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Alan Simpson (Nottingham, South) (Lab):
The Minister places great store by the initial comments of the Young review, but is he aware that in a similar review of unclaimed, orphan assets in banks and building societies in Ireland, it was originally predicted that after the searches had been fully conducted no more than €3 million was likely to be found, but in the
event €196 million was found—60 times more than claimed? At this stage, is not it a bit premature to make a presumption that would close the door on the possibility of finding funds in the UK that diverged on a similar scale? Why is the Minister so keen to block off that route, which could get a lot of us off the hook?
Mr. O'Brien: With respect, I think that my hon. Friend is over-optimistic as a result of what happened in Ireland. Andrew Young and his colleagues are looking at a number of schemes and we are aware, broadly, of the amount in them. The question is whether we can more easily access those resources, get the trustees, under their legal terms, to bring the resources together and bulk them up, and then whether we can use them better to purchase annuities. That is the approach Andrew Young suggested. He is not optimistic about the view that we can identify vast other sums that would be easily available, so although I appreciate the situation in Ireland, the Young review does not suggest that it is anything like that in the UK.
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Stewart Hosie (Dundee, East) (SNP): The Minister has talked about sweating assets and bulking up the pot in the first instance, but when the Department for Work and Pensions does the calculation for FAS liability at the moment, it takes the expected pension, multiplies it by 80 per cent.—for the time being—and then reduces it by the notional annuity already produced by transferred lump sums that may have gone to individual scheme members. In the calculations that I have seen—I have an example here from the DWP—the rate of return on that lump sum is quite extraordinary, unsurprisingly leading to a zero FAS liability. Even if the annuities or transferred sums were aggregated, I find it almost impossible to believe that that total capital asset could be sweated any more than it is being at the moment. My instinct is that the end result, in terms of FAS liability, would be the same and the pension going to any failed scheme member would be the same. How does the Minister think that the Government, or another body, could sweat more out of those assets than is currently being done?
Mr. O'Brien: I suggest that the hon. Gentleman read the report by Andrew Young. It bears reading through. It is complex, and involves a lot of issues, but the key point that it raises is that if one were able to bring together the assets in the various failed pension schemes, that would give one a greater purchasing power in the market. If one were able to put those assets into another annuity—a single annuity or a small number of annuities—that would increase the purchasing power of the amount of resources.
I am dealing with a report by the deputy Government Actuary, who knows his business. To some extent, we have to proceed on an evidence basis and the evidence that Andrew Young came up with, after talking to a large number of people in the industry, shows that it is possible to do more than we thought. I do not share the hon. Gentleman’s pessimism, but if he asking me whether I can guarantee that all this can be done, I have to say that all I am relying on at the moment is that the Young review has done a considerable amount of work—it seems a very good job to me—and I hope that we will be able to get a genuine response from that.
Miss Anne Begg (Aberdeen, South) (Lab): Has my hon. and learned Friend had time to assess whether, if it is possible to roll up those pension funds that have not yet annuitised, primary legislation will be required—particularly for those funds that are pretty close to annuitising—to prevent them from doing that at the moment, to provide a chance to see whether we can get a better deal for pensioners through the proposals in the Andrew Young report?
Mr. O'Brien: My hon. Friend raises an interesting and important point. As I have already indicated, we will suggest to the trustees of pension funds, who have their own legal obligation and will need to take their own legal advice, that they need to look carefully at this matter. If it is the case that bulking up the various funds would enable us better to bulk purchase annuities, that would on the face of it appear to be better for the members, and the trustees have to take that into consideration. In the end, we are going to have to rely on trustees to look at the facts, examine their fiduciary duty to their members and ensure that they make the right judgment. The important thing is that the Bill moves to Royal Assent, so that we can increase the level of initial payments, meaning that more people will benefit immediately. Those are tangible commitments by the taxpayer that will make a real difference to people’s lives.
Amendment No. 24 is about the FAS being at Pension Protection Fund levels. The amendment does not disguise extra public spending as a lifeboat fund or pretend that unclaimed assets could get close to covering the costs. I admire its honesty, while questioning its effect. We estimate that moving from 80 per cent. on the FAS to PPF levels just like that would cost the taxpayer £2.7 billion, or £640 million, net present value. The cost would be low at first, but then rise rapidly as more people retired.
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): Will the Minister give way?
Mr. O'Brien: I would like to make progress, because I have given way quite generously and I am conscious of the time. Other people want to speak and it is a time-limited debate, but I will give way to the hon. Gentleman before I draw my remarks to a close.
We believe that the current FAS benefits of 80 per cent. are helpful, but that does not mean that we think that 80 per cent. is the most that people should get. That is precisely why we asked the assets review how we could get closer to a figure of 90 per cent. through better use of the funds held by qualifying schemes. Amendment No. 24 fails to take account of an essential difference between FAS and PPF payments. If FAS payments had to be equal to PPF payments, without account being taken of the pensions paid by schemes—that is what would happen under the amendment—some members would receive considerably more than PPF levels of benefit, because a member would receive 90 per cent. of their benefit from the FAS in addition to the pension that their scheme was able to pay them. I do not think that that was the intention of those who drafted the amendment; it is just poorly drafted, and I invite the House not to support it.
Let me turn to amendments Nos. 18 to 21 on the proposal to set up a pensions unclaimed assets recovery agency. As I have already said, the assets review exposes the Tory myth that additional spending commitments can easily be funded through unclaimed assets. That is confirmation of the powerful arguments made by Lord Turnbull, the Association of British Insurers and my right hon. Friend the Member for Birkenhead (Mr. Field), who warned the Opposition repeatedly about their opportunism, and the lack of understanding unpinning the proposal. We are already exploring the potential of assets in failed pension schemes, and we have said that we will use them to supplement the FAS payments, if we can do so without incurring an unacceptable risk to the taxpayer.
The Opposition have raised false expectations about the assets that there might be, and setting up an agency of the kind proposed is likely to prove enormously expensive. The cost of setting it up could conceivably be more than the value of the assets; we just do not know. [Interruption.] Well, as far as I can see, it would probably cost more than the sum paid out, so we are probably looking at another £20 million or £10 million. The hon. Member for Epsom and Ewell (Chris Grayling) chunters away on the Front Bench, but I ask him: what will it cost to set up the agency?
Chris Grayling: May I ask the Minister whether he is proud of the fact that his Department has presided over the setting up of a FAS that costs more to administer than it has paid out in pension payments so far? Is that not an absolute scandal and a disgrace, and is it not a sign of the failings of the Government?
Mr. O'Brien: I notice that rather than answer my question, the hon. Gentleman tried to bluster and attack. He can make his points about the FAS, and I will happily deal with them, but he is making another uncosted spending commitment. He does not know the cost of what he wants to do. He is making all sorts of commitments in order to score points. The Conservative party is the sort of party that makes such commitments, but basically it does not know what it is doing. Setting up such an agency is likely to prove enormously expensive, and amendments Nos. 18 to 21 are redundant as a result of the Young review. It is not sensible to try to guess what level of support could be funded. If we can bulk up assets and bulk-buy annuities, we are likely to be able to provide more support; we do not need to go down the route of setting up the pensions unclaimed assets recovery agency, which would be a rather strange body.
Danny Alexander: The Minister is on the important subject of costs, and he makes the point that it would cost £640 million, net present value, to provide PPF-level benefits to people who have an entitlement under the FAS. According to written answers received by my noble Friend Lord Oakeshott in the House of Lords, that would amount to £25 million a year for the next 10 years. To the victims of the occupational pension schemes that collapsed in so awful a manner, that seems a relatively small amount of money to pay to ensure that they get a fair and just level of benefit.
Mr. O'Brien:
Obviously, the payments will be made over 60 years, and there will be a sort of bell curve; the amount paid out will start off quite low, and then get
pretty big. The hon. Gentleman should recognise that although there will be some smaller early payments, payments will increase as people start to retire. We will be a good way into those 60 years before we reach the point on that bell curve at which the payment levels come down. When he talks about £20 million a year over 10 years, he is being somewhat optimistic. We are looking at an amount just in excess of that over the next two or three years, but then the figure will start to rise.
My hon. Friend the Member for Cannock Chase (Dr. Wright) and others on the Public Administration Committee are concerned about the fact that schemes with solvent employers are excluded from the FAS. That is a complex subject, so we asked those carrying out the Young review to come to a considered view on whether some schemes of that type should be helped by the Government, rather than the employer who made the pension promise. When we developed the FAS, we tried to ensure that taxpayers’ money will not fund assistance where there is an employer who could or should take some responsibility, including in cases where there is a moral, if not a legal, obligation. However, we are aware that there may be some schemes that are currently not covered in which members face a comparable loss to others in similar circumstances.
I cannot provide an assurance that all schemes, irrespective of whether the employer is solvent, will qualify for the FAS. The review indicates that not enough information is available on the circumstances of schemes with solvent employers, and it has begun a data collection exercise that will inform its conclusions later this year. In the meantime, it would not be right to absolve employers or trustees from their responsibilities to members. Some of the schemes are still winding up, and scheme members are hoping to bring pressure to bear on employers, so that they make contributions to the fund. There would be little incentive for trustees rigorously to pursue such cases, or for employers to respond sympathetically, if the Government indicated that all the members were likely to be helped under the FAS.
In a number of cases involving FAS qualifying schemes, employers have gone beyond their legal obligations as a result of trustee persistence. Employers are extremely unlikely to be willing to reach into their pockets if the Government step into the breach in every case, regardless of the circumstances. I do not want to pre-empt the review and make any open-ended commitments involving taxpayers’ money. We provisionally estimate that the cost of including solvent employer schemes would be more than £400 million, but frankly, we do not really know. We are trying to get more information. I understand the concerns expressed by my hon. Friend the Member for Cannock Chase, but I will not sign a blank cheque for solvent employer schemes—as their number still needs to be established, we do not know the cost to the taxpayer, and there is still the possibility of employers being expected to make a contribution. That said, as he knows, a review is under way, and it will report later this year—in November, we hope. Also, there will be a further Bill on pensions, and that will enable such issues to be raised. Given the lack of information, given that we can gain further information by the end of this year, and given that there may be further opportunities to consider the matter later, I ask him to consider not pressing his amendment.
I shall move on as speedily as I can. We understand the thinking behind amendment No. 22, and that is why we commissioned the work of the assets review. In a statement this morning, I said that trustees should consider their approach to annuitisation, given the commitment that the Government have made, and at the start of my contribution I set out the further commitment that we made today. At this stage, it would not be desirable to compel trustees to a particular course of action, but they have heard what I said, and I ask them to take it into account. When they make annuitisation decisions, they will need to consider their legal advice, and how best they can serve their members.
Amendment No. 23 is on account payments. We may disagree about how to fund assistance, or about the level of assistance that should be paid, but we all agree that affected members should receive payments from the FAS as soon as possible. Amendment No. 23 would result in the opposite: it would threaten the timely delivery of assistance to qualifying members. That is my concern. To make the amendment work, hundreds of pension scheme administrators would have to administer what would, to them, be unfamiliar processes. They would expect to be paid for doing so, and that would further deplete the value of scheme assets available to members. That could lead to higher top-up payments, the cost of which would ultimately be borne by the taxpayer. Schemes that had already wound up and had no trustees would still have to rely on the FAS to make payments. To apply for loans, schemes must assess whether they could afford to make on-account payments, which would increase administrative costs and complicate administrative processes for them and for the FAS, further delaying payments and the completion of wind-ups. Ros Altmann herself has said that operating a scheme in line with the amendments would not be straightforward. On this occasion I am pleased to say that I wholeheartedly agree with Dr. Altmann’s prognosis.
The expertise for delivering FAS payments lies with the FAS operational unit. Where data are received from trustees, FAS payments are assessed within about a month. The amendment would mean even greater costs and fewer payments. Lords amendment No. 15 would transfer certain functions to the Pension Protection Fund. I have visited the FAS operational unit and discussed how payments are made. It told me that it is ready to make payments as soon as information is received. I accept the concerns that some hon. Members have expressed, but I am not in a position to make an announcement about the issue.
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Mr. Waterson: I appreciate that the report is hot off the press. Is it not inherent in the Young report that it would make sense to fold the administration of the FAS into the PPF itself?
Mr. O'Brien:
I hear what the hon. Gentleman says, but if he spoke to the PPF members he would find that they would want an awful lot of reassurance before that was done. The pensions industry, too, would require a great deal of reassurance. If the Lords amendment were accepted, it would create a lot of concern in the City. We can see how the Conservative party is operating in relation to the issue if it is prepared to make decisions without consultation or without ensuring that people
who have to deal with those problems understand the full implications. If the measure were to be introduced, that would have to be done after appropriate consultation.
I have spoken at length, and this is a short debate, so I shall conclude. As all parties acknowledge, this is a difficult area and it is important we get it right, both for members who want certainty and security and for taxpayers, many of whom do not have defined benefit occupational pension schemes. The Young review remains our best option for reconciling the priorities of taxpayers and of members of those pension schemes. While a lifeboat fund is superficially attractive, it does not come with the necessary funding. Indeed, it is a sunken lifeboat after Andrew Young’s review. We need to see if we can find a better way of dealing with the issue, and the Andrew Young report shows that there are such ways. It would be irresponsible and cruel of any Government to make promises not knowing where the money will come from to pay for them, so I will not do so.
The interim findings of the Young review are an excellent start. The further commitment that the Government have made today provides additional support for pensioners and shows that we are doing practical things to help them. The Opposition are making wild gestures without looking properly at funding. The Bill must be enacted without the Lords amendments because it will enable us to pay more in initial payments to more people immediately. We have already pledged to raise assistance to 80 per cent., to raise the cap and to get rid of the de minimis requirement. Pensioners are waiting for the money, and we are prepared to pay it to them. We have made a further commitment today. I want our commitments to be delivered, and I want the Young report to be delivered in November so that we have a better opportunity to deliver for pensioners. The Government have ensured that they are addressing those issues seriously, in marked contrast to the way in which the Opposition have behaved throughout.
Madam Deputy Speaker: I must correct the record in relation to the amendments in which privilege is involved. Privilege is involved in Lords amendments Nos. 1, 12 to 14, 16 to 18, 23, 24 and 73, but not Lords amendment No. 27 as previously stated.
Mr. Waterson: I welcome the Minister to our debates on the Bill. It might have helped if he had read the Young report and our amendments properly, but he is new to the job, so I shall try to help him. He spoke for nearly 40 minutes, and we have a total of only three hours to debate all the groups of amendments, so I shall try to do better than him. The next group of amendments is important to many people, including the Equal Opportunities Commission, and it would be a great shame if it was not possible to debate it, particularly as we have just heard a statement about priorities for women. It would show a very odd sense of priorities if the Government did not want to have time to debate the second group of amendments.
Mr. Mike O'Brien: May I protest a little? I accepted a lot of interventions to ensure that Members’ questions were answered.
Mr. Waterson: I take the Minister’s point, and he was characteristically generous in accepting interventions. Let us hope that his colleagues are sufficiently restrained so that we can get on to the rest of the business.
I should like to distance myself from Lords amendment No. 24, which was tabled by the Liberal Democrats in the other place. It is the only amendment that proposes to use extra taxpayers’ money for the problem. May I right the wrong in the Minister’s speech, as that is certainly not the intention in our package of amendments, which stand or fall together? It is an obvious analogy to make, but he said that the lifeboat was holed and was sinking. However, it is the pension victims who are already drowning—the Minister should remember that.
May I pay tribute to their Lordships for giving their support on a genuinely cross-party basis to the amendments, which collectively provide a lifeboat fund to help the victims? We will vote for them as a package. I am sure that I do not need to make the case for helping the 125,000 people who have lost their pensions, as the Minister conceded, through no fault of their own. They have made their own case through their courage, persistence and dignity. We have helped them to make that case in debate after debate and Question Time after Question Time.
In recent weeks, we have heard a great deal about the new Prime Minister’s “moral compass”. He has spoken endlessly of change, and promised an end to the culture of spin. Yet the reality has been more of the same. Over the past few days, the Government have been frantically spinning in the media that the amendments are flawed in some way, that the unclaimed assets do not exist and so on. The Prime Minister likes to claim, as the Minister did today, that as things stand under the FAS, the victims will receive 80 per cent. of their pensions. Indeed, he told GMTV recently:
“Every single one of the 125,000 will get back at least 80 per cent. of their pension.”
We all know that that is wholly inaccurate and misleading. The new Secretary of State is clearly a fast learner. In his first appearance at the Dispatch Box, he confused “expected pension” with the Government-created concept of “core pension”. He was at it again in The Independent today. He said:
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