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 foremens special pension fund, and the
Southern Railway (South-Eastern and Chatham section) enginemen and
motormens pension fund society.
The Secretary of State is the
designated employer of all but one of the historic fundsthe
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 employers 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
Ministers 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 oneI 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 partiessuch as
the unions in respect of which these people would formally have been
membersbeen 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
members 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
foremens 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.
Resolved,
That
the Committee has considered the draft Railway Pensions (Transfer of
Pension Schemes) Order
2007.
Committee
rose at fourteen minutes to Five
oclock.