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26 Feb 2008 : Column 223WH—continued

I look forward to debating the European Union with the hon. Member for Stone (Mr. Cash) again this afternoon. In his unique way, he argued on these big issues through the aspect of EU legal personality. I shall respond to his comments if time allows, but I put it on record again, as the hon. Member for Mid-Norfolk (Mr. Simpson) did,
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that the Government and the major Opposition parties support and recognise Kosovo’s declaration of independence. My right hon. Friend the Foreign Secretary set that out in more detail in a written statement put before the House on 19 February, giving the rationale and reasoning behind the decision. I understand that 29 countries have recognised Kosovo’s independence, and the number continues to grow almost daily.

Although a good speech has been drafted for me by well-informed civil servants, who do a fantastic job in implementing Ministers’ decisions—I respond to a point made by the hon. Member for Shrewsbury and Atcham—I hope that the House would prefer me to respond to the specific points raised during the debate rather than read a well-crafted speech. It is for hon. Members to decide whether my comments formulate themselves into a well-crafted argument.

The hon. Members for Uxbridge and for Shrewsbury and Atcham asked about the Government’s attitude to Serbia more generally. I say clearly to the House, and therefore more widely—to those in Serbia who listen, and particularly to the Government in Serbia—that the United Kingdom is determined to have strong bilateral and multilateral relations, based on issues of common concern, where Serbia continues to look westwards and joins a family of European nations that respect democracy, human rights, the rule of law and free, open and transparent economic markets—the norms that the European Union increasingly expects member states to follow.

In that regard, if Serbia so wishes, we would certainly support its destiny in Europe, in time—as, of course, we would in respect of Kosovo. Indeed, the hon. Member for Uxbridge was fair enough to say so. We have made it clear that we are willing to sign a political agreement with Serbia, but the violence that we have seen over the past couple of days aimed at diplomatic missions does nothing to help create a conducive environment to enable that to happen. Serbia is damaging her standing across the globe by allowing such events to happen on the streets of her capital. To respond to the question asked by the hon. Member for Mid-Norfolk, we have made it clear to the Serbian Government that those actions are utterly unacceptable. We condemn them without reservation, and we demand that they are not repeated. The Serbian Government have given assurances on these matters; they are determined to ensure that they are not repeated.

In response to further points raised by the hon. Member for Mid-Norfolk, the international community is not interested in partition. We will put in place the necessary investment of people and diplomatic effort to ensure that that does not happen. We are committed, as he and his party’s Front-Bench team are, to a multi-ethnic and democratic Kosovo. Indeed, I have read over the past couple of days that the courts in northern Kosovo are being protected and supported by Portuguese forces, to help ensure that that is happening. It is incumbent on all in positions of responsibility in Kosovo, Serbia and the wider Balkan region, to realise the consequences of their comments. Indeed, the hon. Gentleman raised a particular example that, at best, was unfortunate; reckless is another way of interpreting what he said.

United Nations Security Council resolution 1244. It left Kosovo within Serbia on an interim basis, pending the outcome of a process to determine Kosovo’s final status. The nature of that outcome is not constrained in
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any way by that resolution. The status process was duly taken forward by the UN special envoy Ahtisaari. It resulted in his proposals for supervised independence. References to the territorial integrity of the Federal Republic of Yugoslavia in resolution 1244 are related to that interim stage, but not to Kosovo’s final status.

On the question of EU unity and EU action, on 18 February the General Affairs and External Relations Council set out a clear EU response to developments in Kosovo. It agreed to a range of political and practical assistance to Kosovo, including the deployment of an EU special representative to Kosovo, and the deployment of a European security and defence policy mission to assist with reform of policing and the justice sector. It will also provide support for Kosovo’s political and economic development, in line with the EU perspective for the region. That, the largest EU deployment of its kind, was agreed unanimously. It is not for the European Union or the United Nations to recognise nation states bilaterally. It is for other sovereign nations to do so, which is why the United Kingdom, with 20 other nations thus far, recognises Kosovo’s independence.

The question was posed whether that sets a precedent. I understand the issue clearly. The hon. Member for Uxbridge, fairly and in a measured way, outlined his concerns. I do not wish to disappoint him, but we clearly argued the case at the UN and elsewhere. In the case of Kosovo, given its tragic recent history, there is a range of circumstances that are not replicated anywhere else in the world.

Security Council resolution 1244 has provided for a political process to determine Kosovo’s final status. That process has taken place and it resulted in the proposal for supervised independence. That, of course, was not agreed to unanimously because Russia indicated throughout the process that it would not allow a UN process to be concluded. It has now been agreed that the Ahtisaari proposals should be the bedrock for the principles and specifics of what needs to be delivered on the ground. They propose extensive powers for local government, and they guarantee thresholds of representation in Parliament, a police force, a judiciary and a civil service that reflect Kosovo’s ethnic diversity. The House will be aware that the majority of Serbs in Kosovo do not live in that northern region, but 60 per cent. live in the south.

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Marconi Pension Fund

12.30 pm

Mr. George Howarth (Knowsley, North and Sefton, East) (Lab): What a pleasure it is to have the opportunity to raise this important issue in the debate today. There are concerns about the so-called defined benefit market and pension buy-outs. The Marconi/Telent pension fund involves an unusual approach by a Guernsey-based company, Pension Corporation, to buy out the whole company to achieve control of the pension fund. Why is that a potential problem? First, it allows for 93 per cent. of the buy-out to be funded on a conventional insurance buy-out basis.

Mr. Edward O'Hara (Knowsley, South) (Lab): Before my hon. Friend moves on, it is worth noting that the value of the company is £200 million and the value of the pension fund is £3 billion. That shows the scale of the fund.

Mr. Howarth: Typically, my hon. Friend makes a strong point, and it raises a question: why is Pension Corporation interested in Marconi/Telent?

As I say, 93 per cent. of the buy-out is to be funded on a conventional insurance buy-out basis, which means that Pension Corporation cannot touch the funds for 12 years. However, questions arise as to how the remaining 7 per cent. of the buy-out is to be funded. If, as many people think will be the case, this shortfall is funded with riskier developments, what would happen if those riskier developments did not pay off? We have seen many examples of that happening and the people who end up suffering are the pension holders.

Similarly, if Pension Corporation exceeds 105 per cent. of the buy-out sum, the corporation has access to the escrow. For the benefit of clarity, I should say that an escrow is an arrangement whereby the employer pays funds into an account, which passes to the pension scheme under certain conditions, but is otherwise returned to the employer. Again, that raises the question of who owns the pension. Is it the pensioners, or is it the company seeking its assets?

Also, what happens after the first 12 years have passed? In the lifetime of a pension fund, that is not a huge amount of time for a well-managed fund. However, any losses during such a period—due to poor investments, for example—can seriously undermine the fund. Again, we have seen examples of that and they have always been to the detriment of the pension holders.

In my view, Pension Corporation’s business model represents a serious potential conflict of interest. In November 2007, the pensions regulator determinations panel noted that the potential conflict of interest in this model was so compelling that it was not clear that it could be resolved. The chief executive of Pension Corporation, Mr. Edmund Truell, has rebutted that and argued that the company’s model is a “hedge” against the “risk” of longevity. By that, I take it that he is referring to the fact that people are living longer and the actuarial arrangements in the fund do not cover that fully. However, to date no successful hedge of this kind has ever been operated. It would be exciting if the claim were true and we would avoid dampening innovation, but it is such a bold claim that it feels like the 21st century financial equivalent of a perpetual motion machine. If it does not work, how can pensioners’ risks be mitigated?

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Mr. O'Hara: As my hon. Friend is quoting Mr. Truell, is he aware of another quotation from him? In Mr. Truell’s own words, when Pension Corporation took over Threshers:

Does that sound rather ominous to my hon. Friend?

Mr. Howarth: My hon. Friend has again raised a very pertinent point, and I will cover that issue towards the end of my speech.

So strong are the concerns about the approach of Pension Corporation that a strong case is being put for an urgent review to clarify the regulatory framework for such developments and to identify any outstanding regulatory requirements, including the responsibilities of the Financial Services Authority and the pensions regulator. I have reason to believe that the TUC, among others, shares this concern.

It is also important that we should seek to close the so-called wind-up lump sum legal loophole, which is a very technical matter but one that has profound implications, particularly for low-paid and part-time workers, who are often from vulnerable groups or are women who are already very much at risk.

In addition, there is strong concern about the legal and regulatory issues that govern the relationships between members of schemes that are bought out and the insurance companies that eventually take over responsibility for them. My own trade union, Unite, which has many of the remaining 2,000 workers at Marconi within its membership, has made it clear that it has great concerns about what Pension Corporation is up to. A national officer of Unite, Peter Skyte, put it succinctly:

I have complete sympathy with that viewpoint.

Mr. Lindsay Hoyle (Chorley) (Lab): I thank my hon. Friend for securing the debate, because it is pertinent to the people who are represented here. I can see four MPs here—one from Coventry, two from Liverpool and me, the MP for Chorley—who have had or who still have in their constituency factories for Telent/Plessis/Marconi, whichever name people want to use.

This issue involves the pension fund. Fine words are not good enough; we need belt-and-braces legal protection to be put in place. I hope my hon. Friend agrees that that is what we need the Minister to reassure us about today.

Mr. Howarth: It is significant that my hon. Friends the Members for Chorley (Mr. Hoyle), for Knowsley, South (Mr. O’Hara) and for Coventry, South (Mr. Cunningham) are here, because we all have large numbers of Marconi pensioners among our constituents. I know that my hon. Friend the Member for Chorley has some current employees of the company among his, and I think that that is also the case for my hon. Friend the Member for Coventry, South. This issue is vital to a number of areas right across the country.

I want to conclude by putting some questions to my hon. and learned Friend the Minister. First, will he
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commit to a review of the regulatory regime governing schemes such as that of Pension Corporation? If so, will he take into account the following issues, which I believe should be covered by such a review?

The first issue is governance—that is, protecting the role of trustees, including member-nominated trustees, and ensuring that they have clear information and are involved early on and at every step in the process. It is essential that trustees are in a position to ask difficult questions and to get good advice.

Any such review also needs to take into account transparency. It goes without saying that without transparency there is no way that pension holders and those paying into a pension fund can know whether their investment is being properly managed.

There is also the issue of risks and protections for members’ benefits—an enormous concern in undertakings of this kind, which are unproven and untested. Being positive, such undertakings could be called innovative, but there are also a number of risks involved and in those circumstances the protections against those risks are hugely important.

There is the issue of breaking the link between the employer and the pension scheme of its employees. Again, that is a large step to take and one that I believe should be considered by such a review of the regulatory regime.

Of course, there are the potential regulatory gaps. It is important that those gaps are properly reviewed and it is also important that, where such gaps exist, they are closed, so that pensions are much better protected.

Finally, specifically on Marconi, will my hon. and learned Friend put pressure on the pensions regulator to extend the remit of the independent trustees imposed on Pension Corporation, whose term is due to expire in April? That would maintain the protection available to pension holders, which the regulator saw as absolutely necessary as recently as last November.

This is an enormously important issue for those whose pensions will be affected by such schemes. I know that my hon. and learned Friend has concerns and that he took careful note of the issues that were raised in this regard when the Pensions Bill was considered in Committee. I hope that he can give us some reassurance that our fears will be dealt with adequately within the relevant regulatory arrangements.

12.40 pm

The Minister for Pensions Reform (Mr. Mike O'Brien): It is a great pleasure to respond to this important debate under your chairmanship, Mr. Marshall.

My right hon. Friend the Member for Knowsley, North and Sefton, East (Mr. Howarth) and other colleagues have raised an important issue in relation to Telent/Marconi. To lose one’s pension is to suffer an injustice. Through the Pension Protection Fund and the pensions regulator, we have sought to renew confidence in pensions and we have resolved to maintain and deepen that confidence by being vigilant in the face of new challenges. It is incumbent on the Government to guard against any injustice, and my right hon. Friend has played his part by prompting this debate and raising concerns that an injustice might be done.

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Let me set out why my right hon. Friend is right to say that this is an important issue, before explaining what I see as the emerging risks and setting out what I intend to do.

Mr. Hoyle: I know that my hon. and learned Friend will deal with all the issues, but may I say that we are talking about past pensioners, current employees and future employees? We must also look after future employees, although I do not know whether my hon. and learned Friend can discuss that, too.

Mr. O'Brien: My hon. Friend is entirely right that we are talking about all three. However, we are talking about not just the pensioners at Telent, but how the financial services industry has decided to deal with pensions. What concerns me is that that seems to involve treating pensions as just another commodity.

Mr. O'Hara: To put it simply, does the Minister agree that instead of treating a pension as a trust to protect and grow for the benefit of the pensioners, the financial markets see it as an instrument for making profit?

Mr. O'Brien: That is exactly the concern. Until now, companies have broadly regarded pensions as a trust or, in the case of an insurance product, something that is backed by capital, and there has been a relationship with an employer or insurance-based capital backing. Pension Corporation has some very reputable people on its board and is backed by significant resources, and my concern is not so much that it is up to no good. The model that is being used raises concerns, however, about the future and about the possibility that pensions will be treated as just another commodity, with losses and gains being arrived at in a way that could put people at greater risk than they should be.

As I said, the Government want to establish confidence in pensions, and we also want to watch out for emerging risks in the financial services industry. I understand that Pension Corporation may still be discussing the Telent case with the regulator, so I will not comment too much on it. As I said, however, my concern is that the model that we are looking at could be used by less reliable parties than those running Pension Corporation, some of whom might not be UK based.

Mention has been made of the fact that Pension Corporation is based in the Channel Islands, although there is some regulatory control here. Organisations dealing in pensions could, however, be based elsewhere, in which case we would want substantial reassurance about their capacity to deal properly with pensions. The issue of people treating pensions as just another commodity—as something with which they can wheel and deal—is one that we need to approach with some caution.

The Telent case has alerted us to the scope for others to use such a business model, which may pose risks not only to the members of pension schemes, but to the PPF. I therefore welcome the support that came from across the pensions industry when the regulator installed independent trustees in the Telent scheme. Those trustees play a critical role in protecting members, and we must continue to support that important control and the regulator’s ability to put independent trustees in place.

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