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Public Bill Committee Debates

Draft Railway Pensions (Transfer of Pension Schemes) Order 2007

The Committee consisted of the following Members:

Chairman: Mrs. Joan Humble
Abbott, Ms Diane (Hackney, North and Stoke Newington) (Lab)
Carmichael, Mr. Alistair (Orkney and Shetland) (LD)
Dobson, Frank (Holborn and St. Pancras) (Lab)
Gummer, Mr. John (Suffolk, Coastal) (Con)
Hammond, Stephen (Wimbledon) (Con)
Harris, Mr. Tom (Parliamentary Under-Secretary of State for Transport)
Holloway, Mr. Adam (Gravesham) (Con)
Hurd, Mr. Nick (Ruislip-Northwood) (Con)
Keeble, Ms Sally (Northampton, North) (Lab)
McGovern, Mr. Jim (Dundee, West) (Lab)
Meacher, Mr. Michael (Oldham, West and Royton) (Lab)
Michael, Alun (Cardiff, South and Penarth) (Lab/Co-op)
Rosindell, Andrew (Romford) (Con)
Rowen, Paul (Rochdale) (LD)
Roy, Mr. Frank (Lord Commissioner of Her Majesty's Treasury)
Slaughter, Mr. Andy (Ealing, Acton and Shepherd's Bush) (Lab)
Winnick, Mr. David (Walsall, North) (Lab)
Sara Howe, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Tuesday 26 June 2007

[Mrs. Joan Humble in the Chair]

Draft Railway Pensions (Transfer of Pension Schemes) Order 2007

4.30 pm
The Parliamentary Under-Secretary of State for Transport (Mr. Tom Harris): I beg to move,
That the Committee has considered the Draft Railway Pensions (Transfer of Pension Schemes) Order 2007.
May I say at the outset, Mrs. Humble, that it is a pleasure to welcome you to the Chair of what is my first statutory instrument Committee as a Minister?
The order transfers the members’ assets and liabilities of six, historic British Rail pensions funds to the 1994 pensioners section of the railways pension scheme. When members of those historic funds are also members of the BR 1974 pension fund, their membership, and the liability of the 1974 fund to make payments to them, will also be transferred. When discretionary benefits are given to members of the BR historic funds, those benefits will be continued. Once the transfer has been completed, the historic funds will be wound up.
The BR historic funds are: the London and North Western Railway provident society for providing pensions for the widows and orphans of members of the salaried staff, the Great Western Railway supplemental pensions reserve fund, the Great Western Railway salaried staff widows and orphans pension society, the Great Northern Railway superannuation fund, the Great Western Railway inspectors’ and foremen’s special pension fund, and the Southern Railway (South-Eastern and Chatham section) enginemen and motormen’s pension fund society.
The Secretary of State is the designated employer of all but one of the historic funds—the exception being the South-Eastern and Chatham section fund, for whom Stagecoach South Western Trains Ltd is the employer by virtue of its having the last active member in the society. The Secretary of State is also the designated employer of the 1994 pensioners section.
That section is comprised mainly of all the pensioners, together with the deferred pensioners at the time of privatisation, and it benefits from a Crown guarantee. When the section was set up, a special reserve fund was established within it, which comprised the employer’s proportion of the surplus carried forward from the 1993 valuation of the BR pension fund that related to those members.
If a surplus arises in relation to the section, 40 per cent. of it is distributed to the scheme members and 60 per cent. is directed to the reserve fund. The reserve fund is used to make up any future shortfall in pension liabilities of the section. When the section is eventually wound up, any remaining funds will be applied at the discretion of the Secretary of State.
At present, the reserve fund is sufficient to meet any deficit in the section, even after the transfer of liabilities that the order will effect. If, in future, the reserve fund were insufficient to meet the liabilities of the section, the Secretary of State would have to meet any shortfall under the guarantee issued by him. The transfer involves extending the guarantee already given to the section to cover the liabilities of the historic funds. It should not increase the exposure of the Secretary of State except in relation to the South-Eastern and Chatham fund, as the other historic funds already benefit from a Crown guarantee.
The Secretary of State is expected to make a top-up of approximately £180,000 in relation to the Great Western Railway salaried staff widows and orphans pension society, and Stagecoach South Western Trains Ltd is making a payment of some £44,000 in respect of the South-Eastern and Chatham fund. Those transfers will then comply with the Railway Pensions (Protection and Designation of Schemes) Order 1994.
The main purpose of the proposed transfer is to achieve more efficient administration of the pension arrangements for railway pensioners, and a saving in administration costs for the taxpayer. When pension schemes become very mature, and the number of pensioners and the liabilities related to their benefits become very small, it is normal practice to simplify the administration either by amalgamation or buy-out. That ensures that the running costs of the scheme are proportionate and do not erode the benefits. The transfer of the 1974 fund is being made for ease of administration; it will not affect the benefits enjoyed by pensioners. The transfers have the support of the trustees of all the funds concerned.
In the case of the BR historic funds, a further aim of the merger is to achieve benefits of scale that are currently unavailable to them. The 1994 pensioners section is a much larger scheme and can therefore adopt an investment strategy that aims to achieve a better return. It can also invest on terms that take advantage of its considerable economies of scale, which in turn could result in improved benefits for members.
From the point of view of the 1994 pensioners section members, the transfer makes little difference. The transferred liabilities represent some 1 per cent. of the current section liabilities. The transferring liabilities are more than covered by the transferring assets.
In the case of the South-Eastern and Chatham fund, their members will have greater security as they do not currently benefit from a Government guarantee. For members of the BR historic funds, the proportional cost of administering the 1994 pensioners section will be much lower. There is also an improved prospect of enhanced benefits because the 1994 pensioners section is not restricted to a cautious investment strategy and its rules permit a distribution of 40 per cent. of the surplus among members.
Two of the BR historic funds currently have a significant surplus of assets over liabilities. There is little likelihood of any benefit improvements to the members of those funds if they remain as separate funds, but the transfer will provide for those members to benefit from a one-off 4 per cent. increase in their benefits.
Mr. David Winnick (Walsall, North) (Lab): Can my hon. Friend tell me the average pension payment that is now being made?
Mr. Harris: I do not have that figure to hand. I am sure that it will emerge in due course. If it does not, I shall be happy to write to my hon. Friend about it.
All the schemes’ trustees are content that no prejudice to the members results from the transfer. As I have said, all the trustees support the transfer of the funds concerned. I commend the order to the Committee.
4.36 pm
Stephen Hammond (Wimbledon) (Con): I do not intend to detain the Committee long. I am grateful to the Minister for his extensive explanation because it actually answered one or the two issues that I had intended to raise.
None the less, I seek clarification and reassurance on four points. I accept the Minister’s main proposition that the order is to achieve better administration, but I want to be sure about some of the detail of transferring. Article 3(b) of the order states that
“all of the pension rights of the transferring members under the transferor scheme shall be transferred so as to become pension rights under the transferee scheme.”
If the benefits accorded to pensioners under any one of the six schemes transferring in is greater than the 1994 scheme, can the Minister confirm that the upgraded benefits will still be paid? Can he confirm that there is sufficient surplus in the contingency fund to cover that or, if there is not, that the Secretary of State will guarantee it? Obviously, it would be inappropriate for the pensioners of the transferring funds to lose out on entitlement as a result of the transfer.
Equally, will the Minister reassure me that, if the benefits accorded to pensioners under any one of the transferring schemes are less than those accorded to pensioners under the 1994 scheme, the benefits will be upgraded so that they are in line with the 1994 scheme? If so, will that also be paid out of the contingency fund or will the benefit remain as under the original scheme so that any benefit that might accord to the transferring pension members is simply a result of deficiencies? Are there associated problems with having two different classifications of benefit within one scheme, if there is a difference in benefit?
The Minister said that the total amount of assets is greater than the total amount of liabilities. That is true. The explanatory notes state that two of the
“funds currently have a surplus of assets over liabilities”,
and that the Secretary of State
“has agreed that these members should benefit from a one-off 4 per cent. increase in their benefits”.
The two schemes are the Great Western railway supplemental pensions scheme and the Great Western railway inspectors scheme. They have a surplus of assets over liability. What will be the effect of the one-off 4 per cent. increase in members’ benefits? Will it put them ahead of status or does it mean greater benefits than the pensioners received under the 1994 scheme?
If those two schemes have a surplus of assets over liability and there is a total of assets over liability, will the liabilities in the other four schemes be greater than the assets? If so, how will the Government rectify that?
Article 4(2) states that
“the liability of any employer participating in a transferor scheme...shall be transferred to the employer participating in the transferee scheme.”
Am I therefore right in assuming from what the Minister said that only the Government and Stagecoach are the employers and that there is no liability on Network Rail? What are the obligations on the employers of the transferee schemes? I should be grateful to receive clarification from the hon. Gentleman on those points.
4.40 pm
Mr. Alistair Carmichael (Orkney and Shetland) (LD): I welcome you to the chair, Mrs. Humble, and the Minister to his first statutory instrument. I did not realise that this was a first for him. I wish him every joy and hope that his future statutory instruments will be as happy and painless as this one—I doubt it though.
The Minister has told us that the measures have the support of the trustees, who presumably act in accordance with their fiduciary duties under the Trustee Investments Act 1961. That is a substantial reassurance to us. Can he provide me further reassurance with regard to the consultation of those who are members or beneficiaries of the schemes that are to be transferred? Have they and any other interested parties—such as the unions in respect of which these people would formally have been members—been made aware of the provisions of the order? Has he received any representations that would indicate unease or unhappiness with regard to the order?
4.41 pm
Mr. Harris: I am grateful to the hon. Members for Wimbledon and for Orkney and Shetland for their contributions. The winding up of these historic funds will be viewed with sadness by many people who have a great affinity with the fine history of the railway industry. The titles of those historic schemes are excellent examples of the importance members placed on providing for the future for themselves and their loved ones. However, it became apparent that unless something was done, administering such small schemes would cost more than the funds available in them. Transferring them into 1994 pensioners section is good practice in relation to very mature pension schemes. We do not consider that any member of either the historic funds or the 1994 pensioners section will be disadvantaged. I will try to address the points that have been raised by the hon. Member for Wimbledon.
First, however, the hon. Member for Orkney and Shetland asked about consultation. The negotiations took place between the actuaries, trustees and ourselves representing the Secretary of State as the designated employer. I do not have to hand details of any individual member’s consultations. We have to trust the word of the actuaries and the trustees that the measure is supported and is in the best interests of the members of the individual schemes. Incidentally, we are talking about relatively small numbers. For example, there is one existing member of the Great Western Railway inspectors’ and foremen’s special pension fund. There are 37 members of the London and North Western Railway provident society for providing pensions for widows and orphans of the salaried staff.
The largest of the six historic schemes, the Great Western Railway supplemental pensions reserve fund, has more than 2,000 members and, with £45.5million, the largest assets. Other schemes have as little as £6,350.
The hon. Member for Orkney and Shetland asked whether I had received any expressions of unease about the transfer. I can tell him that I have not received any negative expressions.
The hon. Member for Wimbledon asked whether the Department for Transport and Stagecoach were the only employers concerned. That is the case. The Secretary of State is a designated employer and Stagecoach is the only private sector employer involved in the transfer. The hon. Gentleman asked whether any funds had liabilities greater than the assets. Employers must transfer over all pension funds fully funded, even the ones that are not in surplus. Therefore, any liability will be met before the transfer.
The hon. Gentleman asked about the effect of the 4 per cent. increase. I am not able to offer details on that at the moment, but when I can I will write to him. However, the increase is one of the conditions that has been agreed between the trustees and the Government.
The hon. Gentleman asked if benefits are greater than those already provided for under the 1994 pensioners section and if the benefits would be preserved. The answer is yes. He asked if benefits would be upgraded if lower. The benefits will not be upgraded unless trustees exercise discretion to do so in their own way. With schemes that have a deficit, a top-up payment will be made by the Secretary of State, so the Stagecoach South Western Trains members transferred fully funded.
I hope that I have answered most of the outstanding questions. If there are any other issues that have not been fully addressed, I will be more than happy to address them in writing. However, in the absence of any further inquiries, I would like to say that there is an improved prospect of enhanced benefits for members, who will now automatically benefit from a share of any future surplus in the 1994 pensioners section.
Mr. Winnick: Will I be written to about my question?
Mr. Harris: I can confirm that I will write to my hon. Friend giving him a detailed answer to his earlier question. I commend the order to the Committee.
Question put and agreed to.
That the Committee has considered the draft Railway Pensions (Transfer of Pension Schemes) Order 2007.
Committee rose at fourteen minutes to Five o’clock.

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Prepared 27 June 2007