The Minister for Pensions Reform (Mr. Mike O'Brien): I beg to move,

I welcome you to the Chair, Mr. Pope. Under your fair and firm leadership, I am sure that we shall make good progress.

I am pleased to bring the regulations before the Committee. They are the first key steps to delivering the full package of reforms to the financial assistance scheme that we announced on 17 December last year. As hon. Members will be aware, in December, following a review by Andrew Young of the Government Actuary’s Department, we were able to announce a final settlement for the 140,000 people who had lost their pensions through no fault of their own. The announcement guaranteed that all qualifying members would receive 90 per cent. of their accrued pensions subject to a cap, instead of 80 per cent. as before, and that their pensions would be paid from a member’s normal retirement age or at 60 if their normal retirement age was earlier, rather than from the age of 65. Certain members would be able to apply for early reduced payments on ill-health grounds. The settlement also extended assistance to some 11,000 members of schemes connected to solvent employers. We were able to do that by taking in the residual assets of those failed schemes and matching them with further Government money. That means that the total FAS benefits stand at £2.9 billion in net present value, which represents an increase of £0.9 billion in net present value.

Our aim is to ensure that payments can be made as quickly as possible, so the measures under discussion form part of a package of regulations and legislative changes that will come before a Committee in the next few months to enable such changes to take place. While some changes are relatively simple to deliver, others are complex. Earlier this year, Opposition Members and other stakeholders agreed with the proposals to deliver the reforms in phases that will help to ensure that changes are made as quickly as possible. The regulations that we are discussing will implement the first two cornerstones of the reforms: payment of the 90 per cent. rate and payment from the normal retirement age, or NRA.

For many current FAS recipients, these changes alone will make FAS assistance broadly comparable to Pension Protection Fund compensation. However, there is still some way to go to deliver the full reform package for all beneficiaries. During the next months, I expect to bring forward further regulations before the House, and by the end of the year we intend to consult on the final package of regulations that will deliver all the changes. In addition, we plan some amendments to primary legislation under the current Pensions Bill. We hope soon to table an amendment to the Bill that will allow us to continue to prevent trustees of FAS qualifying schemes from annuitising. The prohibition currently in place to stop trustees purchasing annuities has effect up to and including 25 June this year. We intend our amendment to have a retrospective effect back to 26 June to plug any gap that would otherwise arise and help to ensure the protection of the assets that will be taken in by the Government.

Mr. Nigel Waterson (Eastbourne) (Con) rose—

Mr. O'Brien: In anticipation of the question that I am about to be asked, I must explain that we cannot just roll over the current provisions because the statutory basis on which they have been created allows us only to do it for nine months, not to roll it over. We can act only by having retrospective legislation that will plug the gap to 26 June.

Mr. Waterson: Despite our growing reputation as the odd couple of the pensions world, that was not the question that I was about to ask the Minister. I want to know whether, despite his exhortations some months ago, there was any evidence that these schemes have continued to indulge in bulk annuitisation, thereby reducing the assets available for the purposes of the new regulations following the Young report.

Mr. O'Brien: I am aware of no evidence suggesting that they have been trying to annuitise. If they tried to do that at the moment, they would be in breach of the regulations and therefore the law, so we do not anticipate any of them doing so.

The difficulty arises after 26 June when the current provisions are no longer in place. At that point there is a lacuna, and we intend to plug that gap by way of retrospective legislation that will be put into effect once the Pensions Bill is in place. That will be retrospective to 26 June. We intend to write to trustees of pensions schemes to make them aware that they will be covered by that retrospective legislation. We will not have a situation whereby people will be unaware of the provision that prevents them from annuitising. I am also keen to ensure that we find a solution for the handful of schemes such as Desmond and Sons, which currently fall outside both FAS and PPF provisions. This is a difficult and complex issue, and I wanted to flag it up. I hope that in due course we will be in a position to deal with it, although I cannot guarantee that at the moment. I have heard representations from several hon. Members who are concerned about the case involving Desmond and Sons, and we are aware of two other such companies.

As of 9 May 2008—a few days ago—over 5,500 beneficiaries are in receipt of FAS payments, and about £18.5 million has already been paid through the FAS scheme. That is a big increase on the same time last year, when only 1,100 people were being paid. The regulations will increase payments further. We have already received information on about 300 members who will be eligible for payment as soon as the regulations come into force. We estimate that some 5,000 people are currently between their normal retirement age and 65 and will benefit over the coming months as information is provided to us. There will be practical benefits for those people.

As well as delivering the 90 per cent. rate from normal retirement age, the regulations make several more detailed changes to support those enhancements. Complementary changes are made to the Pensions Act 2007 to ensure that primary legislation is consistent with the changes to secondary legislation. Those regulations include some amendments to FAS, revaluation rules and transitional protections for certain members affected by the changes. Under current FAS rules, assistance payments are revalued to 65 regardless of the member’s NRA. Under the changes to FAS made by the regulations, FAS payments will now be made from NRA with a lower age limit of 60. That means that payments for some people already receiving FAS will be reassessed, and new entitlements will be paid for the period from the NRA. Bringing payments forward for such members means that the period of revaluation will be shorter. That is important, because in some cases where there is a significant period, such as a number of years, between the NRA and age 65, the reduction of the period of revaluation may mean that ongoing payments will not increase significantly when payments are reassessed from 80 to 90 per cent. They may get their lump sum, but there will be a reduction in the revaluation, and that must be borne in mind. In some extreme cases—we do not know how many, but there will possibly be a small number—although people will get the backdated payment, the ongoing payments might fall. However, any members in that position will receive significant lump sum payments to cover the period from their NRA.

The regulations also include related changes to the revaluations applying to deferred members’ accrued pensions, which, in certain cases, can apply beyond the age of 65. The regulations will make changes to ensure that accrued pensions cannot revalue beyond that age. Those changes might mean that some beneficiaries whose entitlement date does not change may not see a significant increase in their ongoing payments. It is unlikely that members’ existing payments will fall as a result of the changes, but if they do, the regulations will provide transitional protection. We do not think that many people will be affected detrimentally but, just in case, we have included transitional protection so that ongoing assistance payments to those already receiving FAS payments and whose entitlement date does not change will not be reduced. We will provide those safeguards.

The regulations amend payment ages for certain FAS beneficiaries who qualify as a result of death benefits payable by qualifying schemes. Depending on individual pension scheme rules, some spouses, unmarried partners or dependent children of pension scheme members who die before the start of scheme wind-up will qualify for their pensions. When assets are allocated by schemes in wind-up, such members’ pensions will receive a high priority, so we expect that most of those beneficiaries will receive their pensions in full. However, some schemes are so underfunded that such people will receive less than 90 per cent. of the pension that they were expecting. FAS allows some members to qualify for FAS top-up assistance payments. Under current FAS rules, such members, in common with other qualifying members, will receive payments from the age of 65. In order to reflect the revised payment rules applying to other FAS members, such people will be eligible for payment from the date when they become eligible for payment under the qualifying scheme rules or, if later, from 14 May 2004—the date when FAS started. Some recipients might have qualified for payments as dependent children and, under typical pension scheme rules, payments to dependent children are made only until a fixed age—18, or when they leave full-time education. To reflect those arrangements, the regulations specify that assistance payments to any such recipients will end on the date when they would have stopped receiving their pension from their pension scheme.

I should like to offer a word of thanks to Members from both main Opposition parties for their support in facilitating the speedy implementation of the regulations. I am also grateful for their agreement, which also came from many other stakeholders, to a two-week written consultation period—that is not normal, but we wanted to expedite the process. We published a full response to the issues raised during that consultation, and I shall say a few words about two substantive matters. First, some respondents noted that FAS payments will only continue to be made from 14 May 2004—the date when FAS was first announced—even if members reached their normal retirement age before then. We continue to believe that it is right that FAS payments relate only to periods after the date when FAS was first announced. However, we will consider that point further as part of a consultation on draft regulations later in the year.

Secondly, it was noted that the definition of NRA used in the regulations might not reflect members’ expectations of the age at which they would have been able to take some or all of their scheme under the scheme provisions, and they might have elected to take it earlier. We will consider that in the context of achieving a broad comparability with the PPF subject to further consultation on draft regulations later in the year. We will assess how the PPF works and then see whether we can put together regulations that are broadly comparable. Again, I make no commitments. We want to consult on the matter and consider it further. We will have a public consultation and introduce regulations later in the year. We have retained the definition of NRA in the regulations to enable enhanced payments to be delivered as quickly as possible using information already held by the operational unit.

We have built strongly on the foundations provided by the Young review. The announcement that we made in December will ensure that all the 140,000 people who cruelly lost their pension through no fault of their own will receive benefits that are broadly comparable—not exactly equal—with the PPF. We are maintaining our momentum with the regulations, which will deliver key elements of the reforms to the immediate benefit of many members. I hope that Members will feel able to endorse the regulations, which are compatible with the European convention on human rights. It is with great pleasure that I commend them to the Committee.

Mr. Waterson: May I say what a pleasure it is to be serving under your chairmanship, Mr. Pope? I hope that we can deal with the regulations with reasonable expedition. As the Minister said, they are the first instalment of a series of regulations that have been consulted on, some of which are more difficult to enshrine in legislation than others. It is fair to say that the Opposition broadly welcome the regulations as far as they go, and the ones that are envisaged for the future. They underline the fact that the Government have now accepted that they were guilty of maladministration in the case of 140,000 people. That acceptance happened the day that they withdrew their appeal in the High Court in the case being conducted with the pensions actions groups. We are pleased that that has happened and that we are now all talking about the same thing, which is how, in the most effective way, can we get help to the people who need it.

The Minister kindly updated a letter that he wrote to me after a similar Committee discussion in December in which he gave me the number of people receiving payments under FAS. The figures ranged up to 12,000 a year, and at that stage it was 3,540. I am pleased that the Minister has been able to tell us that as of 9 May, it is 5,500. I might probe him a bit more on that.

In the Minister’s letter of 19 December, he said that

As well as knowing the total number of people currently in receipt of FAS payments, it might help the Committee to know how much the Government have been able to streamline and speed up the process of getting payments to people who have legitimate claims. Of the people who qualified under the existing FAS rules, how many are still waiting for their claims to be processed? Again, although the Minister indicated in the letter that he did not think that it was a particularly realistic measure, what is the average time it is taking for people to get their claims in payment?

Another subject that the Minister has touched on in previous debates is the administration of FAS being taken over on a day-to-day basis by the PPF. Perhaps he can give us a brief update on how that is going and the extent to which FAS continues to be an independent organisation. The official Opposition have urged for a long time that it should be rolled into the PPF and administered by the same people.

In an intervention, I touched on the matter of the purchase of bulk annuities. Although the Minister might not know off the top of his head, it would be helpful to know whether, in that interregnum, any trustees of particular schemes continued to buy bulk annuities and, therefore, to dissipate scheme assets, contrary to the recommendations of the Young report.

On the new rules, will the Minister give his calculations of how many new claimants he envisages dealing with once the regulations come into force? Again, that refers back to my earlier question. To what extent is the system geared up to deal with them expeditiously, once the claims come in?

Mr. O'Brien: Just for clarification, I did not catch whether the hon. Gentleman is asking for figures for when these regulations are in place or when the whole range of regulations is in place.

Mr. Waterson: The Minister obviously noticed a slight hesitation on my part. I originally intended to ask him about when the whole package comes in, but it is only fair to ask about this particular package. If he has the figures for when the whole package is brought in, that would be helpful. However, clearly, a new cohort of people will be involved as a result of this package.

I shall touch on taxation, on which there have been some exchanges on the Floor of the House. I want to be absolutely clear what it was that the Secretary of State said the other day. There was, as the Minister knows, the concern of people who were going to receive back-payments for several years, forcing them into a higher tax bracket, so that they could end up paying tax at the top rate, simply because they were receiving the money in a lump sum. According to what I have written down, the Secretary of State said, I think in questions not long ago, that

That is reassuring.

However, a slightly different principle is that those pension victims do not wish to feel that they are going to be penalised, from a tax point of view, for having had to work over the past few years, in many cases beyond their retirement age, because they have not been receiving their pensions. Sadly, the Government are not offering any interest on the payment of arrears, even though some of the money should have been paid a few years ago. One of the arguments of the Pensions Action Group is that those arrears should be treated in the same way as top-slicing relief, which applies to life policies, whereby, as I understand it, the sum received should be divided by the number of years to which the payment relates and then taxed at the marginal rate applying to that amount. I do not know if the Minister is able to tell me whether any detailed progress on those issues has been made, but those are two distinct taxation questions, which, if we are finally to offer complete fairness to those 140,000 people, need to be addressed.

I have a few detailed points on the regulations. I particularly welcome the transitional relief that will ensure that some people who are already receiving FAS payments at a certain level will not have them reduced. That is only fair and appropriate in the circumstances. I welcome the fact that we are waving goodbye, finally, to the wholly bogus notion of the core pension, which was invented when FAS was set up. We are now looking at people’s accrued pension rights—they are getting 90 per cent. of them, subject to the cap. The Minister touched on the normal retirement age—a major bone of contention for the pension victims—the question of indexation and the difficult but important issue of where the employer is still solvent.

Although a tough Chairman might rule me out of order, will the Minister give us at least an update on where we are with the other regulations, the consultation period, the response to the consultation and when we are likely to re-gather in a room not dissimilar to this one to debate them? I am talking particularly about such matters as ill health, which I appreciate raises complicated issues. I know that officials discuss it regularly with the Pensions Action Group.

We know that the end point is meant to be FAS payments reaching a level broadly comparable to those payable by the PPF. If the Minister is minded to give me the details that I have asked for, perhaps he will indicate to what extent any of the changes will be retrospective. I thank him for his kind remarks about our agreement to a foreshortened consultation period. We were happy to do that, because our aim has always been to get help to those who deserve it as quickly as possible.

May we look ahead slightly to some of the issues that remain to be dealt with? I have mentioned ill health, and I gather that the annuity factor applied to FAS needs to be considered. The Minister will not address it in detail now, but he may wish to touch on the time scale for dealing with it.

The Chairman: Order. I hesitate to interrupt the hon. Gentleman, but some of these issues are wider than the regulations before us. I advise the Minister, when he responds, to relate his comments to the regulations.

Mr. Waterson: Thank you for that guidance, Mr. Pope. I was merely seeking to put these matters in context.

Finally, it is important to consider one of the memorandums submitted to the Pensions Bill Committee by the Pensions Action Group. It makes the point that many of its members have had to

It is worth making the point, lest it be lost sight of, that as a result of the Young report, which we thought an excellent piece of work, and the decisions that the Government made on the back of it, the Treasury will have a significant cash-flow benefit from taking over the remaining assets of the affected pension funds. That seems to be an extra reason why the Government should be falling over themselves—their favourite position at the moment, perhaps—to make payments sooner rather than later.

All that the Opposition care about—all that we have ever cared about—is getting help to the people who desperately need it, as quickly as possible. I have no intention of inviting my hon. Friends to divide the Committee on what is, after all, the first step on the Government’s long journey to redeem their moral obligation to the 140,000 pension victims.

Mr. Colin Breed (South-East Cornwall) (LD): I shall not detain the Committee, either. We welcome these proposals as a first step. Like the hon. Member for Eastbourne, I emphasise that speed is of the essence. People are waiting, and life is not easy for many of them. The process needs to be sped up so that the recipients can rely on the moneys coming to them. We hope that the journey that has begun will be completed later this year. We welcome the regulations and the proposals as a whole, and we should give them good speed today.

Richard Burden (Birmingham, Northfield) (Lab): As one of those who has banged down the door of the Minister and his predecessors for a long time, I add my thanks to him and his colleagues for grasping the nettle and making the statement last December that has led us to consider the regulations.

Paragraphs 7.22 and 7.23 of the explanatory memorandum to the regulations state that of the 28 responses to the consultation, many were about not the issues covered by the regulations but matters that will be considered later this year. Given the interest and concern about these matters on the part of the pensioners and deferred pensioners who are affected, will the Minister provide at least a broad indication today about when those further regulations are likely to be considered? I understand that he will not be able to say anything definite, because such things need to be done right. However, he knows that the pension scheme that is particularly relevant to my constituents—Kalamazoo—has a particular issue relating to indexation, which is a matter of detail that is nevertheless important. That has already been the subject of correspondence between us, but it would be helpful if he said something, because, as paragraph 7.23 says, those issues can be considered later, when we are in a position to do so.

Mr. O'Brien: I should like to deal with some of the points that have been raised. First, I thank Committee members for the helpful way in which they have dealt with the debate on the regulations.

On the points raised by the hon. Member for Eastbourne, as I indicated, there are probably some 5,000 new claimants who are between the NRA and the age of 65, so that is the potential number involved. There are about 300 at the moment, but we expect others to start contacting us as soon as they know that the provisions are in place.

In terms of the whole package, obviously 140,000 people will ultimately be affected, but many of those are below pension age and, in some cases, significantly below pension age, so a significant period of time will have to pass before they all come on to the scheme. Of course, by that stage, no doubt some of those who are on the scheme now will have passed on. It is difficult to estimate the total number once all the package is in place, but it will certainly be a considerable number beyond those whom we are paying now, and it will start to increase progressively over the decades to come.

FAS recipients have to pay their taxes, but we do not want them to be unfairly penalised as a consequence of receiving lump sum payments relating to past periods. That is essentially what we are seeking to achieve. We recently confirmed that FAS payments are to be treated as pension income for tax purposes and that any FAS payments would therefore be subject to existing pension income tax rules. FAS payments paid in a lump sum, where the payment relates to previous years, will be taxed in the same way as pension income arrears. The existing rules state that such payments require income tax to be deducted initially through the pay-as-you-earn system in the year that they are received, but that the payments can subsequently be allocated to the years to which the payment relates. That would mean that the tax would be adjusted accordingly, depending on the individual’s personal circumstances in those years, and they would pay the tax that they would have paid in those years.

We have discussed with members of the Pensions Action Group, and a number of other people, how people should be dealt with when they receive their tax payments. They will be advised how and why tax has been deducted for their payments, including payments for the past sums. They will be told what payments have been made in relation to the lump sums and what steps they can take, if they choose to do so, to obtain an adjustment of their tax for previous years. We are continuing to consult on this approach and on the information that we need to give to support members.

The aim is properly to inform those in the FAS system who are receiving the lump sums about their rights so that they can apply to Her Majesty’s Revenue and Customs to see whether they can get the tax treated as if it related to previous years. In such cases, there will be a retrospective compensatory payment from HMRC. However, I want to be clear that the decision is for the FAS recipients to make. That is important, because some people may choose not to do that and that is their right. If, for various tax reasons or other reasons, they do not want to have their tax circumstances looked at over previous years or for the lump sum to be treated as if it were paid over previous years, they will have to look at their personal circumstances in relation to that.

Mr. Waterson: I am grateful to the Minister for that explanation. Before he moves on, I wonder whether he can deal with a slightly separate point, which is those people who have been forced to carry on working beyond their retirement age—beyond even the state retirement age—to make ends meet, because they have not been receiving their pension? Will there be any special treatment for the fact that, of course, their income, if these payments are allocated back over the past few years, will be that much higher as a result of having to work when they had no particular wish to, and they would have had no need to work had they been receiving their pension payment in the usual way?

Mr. O'Brien: The way that we are treating the financial assistance scheme recipients at the moment is not, in a sense, special; they will be treated in the normal way under the pension rules. What we have done in relation to those who are receiving lump sums is to ask HMRC if it will treat such payments as a lump sum payment, even though it has come under statute rather than as a lump sum under the pension rules, which those people ought to have received in previous years. HMRC has agreed to do that.

Regarding a lump sum payment received by someone who has continued to work beyond the age of 65, those people will have to make an application under the normal pension rules. I would have to go back to HMRC to confirm how they would be treated, but I am happy to do that. As far as I understand it, they would be given pretty much the same treatment as someone who received the payment and was under the age of 65. We are just talking about people who start receiving the payment at the age of 65. However, let me double-check that.

The hon. Gentleman and my hon. Friend the Member for Birmingham, Northfield asked about the time scales in relation to some of the various other regulations. This is the first block of regulations that we propose to put in place. We are looking for this first package to be in place in June, with the first payments at 90 per cent. They will be from normal retirement age or 60, rather than 65. There will also be the implementation of some of the revised annuity factors.

By the end of July, we hope to have a second package of regulations coming into force, including ill-health payments, certain solvent scheme payments, ground work for greater PPF involvement—I will come to that in a moment—and the speeding up of payments.

We hope that the first ill-health payments will be made in August, subject to receiving information from the trustees. All current recipients will have been reassessed at 90 per cent. paid from NRA. By the end of the year, we hope to be in a position to consult on further regulations to deliver the full December package, including post-1997 indexation, payment of FAS lump sums and bringing in assets. From April 2009, we hope to have phased in the implementation of the full package. That is the current time scale that we are working on.

Let me return to the issue of PPF involvement. The second package of regulations included measures to facilitate the PPF to be more closely involved in developing the new FAS operations. On Third Reading of the Pensions Bill, I indicated that, subject to the outcome of consultation, we were hopeful that the PPF would be able to take a formal operational role in the extended FAS scheme. The PPF has vast experience in working with schemes in wind-up and taking on scheme assets. I believe that its involvement will be invaluable in helping to put together a very similar process for pension schemes in FAS.

We are hoping that the PPF will have a great deal more involvement and, in due course, that it will have oversight of this operation. There are still some discussions and consultations to go on in relation to that, but there is fairly strong progress. I invite the hon. Members for Eastbourne and for South-East Cornwall to have discussions with the PPF to see what views it is currently taking. I am sure that it would be very candid and positive about how things are going.

I was asked a number of questions in relation to payments being made into annuities. Trustees can make requests to the Department to allow annuitisation to take place. Some trustees had prior commitments—indeed, binding agreements—to annuitise and we must look at those with a great deal of care. Trustees can apply to annuitise up to 25 June, the day before the order accedes. We have received a handful of applications to annuitise; none of those has been given approval so far, but we will look at each of them in due course and see what we can do.

I was also asked whether we have done anything to speed up payments and to educate trustees on the importance of providing information so that we can get on with making the payments. Officials have now held meetings with the majority of trustee representatives of FAS schemes to ensure that they understand what information is required, and to ensure that through their regular e-mail updates they provide guidance to trustees about the current FAS position and our requirements. The guidance on member data provision has been clarified and the information needed from schemes has been simplified. Officials have clarified the specific information that we require in individual cases, to ensure that the same data is provided to us on only one occasion, to speed up the process.

I was also asked about core pensions. FAS assistance is broadly comparable to compensation paid by the PPF. The term core pension was used in the original FAS scheme to indicate that FAS assistance did not include all the benefits that individual schemes have offered. The position changed with the announcement in December. For some people the changes that we are making through these regulations—to pay 90 per cent. of the crude pension from NRA—will put them in a position where the amount of FAS assistance that they receive will be broadly comparable to the PPF.

Mr. Waterson: It may just seem like a bit of terminology, but would it not make sense to stop using the word assistance altogether, and start using the word compensation, in recognition of what is now the reality?

Mr. O'Brien: Calling the outputs of a financial assistance scheme by a different name does not make a lot of sense; it is a financial assistance scheme and assistance is what it provides. I am not sure that there is any great wish to change the phraseology and it is not necessary to do so. That may suit a rhetorical device, but let us stick to helping real people with real problems, rather than trying to score points with words.

I look forward to the further regulations that will be introduced and I welcome the broad support that there has been for these regulations. They present a significant start towards delivering benefits to people who have lost their pensions or part of their pensions. Passage of these draft regulations will allow the FAS operational unit to be in a position to start making enhanced payments to members and survivors next month. That will make a significant, and in many cases, an immediate difference to the lives of those affected by pension losses and I therefore commend the regulations to the House.

Question put and agreed to.

Resolved,

Committee rose at Fourteen minutes past Five o’clock.