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I hear what my right hon. Friend says about what will happen in April. The pensions regulator is independent, and it is important that the City and everyone else sees it as independent and as not susceptible to Government pressure or Government intervention in day-to-day decisions on issues such as this. As he said, there are concerns about what will happen after April, which pensioners have voiced directly to me. I will pass his comments to the regulator and ensure that it is aware of his concern.
Mr. Howarth: I am grateful to my hon. and learned Friend for that assurance. I recognise that the relationship between him and the pensions regulator is complicated, but people will be assured that the concern that has been expressed today will be passed on to the regulator.
As I said, I welcome the support that has come from across the industry for the actions of the pensions regulator. When trustees find themselves in difficulty, they need to know that they are not alone. The regulator provides not only key information and support, but the capacity to intervene. Last week, in the Committee considering the Pensions Bill, I acknowledged the vital role played by the independent pensions regulator by strengthening its powers to install trustees, where that is in members interests. That was an important step, but let me tell my right hon. Friend and other colleagues who are concerned about what is happening that it is a first step. I have asked officials at the Department for Work and Pensions to look urgently at what more can be done to maintain confidence and to signal to the City our concern about such models of pensions investment.
I want to consider the views of employers and pensions experts as we examine the options. I am ready to listen, but I also want to signal our willingness to act and to intervene, if necessary, by giving the regulator the legislative ability to deal with such issues.
Mr. Howarth: Again, I am grateful to my hon. and learned Friend for that assurance. Will he confirm that trade unions will be included in the definition of experts? He will readily acknowledge that they have a wealth of experience on, and knowledge of, the intricacies of pension funds.
Mr. O'Brien: I certainly recognise, and have valued, the contributions made by the TUC and a number of trade unions to the development of pensions policy. Clearly, particular trade unions have a deep vested interested in this issue
Mr. O'Brien: A legitimate vested interest. However, there is also a wider interest, because the pension schemes of members working in other companies and organisations could also be affected by the development of a new model.
I want to ensure that the regulator has the right powers to protect peoples pensions to ensure that
confidence in pensions will be strengthened. Traditionally, and rightly, a pension has been backed by the covenant of a sponsoring employer, or by capital resources: that means an employer or capital standing behind the pension. In some new models emerging in the buy-out market, the security of an employer is taken away, but adequate capital has not been put in place to replace the certainty and security that the employer brings. That creates an asymmetry of riska business model where the provider benefits if all goes well, but scheme members or the PPF pick up the bill if things go badly.
It would not be fair to members, or to all those schemes that pay the PPF levy, if we allowed new business models to develop in which a provider assembled significant financial risk without having adequate structures in place to manage that risk. Traditionally, if trustees are confident in the employer, they can decide on a funding and investment strategy that reflects the employers ability to underpin the risks undertaken. The employer will benefit from lower contributions if the risk pays off, but will pay more if the investments underperform. Under the regulatory regime with respect to insurance companies, they must back their investment, longevity and other risks with capital, so the capital or the employer must stand behind the pension, which provides important security for the members.
For those regulated by the FSA, the capital requirements are clear. Any new approaches to pension scheme risk management should have similar security. There should be capital or other supporting structures underpinning the risks. Where providers are based offshoreoutside the UK regulatory regimethat causes concern. If it happens, we need further reassurance that appropriate controls are in place.
Mr. Howarth: My hon. and learned Friend has made a point about the need for capital standing behind the scheme to mitigate risks such as longevity or anticipated longevity, but is not that the problemthe loophole that is not covered by regulatory arrangements in schemes such as Pension Corporations?
Mr. O'Brien: Of course, Pension Corporation will have its own view on that. As I have said, because there are some quite difficult legal and other issues, I do not want to comment too directly. I want to focus more on the model, and concerns could arise with the model of companies buying, perhaps, an under-priced company with a pension scheme, using either valuation or a bid from an insurance scheme to try to get a grip on the liabilities of the pension scheme and taking the surplus from it. That is essentially to treat the pension scheme merely as a commodity from which to seek a profit.
We need to be careful about our approach, because there are circumstances in which buy-outs are right and work, but there are others where they do not. However, it is important to tell trustees that they need to look carefully at the security of member benefits and involve the regulator early if they have concerns.
I am concerned that the intrinsic risks of the new business models present a real downside. Suppose that investments fail to perform as expected. If the link between the scheme and the employer has been severed without adequate capital being put in place to back the
risks of the scheme, there might be no backstop to ensure that benefits will be paid as promised. In a worst-case scenario, the provider could be driven into insolvency and the scheme could enter the PPF with a funding deficit. That would mean scheme members receiving PPF compensation that was lower than the pensions that they had expected, the PPF having to cope with new costs and PPF levy payersthat is, continuing pension schemeshaving to pay higher bills.
We cannot avoid every risk, but that does not mean that we should take reckless risks with members benefits, or with the finances of the PPF. We need to look critically at new business models to ensure that we have the tools to manage risks proportionately. We should all recognise the potential of confidence and the dividend of stability in the pensions industry. However, I also want to emphasise that we recognise the importance of innovation in financial services. It is important that I say that.
I welcome the innovation that has flowered in the pensions industry in the past couple of yearsgreater competition, novel product development and, indeed, some of the buy-outs. There are clear benefits in some cases. Innovation can be good, but not all innovation is good, and supporting innovation generally should not mean condoning proposals that could be harmful to pension members interests. For example, in another area of pensions policy, I had to judge yesterday whether it was the right time to allow new providers such as Brighton Rock to compete with the PPF by exempting schemes that have bought its products from paying PPF levies. I took the view strongly that this is not the right time to do that. For the moment, I believe that we need stability in the pensions market to strengthen confidence.
My right hon. Friend asked how we can ensure that regulation will be effective in relation to the new models. Paul Thorntons 2007 review of pensions institutions concluded that current arrangements are working well and made recommendations aimed at strengthening the system, including the relationship between the pensions regulator and the FSA. I am glad that both organisations have taken those recommendations seriously, but I also recognise that changing market environments prompt us to keep the boundary between their remits under review. We are considering whether change is required to clarify which body is responsible for regulating providers in the pension buy-out market.
I welcome innovation and recognise that we need to ensure that regulation keeps pace with a changing market. We are dealing with a fast-changing market, with new models in it. We will need to ensure that key risks are managed effectively by watching what is happening in the market, identifying the risks and being prepared to act early and quickly to demonstrate that the Government are prepared to deal with problems. I am willing to consult formally, and to bring amendments before Parliament to increase the regulators powers, if that is the best way forward.
I have already demonstrated that willingness through the changes that I have made to the Pensions Bill as it has progressed through the House, increasing the abilities of the regulator to appoint trustees, as in the case raised by my right hon. Friend.
It may be appropriate to strengthen the regulators anti-avoidance powers further, and I am prepared to consider that. Such powers need to be focused on
dealing with a particular mischief. Where they are broad because they have to deal with a constantly adapting innovative sector, they need to be targeted by guidance. When the pensions regulator was created, there was concern in the City, but the regulator has done an excellent job of reassuring the City while tackling particular problems.
I have no wish to give the regulator unconstrained powers to reopen old wounds, but I cannot allow the development of business models that raise serious concerns. I know that well-intentioned legislation can bring undesirable consequences if it is not thought through effectively, and we recognise the importance of deregulation, which is why we set up a rolling deregulatory review to strip out unnecessary legislative requirements and costs, but I am keen to continue to discuss the issues to see whether, in the light of changing developments in the relevant area of the market, we need to take further steps in the coming weeks and months.
I want to hear the views of the financial services industry and the pensions industry, trustees, trade unions, employers and business. Our shared aim should be to ensure that pension promises are kept and pensioners are secure in retirement, and that we are in a position to build renewed confidence in UK pensions, for which all hon. Members have a responsibility, so as to protect, deepen and advance the circumstances in which pensioners today and in futureand indeed those who have already retiredcan look forward with a degree of confidence and security.
Mr. Keith Simpson (Mid-Norfolk) (Con): It is a pleasure to serve under your chairmanship, Mr. Marshall, for the second time this morning. We move seamlessly from Kosovo to Norfolk. I welcome this opportunity to speak in this short debate, which I am holding against the background of Norfolk primary care trusts proposals, published in July 2007, for intermediate care services and, more recently, the Darzi review, which is proposing further reconfiguration of health services, which when firmed up will obviously have an impact on Norfolk and my constituents in Mid-Norfolk.
As in other parts of the country, health care in Norfolk depends very heavily on the work of our health professionalsdoctors, nurses, specialists and carerswho do more than just the statutory hours that they are expected to work for the money that they earn. Between February and June last year, Norfolk PCT conducted a review, as I have said, of intermediate care services. There was quite widespread public consultation, which produced considerable local opposition to what was seen as a cost-cutting exercise at a time when Norfolk, along with many other PCTs, was heavily in debt, and to the closure and possible reduction of local community hospitals.
On 16 May last year, I initiated a half-hour debate in Westminster Hall on the future of St. Michaels hospital in Aylsham in my constituency. On 24 July, Norfolk PCT approved a set of proposals that provided for 178 beds spread over five community hospitals in Norwich, Dearham, Kelling, north Walsham and Swaffham. Unfortunately, St. Michaels hospital was down to close. On 18 October, Norfolks health overview and scrutiny committee effectively put that closure on hold for four months, because it was concerned about the alternative care plans proposed for Aylsham and the surrounding area. I declare an interest in that I live not in Aylsham but eight miles away in Reepham, so for me and my family what happens there is more than just academic.
Since the closure was put on hold, Norfolk PCT and the Aylsham group, which brings together local representatives, and on which I sit, have been in negotiations. I want to lay before the Minister a series of points, which I suspect that he will say are not his direct responsibility to a certain extent, owing to devolving responsibilities down to PCTs on many such matters. Nevertheless, he should have taken a view, not least because of the resource implications and the fact that we might very well be overtaken by the Darzi review.
The PCT is concerned, because St. Michaels represents the only community hospital serving in the old Broadland PCT area, but has said that an analysis of the usage of the hospital established that only 24 beds on average were used by patients registered with Aylsham practices. It has been considering the most appropriate way in which to sustain the outpatient and therapy services provided at the hospital and to commission beds in the prospective nursing home planned for the site. It points out the requirement for sufficient beds to meet the needs of Aylsham people and that the consideration is for five beds at the nursing home. However, that figure is for guidance rather than prescription.
I consulted with local doctors who believe that the number of bedsfiveis far too small, not only for meeting the current criteria but for meeting the likely population growth in the area over the next five to 10 years based on Government statistics, not those provided locally. That last point is important. The re-development of the site has, from the outset, involved a close partnership between Norfolk PCT and the Aylsham care trust. At the beginning of December 2007, the PCTs provider services made available to Aylsham care trust the spatial requirements for the therapy and outpatient services that could be provided within a community facility, which was to be built for Aylsham care trust with the development of the overall site. Negotiations are now going on between the Aylsham community and Norfolk PCT.
I bring that to the Ministers attention because my constituency is a microcosm of problems affecting health care throughout Norfolk. Pressures are greater or smaller, and I am not suggesting that Norfolk necessarily has tougher health care challenges than other parts of the country. It has specific health care challengesnot least an ageing population. There is also the sheer size of the area covered. One of the biggest challenges facing the health authorities, as in education, is presented by the distances involved in people getting to some form of health care or in merely transporting them around. It is obviously a different matter for urban areas.
Norfolk PCT has proposed the Aylsham health campus project. I do not think that that would have come about if the scrutiny committee had not deferred the matter for consideration for up to four monthsit is fascinating to see what a little pressure does in getting PCTs to introduce proposals. Its objectives are to
examine the health needs of the population of Aylsham ... consider the ways in which a health campus at Aylsham could meet those needs ... consider whether a health facility in addition to the Aylsham Care Trust Community Centre is needed or viable ...consider how co-ordination can be achieved between the Community Centre, health services and the residential home
consider the appropriateness of a well-ness facility.
I have not yet managed to find out what a well-ness facility means. Is there such a thing as an unwell-ness facility? If there is, I think that I, and many other MPs, would meet every criterion. The final objective is to
consider the appropriateness of facilities for GP training and other GP activities not necessarily required to be provided at the two practices
At the moment, therefore, the decision has been made to close St. Michaels hospital, and many of its supporting facilities, which will affect the health care of an area larger than Aylsham. A number of beds at the hospital have been used by people from as far away as the north Norfolk coast and Norwich, which demonstrates that there is a bed shortage throughout Norfolk, although I accept fully that health services must be flexible. Nevertheless, negotiations are ongoing between the PCT and the local community. As I said, I do not think that, if the scrutiny committee had deferred the decision, we would have reached that stage.
What do we, the local community, want for the future of health care in Aylsham and the surrounding area? That forms part of the negotiations. The Aylsham
group believes that the hospital should remain open, but has expressed a willingness to compromise to the extent that
replacement services should be in place and proved to be effective before the hospital is closed.
The PCT has now been asked to keep the hospital open for five years for the following reasons. If at all possible, I would like the support of the Minister, at least indirectly. The reasons are that the percentage of elderly population in the area is about 30 per cent., which is 10 per cent. above the Norfolk average, which itself has a fairly high percentage nationally, although it cannot beat places such as Bournemouth and Eastbourne, and that we must consider the further projected population growth. Current discussions, as part of the local development framework, indicate additional housing for the town of Aylsham and the surrounding area. I know that from talking to the local authorities.
We have no way of knowing the success of staff recruitment for the nursing home, or indeed for the home care teams. The Minister knows that the combination of looking for savings in health budgets, and the medical assessment that the best way of dealing with many people who are ill or have had an accident is by looking after them in their home, will mean the redeployment of staff, and challenges in recruiting and retaining staff in areas where, given the geography and road communications, many of them will spend a great deal of their time on the road.
Mr. Christopher Fraser (South-West Norfolk) (Con): My hon. Friend makes a valid point about the diversity of Norfolk; it is a wide area, the use of health care facilities is diverse, and on occasions, people are far away from them. I draw his attention to a story in The Daily Telegraph today, which reports that Norfolk and Norwich university hospital NHS trust, and the Queen Elizabeth hospital in Kings Lynn, have been criticised for
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