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Standing Committee Debates

Draft Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006

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Third Standing Committee on Delegated Legislation

The Committee consisted of the following Members:


Sir John Butterfill

†Alexander, Danny (Inverness, Nairn, Badenoch and Strathspey) (LD)
Cash, Mr. William (Stone) (Con)
†Challen, Colin (Morley and Rothwell) (Lab)
Dorrell, Mr. Stephen (Charnwood) (Con)
†Farrelly, Paul (Newcastle-under-Lyme) (Lab)
†Heppell, Mr. John (Vice-Chamberlain of Her Majesty’s Household)
†Hoyle, Mr. Lindsay (Chorley) (Lab)
†Jackson, Mr. Stewart (Peterborough) (Con)
†Johnson, Ms Diana R. (Kingston upon Hull, North) (Lab)
†Keen, Alan (Feltham and Heston) (Lab/Co-op)
Laws, Mr. David (Yeovil) (LD)
Moffatt, Laura (Crawley) (Lab)
†Plaskitt, Mr. James (Parliamentary Under-Secretary of State for Work and Pensions)
†Raynsford, Mr. Nick (Greenwich and Woolwich) (Lab)
†Simpson, Alan (Nottingham, South) (Lab)
†Waterson, Mr. Nigel (Eastbourne) (Con)
†Watkinson, Angela (Upminster) (Con)
John Benger, Committee Clerk

† attended the Committee

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Wednesday 8 February 2006

[Sir John Butterfill in the Chair]

Draft Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006

2.30 pm

The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): I beg to move,

    That the Committee has considered the draft Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006.

The Chairman: With this it will be convenient to consider the draft Information and Consultation of Employees (Amendment) Regulations 2006.

Mr. Plaskitt: It is a pleasure, as ever, to serve under your chairmanship, Sir John.

We take the view that it is important that employers consult on prospective changes to work-based pension arrangements so that members affected by the change and future scheme members fully understand proposed changes to the scheme, particularly the effect on their future pension. Provision was made in the Pensions Act 2004 to enable these regulations to be made.

The first instrument sets out the detailed consultation requirements and corrects a typographical error in the Financial Assistance Scheme (Internal Review) Regulations 2005.The regulations require larger employers to consult members who are affected, or their representatives, when a significant change is proposed and before a decision is made to either an occupational pension scheme or a personal pension scheme if the employer makes contributions by a direct payment arrangement. The Information and Consultation of Employees Regulations 2004 introduced a similar requirement from April 2005 for organisations with 150 or more employees on other workplace organisational issues. We propose to take the requirement to consult a step further.

We are grateful to the Engineering Employers Federation for making us aware that there is a slight difference between the two sets of regulations. For example, from April 2008 under these regulations an employer with exactly 50 employees would not have to consult on pension changes whereas under the Information and Consultation of Employees Regulations 2004 an employer with 50 employees would. The difference is limited to one employee.

We accept that that is unsatisfactory and will take action to remedy it at the earliest opportunity. We intend to make the necessary amendment in time for it
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to come into force at the same time as these regulations. For the sake of clarity, the regulations that we are discussing today will be in line with the Information and Consultation of Employees Regulations 2004 in respect of the requisite number of employees.

Mr. Nigel Waterson (Eastbourne) (Con): It is a great pleasure to me also to serve under your chairmanship, Sir John.

Will the Minister confirm that provided a sponsoring employer follows the regulations on consulting with employees on proposed changes to a pension scheme, that employer need take absolutely no notice of the results of the consultation and can proceed to make those changes without the agreement or consent of the members of the scheme?

Mr. Plaskitt: Obviously, we anticipate that employers following the regulations will, as most employers already do, carry out a consultation in good faith and show those whom they consulted that they have listened to their views, taken those views on board and, whether or not they have followed them, have at least explained why they reached their decision. The hon. Gentleman is perfectly right that an employer could implement the regulations in full but would not be bound by the outcome of the consultation to do what the consultation recommended. The commitment is to hold the consultation in good faith and have a decent dialogue with those involved so that everyone knows why decisions were reached.

I shall now set out the main effects of the regulations. Regulations 4 and 5 exclude certain employers from the requirement to consult on occupational pension schemes and personal pension schemes respectively. Certain smaller employers will be exempt from the requirement to consult, and that exemption will be phased in to help smaller employers introduce the consultation arrangements. The regulations will achieve that by exempting employers with 150 or fewer employees from April 2006, those with 100 or fewer from April 2007 and those with 50 or fewer from April 2008. We shall amend the figures to ensure complete consistency with the Information and Consultation of Employees Regulations 2004.

Regulation 6 exempts employers from consulting on certain proposed changes to the pension scheme. An employer will not be required to consult on any proposal to make a change to a pension scheme if the members were advised of it before the regulations came into force on 6 April. Also, an employer who has consulted on a proposal to make a change but who decides to make a lesser change following the consultation—in other words, the consultation has been taken on board—will not be required to consult again on the revised decision. For example, if the employer proposes ceasing to make employer contributions and decides as a result of the consultation only to reduce the contributions, he will not be required to consult again.

Regulation 8 lists significant changes about which the employer will be required to consult in respect of an occupational pension scheme. Those changes are
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called the “listed changes” in the regulations and include closing the scheme to new members, stopping future accrual of benefits or rights, removing the employer’s contributions, introducing or increasing member contributions, and, for a defined-benefit scheme, changing the basis of the scheme in full or in part, either so that the method of calculating accruals is changed—for example, from final salary to career average—or in the event that the scheme becomes a money-purchase scheme in full or in part.

Regulation 9 gives the listed changes for personal pension schemes, which will include the employer proposing to stop or reduce his contribution to the scheme or increasing the members’ contributions.

Regulation 12 deals with the specifics of consultation, where consultation arrangements between the employer and his employees already exist and might or might not include pension arrangements. The regulations allow the employer to choose from recognised trade union representatives, elected or appointed information and consultation representatives or any other pre-existing agreement or pension representatives elected under the regulations, where this agreement has been made before the other agreements. The employer may consult affected members directly if he has a pre-existing agreement or a negotiated agreement with his employees to permit that.

Regulation 13 requires an employer that does not already have arrangements in place to consult all or some of the affected members on arranging for the election of pensions representatives under the regulations to represent affected members’ interests or to consult the affected members directly.

Regulation 14 provides that an employer who decides to arrange for the election of pensions representatives must ensure that the election satisfies certain conditions. He must decide the number of representatives to be elected and whether they will represent the interests of all affected members or only affected members of a particular description. He must also decide the term of office for the representatives and the date for the election. Finally, he must ensure that, as far as reasonable and practicable, the election is fair.

Regulation 15 sets out how the employer who is required to consult should conduct that consultation. He must ensure as

    “far as is reasonably practicable, the consultation covers all affected members.”

Employer must also ensure that they and the person consulted work together

    “in a spirit of co-operation”

and that the consultation period is at least 60 days.

Regulation 17 introduces the schedule to the regulations, which gives certain employment rights and protections to employees consulted under the regulations, achieved, in part, by making some amendments to the Employment Rights Act 1996 and the employment tribunals legislation of 1996.

Regulation 19 allows the consultation requirements to be waived or relaxed by the pensions regulator if that is in the interest of scheme members. For example, if delaying a significant change to the 60-day
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consultation period would force an occupational pension scheme into wind-up, the regulator may consider waiving the consultation requirement.

The regulations, as I said earlier, also amend a typographical error that I brought to the attention of the House on 17 November. Regulation 22 corrects that typographical error, which occurs in what is now regulation 5(3) of the Financial Assistance Scheme (Internal Review) Regulations 2005 as amended by the Financial Assistance Scheme (Modifications and Miscellaneous Amendments) Regulations 2005, which came into force on 24 November 2005.

We said at the time that we would correct the error at the earliest opportunity. We have done so, and the correction is contained in the regulations. It restores the original intention to allow the scheme manager to extend the one-month limit within which scheme members may ask for an internal review to 12 months, if, in his opinion, it is reasonable to do so.

The second statutory instrument, the Information and Consultation of Employees (Amendment) regulations 2006, is being introduced as a direct consequence of the consultation of employees regulations. The Information and Consultation of Employees Regulations 2004, known generally as the ICE regulations, were introduced in April 2005 following a landmark agreement between the CBI and the TUC. At present, they apply to organisations that have 150 or more employees, and by April 2008 they will apply to those with 50 or more.

The ICE regulations provide rights for employees to be consulted on a wide range of matters and are designed to allow employers and employees to agree to consult on matters that affect them. The consultation may cover a wide range of matters and could therefore include listed changes to pension schemes. There is therefore a degree of potential overlap between our requirement to consult on proposed changes to pension schemes and the ICE regulations.

During public consultation by the Department for Work and Pensions, last June, a number of consultees expressed concern that employers might be required to consult on listed pension changes under both regimes. To expose an employer to the risk of being penalised under both regimes would of course be unsatisfactory for both employers and employees. The regulations are designed to avoid such a situation and will ensure that an employer does not have to consult under both regimes, provided that he notifies the relevant employees, or employee representatives, in advance. The requirement to notify will arise on each occasion on which a duty to consult arises under the consultation of employees regulations.

There is nothing to prevent an employer from consulting under both regimes, should he chose to do so. That approach is not without precedent. The ICE regulations contain similar provisions, designed to prevent overlap between them and other requirements on employers to consult about business transfers and collective redundancies. That will minimise the overlap between the two regimes, simplifying and ensuring certainty to employers and employees, and I commend it to the Committee.

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The two statutory instruments will ensure that when a proposed change to a work-based pension scheme is made, the employer will have meaningful discussions with their employees or representatives, and that members affected are fully informed about proposed changes to their pension. They also provide that an employer will have to consult only under the pension provisions and not the ICE regulations.

Finally, I am satisfied that the statutory instruments are fully compatible with the European convention on human rights, and I therefore commend them to the Committee.

2.45 pm

Mr. Waterson: I thank the Under-Secretary for taking us through the regulations in such an exhaustive and helpful way. I can dispense briefly with the ICE amendment regulations, which seem to us entirely sensible. Contrary to the Government’s normal habit of heaping ever more regulation and burdens on British business, this is one isolated occasion on which they have recognised in the light of consultation, as I am happy to accept, that it is not sensible to require sponsoring employers to undergo two separate but overlapping sets of consultation, which would have provided a double jeopardy system. We entirely endorse those regulations.

The draft Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) regulations are more substantive. I congratulate the Minister on spotting the typographical error on 17 November 2005. I am sure that if he achieves nothing else in his ministerial career, he can look back on that important moment with satisfaction.

My main point on the regulations was debated extensively in the Committee stage of the Pensions Bill. They provide a requirement to consult employees in a sponsored company pension scheme, but with no obligation on employers to take any notice whatever of the results of such consultation. When I made that point earlier, the Minister was good enough to confirm that that is the correct understanding of the provisions. As long as employers ensure that they have followed the regulations on the form, nature and duration of the consultation, they need have no fear that anything that they then do, even if quite unilaterally, can be challenged in the courts or anywhere else.

As paragraph 2.1 of the explanatory memorandum says, the regulations

    “prohibit the making of a change unless there has been prior consultation by persons who are employers in relation to the scheme”.

Turning that the other way round makes it abundantly clear that the consultation can be a sham with no effect in many cases. That is unfortunate and is again a point that we made during the passage of the Pensions Bill.

In paragraph 3.7.2 of the regulatory impact assessment on the Pensions Act 2004, somebody came up with the immortal sentence:

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    “Doing nothing would mean that there would continue to be employers who would make changes to future pension arrangements without consultation.”

I am not sure which is worse: to make changes to pension arrangements with consultation and then to ignore the results of that consultation, or to make them without consultation. One could argue that employees and their representatives who have been consulted about proposed changes, possibly at great length, and then find that their views are not taken into account, might feel that they are actually worse off than those who are not consulted in the first place.

The RIA goes on exactly to confirm my understanding in bald terms by saying:

    “It is not intended that the consultation requirement should provide members or their representatives with any sort of veto on change.”

So there we have it. Later the RIA states:

    “One of the key issues highlighted in the consultation is to ensure that any new regulations do not hinder business flexibility to make long-term commercial decisions.”

The recent agreement between the Government and the public sector unions will, of course, have exactly that effect. The truth, Sir John, as you will know from your own vast experience, is that many responsible, major employers would like to make precisely the kind of changes we are debating through consultation under these regulations in order to be able to continue to have a pension scheme that is open not only to new members, but even to existing members. With companies like Rentokil, the Co-op and others currently closing their schemes, it is to the credit of many major employers that they are still struggling to preserve their pension schemes for the future.

Many of them will find that when they consult their workers about changes to the schemes—perhaps on extending the retirement age, the benefits payable, the accrual rate or whatever it may be—their employees, who may be in the same sector or the same union as people in the public sector, will ask why should they agree when the same changes have been ruled out altogether for public sector workers. There is a massive issue there. It is not only the overall unfairness perceived by people in the private sector, but the pure practicality of employers trying to persuade their employees in the private sector to agree to changes in their current pension terms.

Mr. Nick Raynsford (Greenwich and Woolwich) (Lab): I am having difficulty following the hon. Gentleman’s argument. In his opening remarks, he made a few slightly facetious comments about regulation and the burden of regulation. He then proceeded to argue that there was something inherently wrong in the implications of the regulations, which require an employer to listen to, but not necessarily to act on the response of employees. What he has just said about pension implications is quite the opposite. Will he please try to reconcile his view that employers should be free of regulatory burdens and free to reach the decision they wish with the view he was taking a moment ago about acting on the view of their employees?

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Mr. Waterson: With all due respect to the right hon. Gentleman, I do not think that there is any need to reconcile those two statements. If one is going to bring in a legal obligation to consult employees what on earth is the point of telling them that they must be consulted and then making it clear that the employer does not have to take a blind bit of notice of what they say? That seems perfectly reconcilable, and I am surprised that the right hon. Gentleman, with his vast experience of these matters, does not agree with me. Perhaps if we move to a Division, he may wish to join us on this side of the argument.

On the numbers of people involved, paragraph 377 of the regulatory impact assessment makes the point that the changes could benefit up to 7.4 million to 7.7 million employees who are currently active members of private sector occupational pension schemes. When was that figure produced? According to the very latest figures revealed in a written answer, more than 60,000 occupational pension schemes with a total membership of more than 1 million people have wound up or begun the process of winding since the Government took office in 1997.So even the numbers of those whom the regulations are designed to help—albeit in a very unsatisfactory way—are shrinking by the day.

Finally, I should like to make a modest point about the phasing in of the regulations, which I think again is a result of the consultation with industry and business. There will be a gradual phasing in up to the figure of 50 employees for smaller companies. That is absolutely right, and we commend that part of the regulations. But we still come back to the central issue which is that the regulations do not really have a point, except to raise the expectations of people in particular pension schemes who are being asked, quite fairly, to express their views on changes proposed in the terms of those schemes by the sponsoring employer. They may well then be told, “Thank you very much, but we are not interested in what you think. We are going to do what we thought of in the first place.”

Of course the Minister is right to say that very responsible employers will already consult and will take note of the consultation. They do not need to be told to consult by regulation; they will do the honourable thing anyway. It is a bit of a mystery to us what difference the regulations will make to anybody anywhere. From that point of view, they seem relatively harmless, and I do not intend to invite my hon. Friends to divide the Committee on either set.

2.55 pm

Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): It is a pleasure to serve under your chairmanship for the first time, Sir John. I congratulate the Under-Secretary on his usual clear and detailed presentation of the regulations, which the Liberal Democrats broadly welcome. I should like to raise a couple of points, which I would be grateful if he addressed when he sums up.

I pick up on the central point made by the hon. Member for Eastbourne (Mr. Waterson) about the extent to which employers are expected to listen to the
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results of the consultation. The regulations make it clear that they are not. The regulatory impact assessment states:

    “It is not intended that the consultation requirement should provide members or their representatives with any sort of veto on change.”

The Under-Secretary said in his opening remarks that employers should conduct the consultations “in good faith”. Regulation 15(2) says that the consultation should be held

    “in a spirit of co-operation”.

Does he take that to mean that employers should approach the consultations in good faith? If it turns out that they do not, will employees who discover evidence of that have any right of redress? If not, as the hon. Member for Eastbourne said, employees in certain schemes might be led to believe that they are simply being asked to go through the motions of consultation rather than engaging in what, in most cases, would be a substantive and meaningful exercise.

Will the Under-Secretary also address the points about members of smaller schemes, in smaller businesses, who will be excluded from the regulations? We appreciate the need not to overburden small businesses with unnecessary regulation, but will the Government encourage them to consult on issues such as those listed as a matter of good human resources practice?

In what circumstances does the Under-Secretary envisage that the regulator may use the power to waive or relax requirements under regulation 19? For example, will an employer be able to make a request of the regulator? If so, will the regulator allow employees or their representatives to make a case against waiving a consultation requirement before a decision is made? Will he also provide more information on the changes to the list of matters that require consultation? Were the changes generally additions to the list? Were any other additions proposed that had some consensus among respondents but were not added to the final draft?

It has also been noted that the consultation rights being put in place are proposed only for changes to schemes affecting active and prospective members, and that those to be consulted are confined to active or prospective members or their representatives under regulation 7(4). Changes affecting subsisting rights—in other words, changes to the rights of existing pensioners—are specifically excluded from that point of the regulation. Will requirements be introduced in due course to allow that group rights of consultation?

I welcome the correction to the Financial Assistance Scheme (Internal Review) Regulations 2005, which were previously discussed in Committee, but I am disappointed that no opportunity has been taken through the change to address a wider point about the financial assistance scheme that was made when the Committee debated those regulations. It related to the entitlement of people in schemes with a retirement age of 65. People aged 62 or under when the financial assistance scheme came into force are not entitled to
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any benefit under it. Will the Minister tell us whether changes to those regulations will be introduced in due course?

3 pm

Angela Watkinson (Upminster) (Con): Regulation 4(1)(a) specifically excludes

    “any employer in relation to a public service pension scheme”.

Can the Under-Secretary expand on that and explain why public service pension schemes are not included in the regulations? My hon. Friend the Member for Eastbourne quoted from the regulatory impact assessment notes, which state:

    “Doing nothing would mean that there would continue to be employers who would make changes to future pension arrangements without consultation.”

I have a particular reason for raising the point, because, as we speak, major changes are being made to the police pension scheme. At present, some police forces have implemented Home Office circular 46/2004 in its most extreme form, others have made no progress at all, and others have taken a middle line. There was certainly no consultation. In any case, anybody who is consulted about a measure that is likely to give them reduced pension entitlement is very unlikely to agree to it, so consultation on such measures is pretty meaningless, although people certainly need to be informed.

The subject is of great interest to public sector workers whose pension schemes can be amended. Will the Under-Secretary explain why public sector pension schemes are separate and are not included in the regulations?

3.1 pm

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