the outcome, and in such circumstances that party may refer the matter to the independent PPF ombudsman, who is the subject of the regulations before the Committee.

Two of the sets of regulations relate to the PPF ombudsman’s investigations of reviewable matters and complaints of maladministration that are referred to him. Given that the procedures set out in the two sets of regulations are broadly similar, it will probably help the Committee if I discuss them together. The regulations deal with applications to, investigations by and determinations by the PPF ombudsman. Some of the detail is similar to that in regulations governing the work of the office of the pensions ombudsman since 1991. However, there are differences.

First, and most obviously, the pensions ombudsman deals with complaints and disputes about pension schemes generally, whereas of course the role of the PPF ombudsman is entirely to deal with complaints and disputes arising from the fund. Secondly, the PPF ombudsman will deal together with references that are the same or essentially similar. He may well give one determination for all of them. By contrast, the pensions ombudsman can deal only with references that are made to him individually.

When carrying out an investigation, the PPF ombudsman will need to notify other people that an application has been made, if he thinks those people may be significantly adversely affected by his determination. That allows those people to make representations as well if they want to. He will notify them of his determination once he has completed his investigations.

Lastly, the regulations include a prescribed time limit for the PPF ombudsman: he must reach a determination within a set time after concluding his investigation, whereas the pension ombudsman has no such time limits. Let me explain some of the details. The regulations set out the timings for people to make a reference and circumstances in which the PPF ombudsman can extend them. The PPF ombudsman can, in most cases, accept a late reference where that is appropriate. He has a duty to investigate a reference duly made to him. Most references will probably be paper based. He may decide to carry out the investigation based on the written representations before him or to hold an oral hearing instead. We have included the right for a party to a reference to request an oral hearing, and the ombudsman must consider such requests and explain in writing if he decides not to grant them. That was included at the request of the Council on Tribunals, which has jurisdiction over procedural rules for tribunals.

The regulations also provide that as part of his investigation the PPF ombudsman may consider evidence that was not available to the PPF board or to the committee of the board that undertook the second-stage internal consideration of the issue.
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The PPF ombudsman can accept, at any time, supplementary statements in respect of a reference. If he decides to hold an oral hearing, he must arrange an appropriate time and place and he must notify all the relevant parties, providing details of where the hearing will be heard, its purpose and the rights of the parties.

At the stage when the PPF ombudsman makes determinations, and gives directions, he must include a statement of the reasons for them, and must notify the referring party, the PPF board and people who were notified earlier on, those whom the ombudsman considered might be significantly adversely affected. Provisions in these regulations give the PPF ombudsman the power to direct the board to take any action, including payment of any compensation that he considers appropriate. The PPF ombudsman may deal together with references that are the same or of similar content. As part of that process, he may also identify one particular person to exemplify the issues arising from a number of references.

The regulations give the PPF ombudsman the powers to make a single determination covering both a reviewable matter and a complaint of maladministration. He must make available for inspection the reference and any document in respect of it. To provide the appropriate balance, the regulations restrict the use of such documents and information. Although the procedures in the two sets of regulations are broadly similar, there are some differences that stem from the different sorts of issues that will arise between maladministration complaints and reviews of PPF board decisions. One example is that as primary legislation requires the Council on Tribunals to have oversight of the procedural rules for reviewable matters, the instrument on reviewable matters includes provisions that relate to the council.

I now come to the draft Pension Protection Fund (PPF Ombudsman) (Amendment) order. When we were making the detailed provisions in the regulations, we realised that we would need to extend the provisions in article 7 of the principal PPF order, which was made in March. That order made provision for the ombudsman’s remuneration, compensation, pension, and allowances for staff. It also provided for delegation of functions to his staff, for power to obtain information and for restrictions on the disclosure of information.

The provisions in the amendment order deal with the restrictions on the disclosure of information. We need to permit further disclosure by the PPF ombudsman during the course of his investigations in specific circumstances. Let me explain what those are. The amendment order enables the ombudsman to disclose information to the Council on Tribunals. The council has the right to attend oral hearings and can sit in on any deliberations straight after an oral hearing. We think that disclosure power appropriate.

The amendment order also provides for people to whom the ombudsman may disclose information if he considers it necessary. That is so that he can carry out his functions effectively. Without the order, he could
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not disclose information to people whom he thinks might be significantly adversely affected by his determination.

Lastly, the amendment order makes provision for disclosure to a person providing an expert opinion or other evidence. It extends the power of disclosure to the PPF board, the person making the reference and a representative.

Between them, the three instruments set out the framework for the PPF ombudsman to fulfil his functions. They ensure that the right people will have access to the PPF ombudsman. They provide for the ombudsman to consider issues that remain unresolved after they have been through the PPF’s two-stage internal review processes, which have already been provided for. Perhaps most importantly, they enable matters to be re-examined independently of the PPF. I am satisfied that the instruments are compatible with the European convention on human rights.

Finally, the regulations have been drawn up in such a way that the PPF ombudsman could be the same person as the pensions ombudsman, or somebody different. My predecessor announced last November that the first PPF ombudsman would be the current pensions ombudsman, David Laverick.

I commend the instruments to the Committee.

2.41 pm

Mr. Nigel Waterson (Eastbourne) (Con): May I, too, say what a pleasure it is to see you in your new role, Mr. Bayley? You are obviously being played in very gently, because I can reassure the Minister that there is nothing politically controversial about the regulations as far as my party is concerned; for the most part, they are fairly sensible and necessary, although I have a few points to raise. Given your vast knowledge of these matters and your background in them, Mr. Bayley, please feel free to chip in if you come up with any thoughts on how to deal with them or with the broader pensions crisis. I am sure that the Government would be very grateful.

The most frustrating thing about being in opposition—apart from having to take public transport everywhere—is that one is constantly making sensible proposals and tabling amendments, only to have the Government of the day reject them out of hand 999 times out of 1,000. We meet on the day when it has become apparent that, in line with what the Opposition, industry and every independent commentator have been saying for a long time, the Government’s £300 million estimate of the PPF’s cost to British industry was absurdly inaccurate and low, and that has now been admitted in the latest PPF figures. So, we were right about that, but the Government would not accept it.

On a much more modest scale, we were right about ombudsmen, or ombudspeople, and the Government accepted our proposals in the Committee that considered the Pensions Bill. We thought that if the Government had their way, we would be facing a superfluity of ombudspeople, with a pensions ombudsman as well as a PPF ombudsman. We think that the fewer ombudsmen we have, the better, so we
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suggested that Mr. David Laverick take on a dual role, although it is now possibly a triple role. We think that that is very sensible—I just hope that he sees it the same way.

I have a few relatively minor points on the three sets of regulations. On the Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations, I commend the fact that one person is likely to be the ombudsman. However, we are not entirely clear—we debated this in Committee, so I will not go over the same ground again—about why there needs to be a two-stage internal process before a complaint is referred to the independent PPF ombudsman. Could the Minister confirm that there will still be a right of recourse to the courts, even after that process?

On the cost of likely complaints, has any projection been made of the likely level of complaints of maladministration? I appreciate that that is difficult. I presume that one could read across, to an extent, the number of maladministration cases brought to ombudsmen or ombudswomen in different categories. However, I suspect that that would be only a loose guide to the level of extra work. Mr. Laverick of course now has a deputy, who also has a dual or triple role. One does not want those gentlemen to be saddled with a case load that is impossible to bear and which leads to long delays in dealing with matters. We had long debates in Committee about what would count as reviewable matters, and you will be relieved to hear, Mr. Bayley, that I shall not take the Committee back to schedule 9 of the Act.

It is made clear in the notes, and I think that the Minister said in his introductory remarks, that there is no requirement to consult on the regulations. However, it seems to me that even if it is not obligatory there may be some sense in consulting. Perhaps he will explain why he concluded that consultation was not necessary. I am delighted that what is described as a “brief informal consultation”—I have written “lunch?” next to those words—took place with the PPF ombudsman. Presumably at the end of his lunch, or whatever it was, he was relatively happy with what was proposed.

To return to the issue of the number of complaints, perhaps the Minister will tie that issue in with his estimates of likely costs.

The Pension Protection Fund (Reference of Reviewable matters to the PPF Ombudsman) Regulations 2005 do not require much in the way of comment. Reviewable matters are fairly clear from schedule 9. In this case, for reasons that the Minister explained, they were subject to formal consultation with the Council on Tribunals and have, according to the notes,

    “been revised in the light of their comments.”

Provision to request an oral hearing is given as an example; the Minister may want to suggest the number of oral hearings that may be called for in the context of the likely overall work load. I wonder if the Minister
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can give any other examples of substantive changes made as a result of the comments of the Council on Tribunals during consultation.

Paragraph 7.4 of the notes makes it clear that as part of another brief, informal consultation the ombudsman himself had comments to make. Again, it would be interesting to know what changes were made.

The Pension Protection Fund (PPF Ombudsman) (Amendment) Order 2005 is in many ways the least controversial. It deals with questions of disclosure, about which we had lengthy debates, which I do not want to repeat, in the Standing Committee on the Bill. Paragraph 7.6 of the explanatory notes makes the point that David Laverick and Charles Gordon hold joint offices. It would be interesting to know whether Ministers think of that as an interim measure, to see how things work out, or whether they view it as a settled arrangement for dealing with all the references to ombudsmen of different descriptions.

My final point, which I hope I do not make churlishly, is that the content of the order should and could have been included in the Bill. Does that mean that there was a mistake, or are the provisions an afterthought? Why are we dealing with them now, when, in the cold light of day and with the benefit of hindsight, it appears more logical for them to be in the Act?

Beyond that I have no criticisms. I should be grateful for the answer to the points that I have raised, either now or later in writing. I shall not be inviting my hon. Friends to vote against the regulations.

2.49 pm

Mr. David Laws (Yeovil) (LD): May I too welcome you to the Chair, Mr. Bayley?

We support the regulations. I have only two brief points to raise with the Minister. Both echo, to an extent, the comments of my noble Friend Lord Oakeshott in the debate on the regulations in another place. Lord Oakeshott first asked Lord Hunt of Kingsheath about the burden of work that was expected to fall on the PPF ombudsman; to a certain extent, that depends on the burden of work that is likely to fall on the PPF itself. Lord Hunt indicated that the PPF had had what he described as a successful launch. I am not sure, for something like the PPF, whether that means few cases or many. Lord Hunt said that by 1 July the PPF had received 71 notices from insolvency practices and that 10 schemes had started an assessment procedure. I assume that successful means a slightly higher volume of business than might have been expected.

Mr. Waterson: Another criterion that may be applied to success is the number of media appearances the PPF has made in its two months of existence. If that were the criterion, it would have done extremely well, although not always for the right reasons.

Mr. Laws: The hon. Gentleman is quite right. However, that involves wider issues such as the extent of publicity and future problems, and I suspect that I would be in trouble with you, Mr. Bayley, if I were to air them now.

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My noble Friend said in the other place that what has happened at the start of the pension protection fund should give us some clues as to the volume of work likely to fall on the ombudsman. Unless I have missed it already, it would be useful to know whether estimates have already been made and whether early indications from the PPF operation show that the estimates are likely to be borne out. In further exchanges in that debate, Lord Hunt made it clear that he was not able to give information on average size and total exposure for the early business that had fallen to the PPF. He said that he might be able to supply the information later; I wonder whether the Minister has had an opportunity to get hold of any information, although I appreciate that it is only a matter of weeks since the issue was raised in another place.

The other issue raised by Lord Oakeshott was the extent of the burden that is likely to fall on the ombudsman. I entirely agree with the hon. Member for Eastbourne (Mr. Waterson) that we do not want a proliferation of ombudsmen or ombudswomen if we can help it, which would result in vast expenditure, but we want to ensure that the ombudsman for that controversial area should be able to operate effectively and take speedy decisions.

We are all aware of the volume of work that falls on other ombudsmen as a result of problems with tax credits and other aspects of Government policy. The existing pensions ombudsman has expressed concern about whether he is likely to have the necessary resources to take on the burden of that work.

I apologise if I have missed it—if so, it reflects my relative lack of experience in this portfolio compared to that of my predecessor—but I am as yet unclear whether the pension protection ombudsman will also take on the role of the financial assistance scheme ombudsman—and, indeed, whether he will cover all three areas. If so, it is bound to have implications for what will doubtless be an extremely controversial area, especially after the ruling in a few months’ time by another ombudsman on the nature of Government policy in this area.

I hope for clarification on those two points.

2.54 pm

Mr. Brian Jenkins (Tamworth) (Lab): It is a pleasure, Mr. Bayley, to serve under your chairmanship.

I ask the Minister for clarification on the powers of the ombudsman. We continually refer to an insolvent employer and assets in a pension scheme, but employers often have more than one scheme. If one scheme is being investigated, it is possible for an unscrupulous employer to create more than one scheme, putting assets into scheme A to the detriment of scheme B. Is it within the ombudsman’s powers to investigate all pension schemes?

2.55 pm

Mr. Timms: First, I welcome the fact that the hon. Gentlemen who represent the two Opposition parties both support the regulations. I shall certainly have a go at answering all the questions that have been asked.

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The hon. Member for Eastbourne asked a question, which came up yesterday as well, about whether the ultimate recourse would be to the courts. The answer to that is yes, if that is needed. Both he and the hon. Member for Yeovil (Mr. Laws) asked about the volume of business that we might expect to go through the ombudsman. It is difficult to be definitive about that at this early stage. However, there are 95,000 occupational pension schemes in the UK, with about 45 million members. The pensions ombudsman’s office received 3,931 enquiries during the last financial year, and resolved almost as many—3,866. The PPF ombudsman, by contrast, will be concerned with some 15,000 occupational schemes with about 10 million members, who will be subject to PPF levies. The base for potential disputes is therefore significantly smaller than is the case with the pensions ombudsman. Whether the volume of business will be also be pro rata is difficult to say at this stage, but if one wanted to hazard a guess, that is probably about as good a stab at it as one could make.

The hon. Member for Eastbourne asked me about the consultation, and I can tell him that there were a couple of meetings with the PPF ombudsman. The process was not quite as he characterised it, or speculated that it might have been and, as I mentioned, some alterations were made as a result. There were also discussions with the Council on Tribunals, and I mentioned some of the points that arose from those. I must pick up the point that he made about the figure in the regulatory impact assessment of £300 million as the expected quantum for the levy. It is perhaps worth quoting from the consultation document on the proposals that the PPF made yesterday for a risk-based levy. It rightly makes the point that the initial indicative estimate of £300 million for the total protection levy for the financial year 2005-06 was based on data as at December 2003. It said:

    “This data related to a range of eligible pension schemes and was based on a set of economic and other assumptions appropriate to that time.”

That calculation needs to be updated in the light of current market conditions, such as changes in interest rates and bond prices and a rise in prices, as well as revised actuarial assumptions concerning longevity. Any increase in the estimate would be a result of such changes. The board of the PPF will undertake modelling work over the summer to obtain a more accurate estimate of the amount that is needed. The board commits itself, via the consultation document published this week, to a four-week consultation period on the revised estimates of the levy quantum that it expects to collect.

I was asked about the deputy ombudsman, for whom the Pensions Act provides. Mr. Charles Gordon has been appointed as deputy ombudsman and deputy PPF ombudsman from April of this year, and that should help to reduce the backlog of the pensions ombudsman’s case load.

The hon. Member for Yeovil asked whether the PPF ombudsman or the pensions ombudsman would also be the FAS ombudsman. We covered that point in the debate yesterday, and I said that discussions were going on with David Laverick about whether that
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would make sense. We would certainly like to go in that direction, if the discussions conclude satisfactorily.

We believe that the costs of the PPF ombudsman will be pretty low. Expenditure by the pensions ombudsman was less than £1.8 million in 2004-05. As I have said, we expect that the volume of business for the PPF ombudsman will be significantly less. Perhaps that could be at least a ballpark figure for the costs involved. There will be no PPF ombudsman levy during 2005-06, and the first such levy will be in 2006-07. We do not have a long-term plan to merge the roles of the pensions ombudsman and the PPF ombudsman. We plan to review that; I do not know what the outcome will be, but I would not rule out the possibility that they will be merged in the future.

In terms of what a successful start amounts to, the volume of business coming to the PPF is so far somewhat less than originally projected. However, once again, it is early days and we do not know what will happen in the months ahead. The PPF has made a successful start. The CBI and others have given a positive welcome to the consultation document on the risk-based levy. The hon. Member for Eastbourne made the point that the chairman of the PPF has made a number of media appearances and he has been able to give a good account of the approach that the fund will take.

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In response to the comments made by my hon. Friend the Member for Tamworth (Mr. Jenkins) about the available powers, the PPF does not have such powers but the pensions regulator does. Where restructuring is required, it will be necessary in future to obtain clearance from the pensions regulator in precisely the kind of situation that my hon. Friend is concerned about. That was addressed in the Pensions Act 2004.

Question put and agreed to.


    That the Committee has considered the draft Pension Protection Fund (Investigation by PPF Ombudsman of Complaints of Maladministration) Regulations 2005.



    That the Committee has considered the draft Pension Protection Fund (Reference of Reviewable Matters to the PPF Ombudsman) Regulations 2005.—[Mr. Timms.]



    That theCommittee has considered the Draft Pension Protection Fund (PPF Ombudsman) (Amendment) Order 2005.—[Mr. Timms.]

Committee rose at four minutes past Three o’clock.


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