House of Commons
|Session 2007 - 08|
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General Committee Debates
The Committee consisted of the following Members:
Mark Hutton, Committee Clerk
attended the Committee
Public Bill Committee
Tuesday 19 February 2008
[Sir Nicholas Winterton in the Chair]
The Minister for Pensions Reform (Mr. Mike O'Brien): I beg to move amendment No. 189, in schedule 8, page 87, line 33, at end insert
Financial assistance scheme
The Chairman: With this it will be convenient to discuss Government new clause 20Financial assistance scheme.
Mr. O'Brien: The new clause is one of the few changes that we need to make to primary legislation to enable us to deliver the package of changes to the financial assistance scheme that we announced in December. We will seek to make further changes as the Bill progresses, but we want to introduce most of the provisions in relation to the FAS arrangements in regulations. However, the provision before us needs to be made in primary legislation.
The change made by the new clause is relatively small, but it is significant. It changes the definition of who can be a qualifying member of the FAS. The current definition of a qualifying member in section 286 of the Pensions Act 2004 covers only those members who are not going to receive all their scheme benefits or who are unlikely to do so because their scheme was insufficiently funded.
Previously, when a scheme completed winding up and assets were allocated according to the relevant priority order, annuities for full scheme benefits could be purchased for some members except by the most poorly funded schemes. The FAS was set up to deal with those members lower down the priority order or in very poorly funded schemes who were not going to receive their benefits in full. Last December, following the report of Andrew Youngs excellent review, which looked at the best use of the assets remaining in schemes that have yet to wind up, we announced that we would
The new clause will enable us to specify in regulations the different categories of members who can be paid by the FAS. There are three main categories: first, those for whom an annuity or a deferred annuity has been purchased and who will receive an FAS top-up to 90 per cent. of their accrued pension; secondly, those to whom the FAS will make payments to the value of 90 per cent. of their accrued pension; and thirdly, those who would have received their full benefits from their scheme, but whose assets are being taken over.
It is important to recognise that some people would have received the full benefit but that their scheme assets are being taken over. We intend that those members will continue to receive their full scheme benefitsit is important to emphasise thatbut in the form of FAS payments rather than through an annuity. Those payments will, of course, be very different from current FAS payments. For example, they will not be subject to the cap that applies to the latter. That change will enable us to introduce, later this year, the final round of regulations to deliver all the announced improvements to the FAS. That package will provide for the Government to take over the remaining assets in affected schemes and to pay all members of those schemes payments at least broadly comparable to PPF compensation.
As Members are aware, in the meantime, we are introducing as many changes as we can through regulations under existing powers. Subject to parliamentary time being available, we plan to have regulations in place by the end of May in order to make payments at 90 per cent. from normal retirement age, subject to a lower age limit of 60. By the summer recess, we plan to deliver regulations to allow early ill-health payment for those over 60. Those changes will make significant differences to the vast majority of those who have lost all or much of their pensions.
Mr. Nigel Waterson (Eastbourne) (Con): Just to be clear, at this early stage, the 90 per cent. that the Minister is now talking about is 90 per cent. not of the so-called core pension, but of the pension to which those people would have been entitled had they not ended up in the FAS. Is that correct?
Mr. O'Brien: It is based on the same provisions as those relating to the PPF. In a sense, the concept of the core pension did not include a number of the add-ons. As part of the package, we agreed that those add-ons will not be exactly like those in the PPF. However, under the agreement negotiated with various groups, including trade unions and the Pensions Action Group, most of those add-ons will be in place. In a sense we have gone beyond those two concepts and are now dealing with that of making fast payments. The idea of
We aim to deliver the remaining parts of the package as quickly as possible. The new clause is an integral part of that process and to that end we plan to table further amendments to the commencement provisions so that that change comes into effect on Royal Assent.
Mr. Waterson: It is very good to see you back in the Chair, Sir Nicholas. I welcome the amendment and new clause and I am grateful to the Minister for explaining them. This is a big subject, so I hope that you will bear with me, Sir Nicholas, if I give it the attention that it deserves.
This has been a very long battle and some of the campaigners have not survived to see this day. I begin by paying tribute to various bodies and people, including the Pensions Action Group and Dr. Ros Altmann, who has campaigned tirelessly on the issue for at least five or six years. I also pay tributelet me get the bouquets out of the way firstto some Ministers, including the Minister here today and the previous Secretary of State, the right hon. Member for Neath (Mr. Hain), for turning the thing around. Lest history be rewritten, it was not that long agoa matter of weeks, rather than monthsthat the line was that nothing more was to be done to help such people, so I pay tribute to the Minister and his former Secretary of State for achieving what we have achieved.
I have less kind words for the new Secretary of State for Work and Pensions.
Sitting suspended for a Division in the House.
Mr. Waterson: The late Iain Macleod memorably said that he could not understand all the nonsense about never kicking a man when he is down, as that is the only safe time to do so. I am following the opposite advice and being nice to the former Secretary of State. It is too early to tell what his place in history will be, but he must deserve credit for delivering a proper solution as well as what the Americans would call closure on this long-running issue.
Before the Division, I was about to quote the new Secretary of State, who manfully did the Minister of States job for a long time, holding the line firmly on not providing proper compensation for the 150,000 people affected. In November 2006, he said to Money Marketing that although he had sympathy for those people,
we do not believe that the taxpayer should be expected to underwrite what were private company pension schemes.
Indeed, he spoke in any number of debates over a long period, refusing to budge on these matters.
The Government were told by the ombudsman, the Select Committee, the High Court and the European Court that they had got it wrongall to no avail. I shall return to the court case later. Last summer, we tried to float a series of amendments setting up a
Gordon Brown has overruled his Cabinet over plans to bail out thousands of pensioners whose employers went bust. Ministers had promised £725million to help more than 125,000 workers...But the Prime Minister has risked a major Cabinet split by vetoing the plan.
Happily, the then Secretary of State and the current Minister of State who is present managed to prevail. As a result we have the amendment and the new clause, some promised further amendments and the prospect of regulations.
We accept that there is limited scope to new clause 20 and amendment No. 189. When we discuss later amendments, as with new clause 20, we will give them as fair a wind as we are able to as the official Opposition. I am sure that I speak for the Liberal Democrats as well when I say that. We very much look forward to the regulations; I shall come back to the timetable that has been promised for them, because it is extremely important that there is no slippage.
I turn to the Court of Appeal judgment on the matter of 7 February. As the Press Association report put it:
It was the latest damning judgment against the stance taken by the Department for Work and Pensions which rejected a Parliamentary ombudsmans report.
The report goes on to say that Sir John Chadwick, whom I remember instructing when I was a solicitor and he was at the Bar, ruled that
the maladministration had directly caused a sense of outrage, distress, anxiety and uncertainty...the loss of opportunities to make informed choices or to take remedial action.
Mr. O'Brien: No doubt the hon. Gentleman will recall that much of the alleged maladministration occurred under a previous, non-Labour Government.
Mr. Waterson: The Minister is letting his recollections run away with him. There was one instance, as I recall, at the tail-end of the last Conservative Government, involving one leaflet.
Mr. Waterson: We are back into semantics. I have said in debates on the previous Pensions Bill and am happy to say now that whatever share of blame that we must accept, we accept. However, I would like to think that a Conservative Government would not have spent so many months and years procrastinating, fighting a long rearguard action to stop giving those people their due.
I was about to quote Lord Justice Wall:
Nobody reading the papers in this case could have anything but the utmost sympathy for the plight of the complainants, all of whom, it seemed to me, were decent, hardworking people who, through no fault of their own, had beenor were at serious risk of beingdeprived of that for which they had worked throughout their lives, namely a modestly comfortable retirement.
I also pay tribute to the people who brought test cases: Henry Bradley from Belfast; Robin Duncan from Jarrow, Tyne and Wear; Andrew Parr from Sheerness, who we have met on many occasions; and Thomas Waugh from Tamworth in Shropshire. Even then, the Government could not resist trying to bring some spin into the judgment of the Court of Appeal.
Mr. Waterson: Sir Nicholas, you have stopped me in my tracks. I will have to take that up with the Press Association, which is obviously convinced that Tamworth is in Shropshire. Let the record show that it is in Staffordshire.
Is it not interesting, and typical, that despite the nature of the Court of Appeal judgment, the DWP still tried to spin the result?
We are pleased that the Court found in the Governments favour on the key point relating to the Ombudsmans powers.
That was not the key point at all, but one of many, technical, legal issues. The main point was whether there was maladministration causing injustice to the victims of the wind-up issues. On that, the Secretary of State clearly lost.
In another example of spin, the DWP spokesman said that the judgment quashed the
DWP rejection of the Ombudsmans finding of maladministration in respect of official information issued on the security of occupational pensions.
In fact, the three appeal judges confirmed that that was an irrational decision, which no reasonable Minister could have taken.
The DWP also said that the judges upheld
the Governments conclusion that the maladministration was not a significant contributory cause of the financial losses suffered by individuals,
ruled that some non-financial losses were caused by the maladministration.
Again, that is a misinterpretation: the Court concluded not that no financial losses were caused by maladministration, but rather that not all the losses of the members were caused by it.
The Chairman: I hesitate to intervene from the Chair, but it appears that the Opposition spokesman is going into the case relating to amendments that have not been introduced. Am I right? If that is the case, I would ask him to deal specifically with the amendment, which is not that broad, and with the new clause, which is not that broad. I am trying to be helpful to the Committeeand to the hon. Gentleman, whose expertise I greatly regard.
Mr. Waterson: As always, Sir Nicholas. I was just about to leave the Court of Appeal judgment, you will be relieved to hear, save for one other point. Perhaps I could seek your guidance. The Minister helpfully set out his intentions about further amendments to the legislation and the regulations to be brought forward. I wanted to test him a little on what he said.
The Chairman: Because the hon. Gentleman has been so reasonable and understanding, and appreciates my position in the Chair, I will give him that discretion.
Mr. Waterson: You have also forgiven me for putting Tamworth in the wrong county. The bigger issue here, which I will not get into, is about the role of the ombudsman. There is a massive issue about the Executives attitude to the findings of an ombudsmanon this or any other issuebut this is not the occasion to go into that.
Before I leave behind the damning court judgment from just the other day, I shall press the Minister on whether the Government seriously intend to appeal to the House of Lords. Enough taxpayers money has been wasted on these matters and the Government are at least on the way to doing the decent thing.
I should like to return to the Andrew Young report, which the Minister dealt with in his opening speech, and the statement of 17 December. It is appropriate to confirm our appreciation of Mr. Young's efforts, both in his interim and final reports, and his crucial finding that a significant number of assets were still available in some of these schemes that could, perhaps, be put to better use.
It is important to tick off the issues that the Government have rightly said will now be dealt with in one way or another. I can tie in my comments on those with a question about the amendment and the regulations that have been promised. All scheme members would be guaranteed 90 per cent. of their accrued pension, so there will be no more core pension stuff; there will be a cap of £26,000; payment of assistance derived from post-1997 services will be increased in line with inflation; and the assistance repaid for the schemes normal retirement age, which was often a major bone of contention in some schemes where these retirement age specified was often 60. There are also the questions of lump sums and assistance where an employer is still solvent.
The Minister wrote to Committee membersI assume that he wrote to all of uson 1 February, setting out a timetable. I want to be clear that he still feels that that is viable. He mentioned that he would table an amendment, which we are now debating, and said:
we are still considering the most appropriate legislative vehicle for extending the FAS to schemes which wound up underfunded with a solvent employer. But the vast majority of the enhancements can be delivered through secondary legislation.
He spoke about publishing
draft regulations at the beginning of March.
I think I heard him say the same a little earlier today. We were pleased to agree to an unusual two-week consultation, rather than the usual 12 weeks that normally apply to such legislation. We in the official Opposition are happy to do anything that we can to speed things along. He also mentioned having regulations have proved before the Whitsun recessthat would be some time in Mayand said:
Our aim will be to ensure that all existing cases are reassessed and paid arrears by the end of August.
That is good news. He continued:
our aim, parliamentary schedules permitting, will be to have them
the second set of regulations
approved before the Summer recess.
I assume that we are still on target to do all that, which would be excellent. He went on to say:
This should allow us to finalise the regulations later in the year to deliver the remaining parts of the package which will move us away from calculating pensions on the current basis of core expected pension to one which is broadly comparable to the PPF.
That is the key point, because the Government simply cobbled together a brand-new notion of a core pension out of nowhere to try to justify the fact that, under the FAS, people were going to get significantly lessin most cases, less than halfof what they would get from the PPF. I am delighted that we are going to see the back of the core pension. Will the Minister say what form that important change will take?
Before I finish, it is worth noting that two memorandums have been submitted to the Committeeone by the Pensions Action Group and one by Dave Baker, who worked for Sifam Ltdboth of which talk about the need to get on and get the payments to people as soon as possible. As the Pensions Action Group says in the conclusion of its memorandum:
It has been a long struggle to get the compensation to levels where they should be, please do not make us wait any longer than necessary to actually see the financial help that has been offered.
There are some additional points that have just been left hanging that the Minister may feel able to deal with today or may wish to write to me about. Dr. Ros Altmann has raised with me some issues on which discussions are ongoing. One is ill health and the early retirement option for people under 60. She says:
There are still one or two schemes that have fallen between the cracks and are not currently eligible for either FAS or PPF.
It will be helpful to know whether officials are making progress on that. Ros Altmann has asked what will be in regulation and what will be covered by amendments to the legislation, a matter on which the Minister has been helpful. She said that
it will be essential to ensure trustees and scheme administrators (who are often being very slow) are contacted by the FAS and told to send over the required data very quickly.
I have one final point to raise with the Minister. He may be able to deal with it now or wish to write to me and other members of the Committee about it. A constituent of my hon. Friend the Member for Cities of London and Westminster (Mr. Field) has referred to a disparity and said that it arose in part
because instead of speaking of a core pension, the Minister has promised to pay indexation from 1997 onwards. This sounds like a bonus, but in fact it discriminates against those who, with their companies, paid higher contributions before 1997 to get an index-linked pension.
He believed that
indexation may not have been compulsory before 1997, but it was common for designers of schemes to choose between paying a higher fixed pension or a lower indexed one, for the same contributions. Those companies who made the former choice were leaving it to their pensioners to arrange their own indexation by investing the extra pension (and lump sum) as they saw fit. Pensioners whose companies made the latter choice are now to be arbitrarily penalised by the FAS. Indexation is no different from any other optional benefit which has to be paid for by contributions...Indeed, under the proposed new FAS some people who chose early retirement will receive a higher proportion of their pension than those who worked until 65 in the same scheme.
There is clearly an anomaly that the Minister may or may not be able to deal with today.
We very much welcome the amendment and the new clause in their own right and as the shape of things to come. We are not handing out bouquets to the Government who have taken so long and so much money to resist the claims, but finally justice is being done.
Danny Alexander (Inverness, Nairn, Badenoch and Strathspey) (LD): It is a pleasure to be here again under your chairmanship, Sir Nicholas. Like the hon. Member for Eastbourne, I welcome the new clause and the amendment that is necessary to help it take effect. It is a good statement of intent that a number of other measures and changes are necessary, as the Minister said, to enable the announcements made at the end of December to come into effect. None the less, those proposals are a significant step forward.
It is important to remember how we got here. The fact that rapid progress has been made in the past two or three months should not let us forget that, for several years, a significant number of pensioners have been affected under the old financial assistance scheme. They have felt great injustice. Despite a sense of gratitude to the Government for what is being done, some still consider that it was an injustice that took far too long to remedy. Let us not forget that we are not discussing a small group, but about 140,000 or 150,000 people.
When considering the process that has led to the drafting of the amendment and the new clause, it is right to pay tribute to a number of people. The Minister himself deserves a great compliment for his efforts to turn the issue round, as does the previous Secretary of State who clearly put a lot of effort and energy into the matter. Ros Altmann has also rightly been mentioned. It is important to refer to those active members of the Pensions Action Group, many thousands of whom have turned up in Parliament square to lobby Parliament and camped outside Downing street every few months for three or four years to continue to make their point and ensure that their agenda was brought to the attention of Parliament. Without their efforts and sustained campaign that was always presented in a measured and thought-through way that showed they had been left with a real sense of anger and injustice towards the Government, the proposals before us today would not have been drafted because that campaign would have long since been forgotten.
It is a tribute to the Minister that he has finally responded in such a positive way to the campaign. It is those people, and the efforts that they made, that have to be particularly remembered in thinking about how these amendments were tabled. Of course, the Minister, like myself and the hon. Member for Eastbourne, met a number of those people at a rather damp vigil outside Downing street in, I think, November, when happily for those people, it was the last time that they had to come to Westminster to make their case. As the hon. Member for Eastbourne observed, some people may have started out in the campaign but were unable to come this time to make their case. We must remember that also. The changes announced in December were an important vindication for the campaign that those people have been running.
Finally, and I think that the Minister confirmed this in his earlier remarks, the level of benefits will be 90 per cent. on the same terms as under the pension protection fund. [ Interruption.] The Minister shakes his head as if the terms are perhaps not quite the same, but what people have been led to believe is that the 90 per cent. of their accrued pension rights is the same as under the pension protection fund.
Mr. O'Brien: We have said that they are broadly comparable. We have discussed with both the trade unions and with the Pensions Action Group the level of comparability. It is not exactly the same, and I would not want people to come back to me and say that we are not providing exactly the same, but I think that everybody has accepted that this is similar enough, and broadly comparable enough, for justice to be done.
Danny Alexander: I am grateful to the Minister for that intervention, and broadly comparable has been widely welcomed, and can also do better than where people were before. For those two reasons, it has been welcomed. It is particularly welcome because the concept of the core pension, which was designed to give the impression that more was being paid out under the financial scheme than actually was, has been finally set to one side, and the Minister did so very elegantly in response to an earlier intervention.
Likewise, the changes in relation to the normal retirement age also represent a significant advance. One of the effects of the new clause proposed today is that it allows pension benefits to be paid. One of the problems in the way that the previous way that the financial assistance scheme worked is that no benefits could be paid until the entire process of getting the scheme within the FAS had been competed. One of the changes that this package of changes makes is to ensure that benefits can be paid out even before that whole process is completed.
Mr. O'Brien: The hon. Gentleman is right that this will enable us to do that, but in fact, in September, I brought forward regulations that enabled trustees to start to make payments before other schemes had completely gone into the financial assistance scheme. So, in a sense, we had already acted on some of that to some extent.
Danny Alexander: I am grateful to the Minister for that correction, and that was one of a number of regulations where there has been useful cross-party co-operation to expedite the consultation process. I make the same commitment as the Conservative spokesman, that we on these Benches will do everything that we can to expedite the process of ensuring that any future amendments of new pieces of secondary legislation that come forward can be dealt with as quickly as possible, in order to bring the matter to the conclusion that is necessary. However, that raises an important question, because in his evidence to the Committee on 17 January, the Minister understandably said:
I shall have to bring forward more detailed regulations over a longer time, because they will be much more complex and will
We have one amendment and one new clause before us today. I would be interested to hear from the Minister to what extent he foresees bringing further amendments or new clauses into primary legislation as part of the process of this Bill. I suspect that that will mean that this House will not have the ability to scrutinise them, although perhaps they will be subject to scrutiny in another place. It would be useful to hear from the Minister what his intention is in regard to that.
Also, given the concerns that have been expressed, not least in the evidence submitted to the Committee from the Pensions Action Group, in relation to these amendments, what is the overall timescale that he foresees? It is already a couple of months that that have passed since the Government made their announcement. We have the amendment and the new clause that we are considering now, but what time scale does he foresee bringing forward the subsequent amendments of primary legislation, and the necessary, more complexas he sayspieces of secondary legislation necessary to fulfil the passage of measures? The hon. Member for Eastbourne made the point that we had agreed between the Front Benches an unusual two-week consultation period for one set of regulations and I hope the Minister will uphold his side of the bargain by bringing forward the relevant legislation as quickly as possible so that we can also do our bit from our side to speed this process up.
The fundamental question is, with the amendment and new clause before us today, combining with anything else that is coming down the track, when does the Minister foresee that pensioners entitled to receive money under the financial assistance scheme will start to draw money at the new, improved rate, under the new terms? That is the most important thing and it is clear that this amendment and new clause will not allow that to happen by themselves, there are many other changes that will have to be made, but if justice is to be done for the pensioners who have been campaigning, clearly we have to focus on when it is that justice will finally be done. Justice is not done by this amendment and new clause, though it is going in the right direction, it will be done when the money starts to be paid in the way we all agree is appropriate.
If the Minister could satisfy the Committee on some of those practical points about the direct impact on the pensioners, both of this amendment and new clause and how that combines with future changes, that will be very useful in the spirit of consensus there now is around this issue. There has to be continued friendly pressure on the Government to ensure that the remaining changes are brought forward as quickly as possible so that justice, which has been agreed, is actually delivered.
Miss Julie Kirkbride (Bromsgrove) (Con): May I begin by saying what a pleasure it is to be on the Committee under your very effective Chairmanship as well as your great geographical knowledge of the United Kingdom. I congratulate you. There has been some talk about Yorkshire and one of my hon. Friends lack of knowledge, but we will pass over that.
I was a volunteer to this Pension Bill Committee because this issue of compensation for people who lost their pensions through no fault of their own is sadly one that has affected a number of people in my constituency and therefore, as the hon. Member for Inverness, Nairn, Badenoch and Strathspey has just said, while we do congratulate the Government for coming forward and seeking a redress for this long-standing problem, we do want to keep tabs on them to ensure that this process happens as quickly and effectively as possible.
We would very much like an answer to one of the questions raised by the hon. Member for Inverness, Nairn, Badenoch and Strathspey, which is, when is the money actually going to be in the pockets of people who would be seeking assistance through the financial assistance scheme and will now be getting this enhanced package? We know that those provisions will in some way be effected in June, but at what stage will the money actually be appearing in bank accounts? This is the kernel of my question about the Ministers new amendment.
This is an issue that sadly has affected my constituency greatly. UEF, a national company that had a large plant in my constituency, did go bankrupt before the introduction of the PPF. Many people lost their pension savings, which is a devastating blow for people at any age, but particularly those who are nearing retirement age and who had been looking forward to a comfortable retirement and who were suddenly left completely bereft of that anticipation and to begin with, before the introduction of the financial assistance scheme, were looking at a retirement in penury. It is an understatement to say that these provisions are hugely welcome to many of those people I know.
I should also like to put on record the efforts of one campaigner in my constituency who did not happen to work for UEF. Mr. Peter Wheeler worked for Kalamazoo, a business that is still in operation, but under a different guise, but he nevertheless lost his pension. It is a Birmingham business, but a lot of people who work for Kalamazoo live in my patch. Peter Wheeler was one of the supporters and campaigners, already mentioned by my hon. Friends, who put a lot of time, money and effort into campaigning for this change in the law. There were times when, despite his efforts, along with those of his friends and colleagues, things looked very bleak. Yet in his financially straitened circumstances he continued to spend money, coming down to London from the midlandswhich can be very expensiveto lobby Ministers, take part in campaigns and undertake other activities to secure the profile of this issue so that it remained firmly in the ministerial in-tray as issue unresolved. I pay huge tribute to his part in the campaign, along with Ros Altmann and the many other individuals who have been mentioned on this side of the House, who deserve a huge part of the credit for this injustice having been sorted out.
I would also like to mention the Minister for Pensions Reform, who met with people who had a lot of faith in those meetings. It was somewhat devastating when the Prime Minister seemed, let us say, not to be playing ball on this issue. I commend the Minister for his tenacity in moments of adversity, along with the
I know there are some peopleI am not aware of any in my patch, but sadly there may well bewho have died not knowing that this respite was on offer, and that their spouse would gain some modest income in their old age through their pension entitlement. That is very sad, because people faced a very bleak future when they lost their pension saving and there was no obvious way of recouping it due to their age and circumstances. Sadly, those who have died will not know that there is some offer of help to those they have left behind. Nevertheless, it is fantastic news that this moment is about to arrive.
I am very glad that the Minister prevailed, because we have been discussing the need for more people to save for their pension, the pension crisis that looms in the UK if every single one of us does not take responsibility for saving for our old age, and the joint responsibility of government, employers and employees. The worst thing about the situation that had arisen, where private company schemes had gone bankrupt with no form of compensation before the PPF, was that it sent out the worst possible signal to young people, which is: why bother saving if, one day, through no fault of ones own and without realising it was even possiblebecause previous Governments and the present Government had said that pension saving is safe, that it is the right thing to do and so onone could suddenly find that the money one could have spent down the pub had gone down a black hole of an employer going bankrupt. It really was important to address this issue in terms of encouraging people to realise that saving for ones retirement is the right thing to do.
While I represent a number of employers that have lost their pension saving, like UEF and like Kalamazoo, I also have part of the Rover plant in my constituency, and quite a number of workers at the Rover plant live in Bromsgrove. The parallel there was quite shocking, in that, mercifully, if it had to go pear-shaped, Rover went pear-shaped after the introduction of the PPFonly just, by a week. That was nevertheless an important week for those people who had worked very hard for Rover. Their pension contributions were therefore much more secure. There was the bizarre situation that, depending on when the bleak moment came, some people were all right and some were not. The gauntlet-running was fairly dramatic in those terms.
It is very welcome that the Government are doing this, and it makes sense in terms of the signals that we send out to our fellow citizens about pension savings. Furthermore, in the system that we had before, when a company scheme went bankrupt, some people had first call on the moneythere was a schedule of who got the money first and who bought annuities. That is a hugely wasteful way of distributing assets. A great deal of money goes to people who have never worked for the companyI do not have a downer on accountants or anybody else, but nevertheless, the fees that were payable in the winding-up of a company scheme seemed rather obscene when people at the end of the pecking order for the bits to be shared out seemed to get very little. The fees seem to be very great.
The scheme that the Government propose, which corrals the money into a separate pot to be administered with those fees shared in someway, is a sensible way forward. Those of us who take an interest in this issue have been asking the Government to look at it for a long time. I will be very pleased to hear what the Minister has to say. There may be further questions, but in his admiral fashion I am sure that he will be able to answer the ones that remain, and I look forward to hearing more about that.
Nick Ainger (Carmarthen, West and South Pembrokeshire) (Lab): I want to echo the praise that has been poured not just on the Minister for Pensions Reform, my hon. and learned Friend the Member for North Warwickshire, but also on the previous Secretary of State, my right hon. Friend the Member for Neath. Also, while individuals have been named, it is worth recalling the catalyst of the change. That was the bankruptcy of Allied Steel and Wire in Cardiff and Sharpness, which brought the problem to the fore. In Cardiff, 800 people and I think about 200 in Sharpness1,000 people altogether in one companywere suddenly faced with having nothing to look forward to from their pension, in many cases after 30 years of contributions. Their trade union, the Community trade union, came forward and fought and fought and fought. Yes, there were many other individuals and organisations, but if it had not been for the Community trade union focusing on particular issues, funding cases, going to Europe and so on, we may not have arrived where we are now. I want to put on the record that the many plaudits that have been awarded and the bouquets handed out by the hon. Member for Eastbourne should include the Community trade union and its general secretary, Michael Leahy. Without its work, we would not have got here.
I do not want to repeat what other hon. Members have said, but this is a significant step forward. It is hugely important. The hon. Member for Bromsgrove was right: without the pension protection fund and the FAS, people could turn round and say, What is the point of trying to invest in a pension? We have now sorted that and, in the gentlest possible way, I say to hon. Members opposite, that company pensions went bust before 1997 as well, but nothing was done. It was this Government that finally grasped the nettle, brought forward the PPF and the FAS, and they should be congratulated for it.
Mr. O'Brien: I join the tributes, particularly those paid to Community and to Unite, the trade unions that campaigned on this issue very effectively and forcefully. I also pay tribute to members of the Pensions Action Group, who I met on a rather bleak and wet evening outside Whitehall. They were people who had campaigned for a long time to ensure that they got justice.
Miss Kirkbride: I apologise, it is very kind to let me have a little moment. On the subject of trade union involvement, there is a gentleman called Mick Ball in
The Chairman : The gentleman will be pleased.
Mr. O'Brien: He will indeed. I, too, am grateful for his support in this campaign in which I have been able to play a small part. The issue was important, and the hon. Member for Bromsgrove is correct that the situation developed into one that was about confidence in the pension system as a whole. We have now been able to deal with that, and it was right that we should. Whether we should have dealt with it before is debatable. I do not think that it had got to the stage of creating a confidence problem before, but I concluded by the latter part of last year that it had got to that stage and that we needed to draw a line under it. I join the tributes that have been paid to my right hon. Friend the Member for Neath, who was effective in working on the matter and ensuring that justice was done.
Having said that, I shall deal with the points made in the debate. The hon. Member for Eastbourne talked about the Court of Appeal judgment of 7 February. I say to him that the Government paid the costs of those who appealed.
Mr. O'Brien: The taxpayer paid those costs. We wanted to ensure that the matter was dealt with properly. The big issue in the case was the comments of the High Court that there were restrictions on a Ministers ability to reject a finding of the ombudsman. That was an entirely new area of law as far as we were concerned, although, of course, all judges argue that any judgment is not a new area of law, but that they are simply stating the law that already exists, which just happens not to have been stated before. That being the case, we were somewhat concerned by the statement of the lower courts and took the matter to the Court of Appeal, which has now set out its view.
We are considering whether to appeal further to the House of Lords on the position of the ombudsman and Ministers. We have made it clear that, broadly, we do not seek to press an appeal of a substantive or primary nature on other matters, which may well be secondary to the argument about the ombudsmans report. I disagree with the hon. Gentleman about what the key point in the appeal wasit was on the broader issue of the ombudsman and Ministers ability to make a decision on a policy issue.
As far as the leaflet is concerned, if the hon. Gentleman looks at the judgment with care, he will see that the previous Government have some culpability, although we accept that the leaflet was distributed after the general election of 1997. A degree of shared culpability needs to be discussed, if any culpability arises, rather than simply pointing in one partys direction.
The hon. Gentleman mentioned ill-health provision for people under 60, which Ros Altmann raised with me and other Ministers. We are considering whether we can assist those people and we are seeking to find a way to make appropriate provision, but I cannot give him a
There were cases in which a pension scheme collapsed and the insolvency event came before the setting up of the PPF, but the winding up came after it. So far as I am aware, that basically covers three companies: Desmonds and Sons, Pinneys and one whose name I cannot remember. We aim to examine whether there are ways in which we can assist them, but I can give no commitments on that at this stage. I am aware that some colleagues are rightly pressing me to remedy the concerns of pensioners in those cases, and I am examining the matter with great care.
Mr. Robert Flello (Stoke-on-Trent, South) (Lab): On that point, I advise the Committee that I am looking forward to bringing forward a new clause on that basis.
Mr. O'Brien: I am grateful to my hon. Friend for indicating his concerns. I am aware of them and I have spoken to other Members who, on behalf of their constituents, have raised with me directly their concerns about this issue.
On indexation before 1997, let me say in all candour that I will look at the points that my hon. Friend the Member for Carmarthen, West and South Pembrokeshire raises in relation to the letter or email that he received, but it is not our view that we can remedy all the injustices that were done before 1997. In the FAS, we have not taken the view that we will go back and assist all the various schemes that collapsed under previous Governments. Many of those just collapsed and had little or no help, or compensation. As my hon. Friend indicated, the Government have decided to provide some element of compensation. We set up the PPF and put in place a financial assistance scheme. Previous Governments did not take that view and did not help.
The hon. Member for Inverness, Nairn, Badenoch and Strathspey raised a couple of issues, as did the hon. Member for Eastbourne fairly early on, about the process, primarily. The letter that the hon. Member for Inverness, Nairn, Badenoch and Strathspey received set out the position in so far as we are currently aware, so we intend to proceed on the basis that I have indicated. We need to look at a number of changes in primary legislation, which we hope to introduce in the other place. Those will extend the current temporary hold on trustees purchasing annuities with their assets. We are also considering how requirements on trustees might need to be altered to reflect the fact that the assets and liabilities of these schemes, which have not yet wound up, will pass to the FAS. We expect to bring those changes forward through other amendments when the Bill goes to the other place for consideration. So, there are a few changes, but they are not the main ones. We hope to deal with the main ones in regulationI say main ones from the point of view of the pensioner.
The hon. Member for Bromsgrove asked me when people will get paid, and that is obviously the question that every pensioner will be asking. During the course of this year, we hope to get all the provisions in place, but the big issue is when they will be paid at 90 per cent.
There will be a final package of regulation, so we are trying to ensure that the regulations will be brought forward quickly, and we hope that we will be in a position to pay at 90 per cent. by about mid-May, or perhaps a little later. I cannot be entirely precise, but we are not talking about a long time. However, we are pushing the process through quickly, and I am making assumptions about the parliamentary process regarding how quickly, so let me give some caveats. I am hoping that we will then be able to get the other provisions through so that we can deal with some of the issues around ill health towards the start of the summerin June, or that sort of periodwith a view to making payments in the latter part of the summer. August is our aim.
A further package of regulations will need to be looked at later in the year to deliver the remaining parts of the package. That will entail a major shift from a FAS that is based on the principle of paying top-ups to annuities to one that pays assistance at the full 90 per cent. level to some members, and payments representing their full scheme benefits to others. So, some people are now receiving full payments of their pension from schemes that are able to make those payments, but payments will be at a lower level in respect of late pensioners who join the scheme because there is insufficient long-term funding. We will have to put provision in place to ensure that those who are receiving 100 per cent. of their pension continue to do sothat is important. We do not want anyone who currently gets a full pension to lose out. However, because we have taken all their assets, we will have to make those payments directly through the FAS scheme.
Mr. Waterson: On the pure mechanics of getting information, processing it and getting payments to people as quickly as possible, has the Minister given any further thought to scrapping the FAS as a separate outfit and folding all its administration into that of the PPF, which has been suggested more than once?
Mr. O'Brien: I have given that some thought and had some conversations with the PPF. Let me explain why there is some reluctance. If we start to make substantial administrative changes now, the costs of transition, in terms of administrative disruption, could be significant. I am thus reluctant to make changes that might delay payments.
We have looked at the issue and need to consider it more fully. However, the new scheme will not involve investment of assets as with the Pension Protection
The operation will be bigger than the one that the FAS currently runs because more people will be involved and the payments will be higher. I do not have a closed mind, but I want to ensure that any change that might be brought about does not cause disruption. I am a little concerned that making a decision to transfer the running of the scheme to the PPF would impose on the PPF a very different systemat least in significant respectsfrom the one it has been running so far, and I am concerned that shifting the administration could cause disruption in itself.
In answer to the question asked by the hon. Member for Bromsgrove, I think that people should be starting to receive 90 per cent. by around the end of May. That is the target.
I hope that I have dealt with most of the questions. The final package of regulations later in the year will deliver post-1997 indexation lump sum payments, which is important to a number of people who planned for their retirement based on the idea that they would get a 25 per cent. lump sum, which they have not been able to get up to now under the FAS. Maintaining the value of the cap is important to a lot of people. Maintaining the value of the cap and allowing it to increase alongside inflation and under the influence of other factors is important to those at the higher end of returns on pensionstowards £26,000. We are looking at insolvent schemes and at companies that are still solvent, but with pension schemes that are not in a position to make payments. We want to deal with those schemes in the second package of regulations.
I hope that that deals with all the issues that were raised, but hon. Members can come back to me if I have forgotten anything.
Amendment agreed to.
Amendment made: No. 181, in schedule 8, page 87, line 40, at end insert
[Mr. Mike OBrien.]
Removal of annuity protection lumpsum death benefit
The Chairman: With this it will be convenient to discuss the following: New clause 9Retirement Income Fund
(1) The Finance Act 2004 9c. 12) is amended as follows.
(2) After section 152 (meaning of arrangement), insert
152A Meaning of Retirement Income Fund
(1) In this Part, a Retirement Income Fund means a scheme for the reinvestment of savings in retirement which
(a) is operated by or on behalf of a person authorised to operate a registered pension scheme,
(b) is a scheme in which investments are approved by HM Revenue and Customs, and
(c) meets the conditions set out in subsections (2) to (9).
(2) The first condition is that, subject to the other conditions in this section, funds held in the Retirement Income Fund may be invested and withdrawn by the member as and when he elects.
(3) The second condition is that an authorised Retirement Income Fund provider must set an annual maximum withdrawal allowance for each member, based on an assessment of each members life expectancy, and a members withdrawals from the fund in any one year must not exceed that allowance.
(4) The third condition is that, in setting annual maximum withdrawal allowances, an authorised provider must ensure that no members total future annual income falls below the Minimum Retirement Income level (as set under section [Minimum Retirement Income] of the Pensions Act 2008) except in the circumstances provided for in the sixth condition.
(5) The fourth condition is that an authorised provider must set an annual minimum withdrawal allowance so that each members total income is at least equivalent to the Minimum Retirement Income level, except in the circumstances provided for in the sixth condition.
(6) The fifth condition is that if a member chooses not to declare his total annual income to the authorised provider he must withdraw funds equivalent to the level of the Minimum Retirement Income level or his annual maximum withdrawal allowance, whichever is the lower.
(7) The sixth condition is that, where there are insufficient funds to enable the annual minimum withdrawal allowance to be set so that a members total income is at least equivalent to the Minimum Retirement Income level, the allowance should be set out at the highest level consistent with the assessment of the members life expectancy.
(8) The seventh condition is that the maximum and minimum withdrawal allowances must be set at the same level if a members total annual income, including his maximum withdrawal allowance, is lower than the Minimum Retirement Income level.
(9) The eighth condition is that a Retirement Income Fund, and any income derived from it, must not be capable of assignment or surrender by the member..
New clause 10Withdrawal from a Retirement Income Fund
(1) Section 165 of the Finance Act 2004 (c. 12) (pension rules) is amended as follows.
(2) In subsection (1) (which sets out the pension rules)
(a) in Pension Rule 4, after paragraph (a), insert
(aa) a withdrawal from a Retirement Income Fund,;
(b) in Pension Rule 4, after the second appearance of the words scheme pension, insert the words or a withdrawal from a Retirement Income Fund;
(c) in Pension Rule 6, after paragraph (a), insert
(aa) a withdrawal from a Retirement Income Fund,;
(d) in Pension Rule 6, after the second appearance of the words scheme pension, insert the words or a withdrawal from a Retirement Income Fund..
New clause 11Minimum Retirement Income
(1) The amount of the Minimum Retirement Income in respect of each tax year shall be set by the Chancellor of the Exchequer by order at the level of the standard minimum guarantee prescribed under section 2 of the State Pension Credit Act 2002 (c. 16).
(2) Before making an order under subsection (1), the Chancellor of the Exchequer shall consult such persons as he considers appropriate.
(3) An order under this section (other than the order that applies to the first tax year during which this section is in force) must be made on or before 31st January of the tax year before the tax year to which the order applies..
Mr. Waterson: There might be a faint air of dÃ(c)jÃ vu about the amendment and new clausesI think that the Minister is noddingbecause the Minister and I had an exchange on almost identical wording as recently as last July. The issue will not go away, and I can assure him that while this Government remain in power and bring forward annual pension Bills, we shall table such amendments. If they are not accepted, we shall deal with the matter when we are in government.
We are wholly convinced, and have been for a long time, that there is no good reason why we are the only country in the worldwe established this during the passage of the previous Billthat imposes an obligation to annuitise at age 75, or at any age. I have yet to hear a convincing argument, but I dare say that I shall hear all the old unconvincing arguments from the Minister for why that should be. It is not even as though that has always been the case. My understanding is that the obligation to annuitise was introduced only in 1976. My research has not taken me far enough to discover why the Government of the day decided at that moment that they wanted to do that, but perhaps the Minister, with his much greater resources, can enlighten us. The matter does not go back into the mists of history.
It is worth reminding the Committee that during the passage of the Bill that became the Pensions Act 2007, similar amendments were accepted in the House of Lords, so there is a natural majority in the other place, if not in this House, in favour of such proposals. They are not new, but a refinement of proposals in four private Members Bills introduced by Conservative Members over a long period. The most recent and distinguished was that introduced by my right hon. and learned Friend the Member for Kensington and Chelsea (Sir Malcolm Rifkind). As time has gone by, the proposals have got better and better. They have now reached such a state of refinement and perfection that we find it difficult to improve on them, hence they are being recycled yet again for this Bill.
It is always slightly wacky to quote oneself, but in April 2004, when I moved an amendment, I referred to the fact that as a constituency MP I received many letters and e-mails from people who thought it
The Pensions Commission considered annuitisation in its second report in December 2005. As I have said before in this Committee, there is an element of regarding everything that it said as having been handed down from the mountain and carved in stone tablets. However, what it said was interesting. It said that it was
not convinced by arguments that annuitisation requirements should be waived entirely.
We do not agree, but it is important to report what was said. It also recommended that policies to encourage later annuitisation should be considered, particularly in light of increasing life expectancy. I have made that point already, so let us hear what the Minister has to say on that.
The report also stated that, over time, the set lower age of 50 and the set higher age of 75
should rise with life expectancy. While at present most annuities are brought well before the legal maximum of 75, this maximum would become an increasingly important constraint over time if left unchanged.
However, it made the point that it
is reasonable to require that pension savings is turned into regular pension income at some time. But this objective could be pursued via requiring annuitisation up to some defined level of income.
I think that that is important.
Do not get me wrong. The Opposition have never said that we do not think that annuitisation has its merits. For some peoplemany, perhapsit would have its attractions. It has the overwhelming attraction, despite the relatively poor value for money that annuities have offered in recent years, that it will look after a persons pension income for the rest of their lives. The argument is always put that if people do not have to annuitise, they can simply spend their pension pot and fall back on to the benefits system. For us, ensuring that people do not blow their pension pots and end up claiming benefits from the state has been the only legitimate concern of any Government, and of the Treasury in particular. That is why we have been very careful with this combination of new clauses and amendments to ensure that there is a limit below which people are not allowed to touch their pension pots, which will ensure that they remain off means-tested benefits. We accept that criticism, which is why we have provided for it in our amendments and new clauses. As far as we are concerned, our amendments do not weaken that guarantee.
If people are taking the trouble to build up pension pots over a long period throughout their working lives, they should have some control and choice. I know that Ministers say that if people are given tax incentives to save in the first place, they should not be allowed to do anything with their pension pots other than pay for an annuity, and that they certainly should not be allowed to pass it on to their successors and family. That is
What is likely to put young people off? Seeing grown men stripping off at party conferences is one thing, but hopefully that phenomenon is a thing of the past thanks to the FAS amendments[ Interruption. ] I see that the hon. Member for Inverness, Nairn, Badenoch and Strathspey is getting misty eyed. I hope that we will no longer have such a thing happening at Labour party conferences.
Equally, if young people are to be asked to lock away their savings for 40 years or so, and are then told, on top of that, that they will be forced to buy an annuity by the age of 75 whether they want to or not, and that that might not be a particularly good deal at the time, it is hardly likely to encourage them to save for their retirement.
Andrew Selous: I completely agree with my hon. Friend on this point about inheritability and ownership. At the tender age of 45, I am not sure whether I should still regard myself as young, but I do think that the issue that my hon. Friend has alighted on is incredibly important. I have thought for many years that if young people, and people generally, could regard their pension savings in the same way that they might regard their house, car or savings in a bank account, it would transform the attractiveness of pensions as an asset into which they would want to putand, indeed, should be puttingtheir income. I commend my hon. Friend on his point about inheritability.
Mr. Waterson: I am most grateful to my hon. Friend for that encouragement, which emboldens me to speak for even longer on the subject.
New clause 11 would establish a minimum retirement fund that would have to be maintained. The level would, of course, be set by regulation to ensure that people did not go back on to means-tested benefits. I entirely endorse what my hon. Friend saidindeed, it was what I was sayingabout people needing some element of control, or ownership, of their pension savings.
It is not as if I am suggesting something completely off the wall. As I said, we are the only country in the entire world that does what we do. In Canada, for example, some 50 per cent. of pensioners take advantage of a scheme that is similar to what we propose.
While I do not want to rub salt in any woundsthe Minister and I have jousted about this beforewe now come to the important issue of alternatively secured
Surprise, surprise, what did the Government do? They introduced a requirement to withdraw a minimum income levelit is thus not beyond the wit of man to specify a minimum figurebut they also made it clear that any lump-sum death benefits passed on to other scheme members would be taxed at up to 70 per cent. and, as if that were not a sufficient disincentive, could also be subject to inheritance tax. One could say that that loophole, if that was what it was, has been well and truly closed.
Those events indicate two things: first, what a mess the Government got into on the subject; and, secondly, that there is an appetite among people to have an element of control or ownership, as my hon. Friend the Member for South-West Bedfordshire said. Conservatives believe that pensions are peoples property. They are not the property of the Government. If we are serious about trying to encourage people to save for their retirement, giving them flexibility is an important sales point.
Other countries, such as the USA, go much further. They have rules that allow people to access their funds for certain major life events, such as buying a house or paying for education or medical treatment. We would not go that far at all; we simply say that if people do not want to buy an annuity, they should not have to and that, providing their estate is squared away regarding claiming benefits, they can pass on the pot or use it for other purposes. There is a great deal of support for the proposal, and the only people who oppose it are the Treasury and the Minister, who will no doubt read out his Treasury brief in a minute.
The Investment Management Association, for example, supports what we are trying to do. It says:
IMA does not support the current rules to require compulsory annuitisation by age 75. While an annuity may be the best option for some retirees it is not the best option for all and the market should be opened up to allow alternatives. IMA advocates increased choice in the options available for retirement income.
We endorse that entirely. The IMA also has something to say about new clause 18, which is in the name of the hon. Member for Inverness, Nairn, Badenoch and Strathspey, but we have not come to that yet. When we do, no doubt we will return to the IMAs views.
There is a great deal of support for the concept, and the Ministers argument c or d will be, This is only for rich people; just a few rich people want to do this. Rich people have rights, too, and if in Canada the measure appeals to half the relevant part of the population, perhaps it would have that appeal in this country. Perhaps the reason why the Government had to undertake such a quick about-turn on ASPs is that they could see a tidal wave of demand for such freedom. The Government are in the business of trying to deny people those freedoms and to make decisions for them; my party is firmly of the opposite view, which is why I commend the amendments and new clause to the Committee.
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. James Plaskitt): The hon. Member for Eastbourne is right that he and I have debated the issue before in Committee. No Pension Bill debate would be complete without the Opposition bringing forward their views on annuitisation and wheeling out the old RIF wagon, which is as rickety now as it was on previous appearances.
I reiterate the Governments belief that pension saving is about giving an individual an income in retirementnothing more, nothing less. It really is as simple as that. The Government provide very generous tax incentives to encourage people to save for retirement. Their value is estimated in 2007-08 at £17.5 billion. When an individual comes to take their pension benefits, they can take up to 25 per cent. of the pension fund as a tax-free lump sum. In return for those generous incentives, and the option of a 25 per cent. lump sum, Governments, ever since the 1970s, have as part of the deal required that the remainder of the pension fund be, by the age of 75, converted into a secure retirement income in life. In defined-contribution schemes, that is typically done by the purchase of an annuity. Annuities provide the peace of mind of a regular income for life regardless of how long that life may be. They provide simplicity, security and a guaranteed income, they are low risk and individuals have a choice. The hon. Gentleman kept saying that people are somehow denied choice, which I do not accept. Individuals have considerable flexibility over when to annuitise: anywhere between the ages of 5055 by 2010and 75 to suit their circumstances.
Mr. Waterson: Will the Minister explain why we are increasing the lower age from 50 to 55, but not planning to touch the upper age of 75?
Mr. Plaskitt: The increase in the lower age to 55 is in line with a host of other changes that have been made across the pensions system of which I think the hon. Gentleman is already aware where we are moving the retirement age from 50 to 55. This is to keep it in line. In respect of what we have said about the upper age, he prayed in aid Lord Turner suggesting that this should perhaps be kept under review. We have said on a number of occasions that we do keep that under review, but see no case at present for lifting that age; 2010 will still leave a 20-year band within which people can make their choice.
As we know from the graphs that show the distribution, most people exercise their choice to convert their annuity into a pension income within
The most comprehensive UK pricing survey ever, published a couple of years ago, suggests that annuities today are fairly priced. Annuity rates need to be seen in the context of a much lower inflationary environment and, of course, people living longer. We welcome the Turner commissions endorsement of the annuity policy. The h G prayed in aid some of what Lord Turner said, but at the core of his discussion of annuities, he said:
since the whole objective of either compelling or encouraging people to save, and of providing tax relief as an incentive is to ensure people make adequate provision, it is reasonable to require that pensions savings is turned into regular pension income at some time.
Let me turn now to new clauses 9, 10 and 11, which would establish the alternativethe retirement income fund scheme. RIF has appeared in various guises in the past, and on this latest outing it does not seem to have improved at all.
Danny Alexander: Before the Minister moves on to the specifics of the clause, does he accept that, in the context of our debate this morning about the changing actuarial basis for life expectancy, a much simpler way to achieve at least part of the objective we are discussing would simply be to increase the age at which annuitisation becomes compulsory, in line with demographic changes?
Mr. Plaskitt: No, I do not, because the gearing one needs to look for in assessing the relevance of age 75 concern the choices people make as to when to retire, not how long they live. It is when one reaches the point of retiring that ones thought is, I now need to have an income throughout my retirement, however long it is. That is when the decision is made. It is not made in the light of knowing how long one will live, because none of us knows that. The driver is the decision to retire, not anticipated life expectancy, because this is all about producing an income in retirement, and if anything should guide the Governments view about where this should be, it should be movements along the line of average or median ages at which people choose to retire.
Another reason I do not agree with that argument is that, if it were the case that age 75 were the impediment that it is sometimes presented as, one would expect to see a completely different distribution on the chart. One would see a cliff edge at 75people hanging on as long as possible until forced to annuitise. One does not see that. Very few opt to take it later. Hon. Members might think that people would wait longer, because the longer they wait with the fund before converting into a
Mr. Waterson: Is not the Minister's argument entirely circular? People know that when they retire, sooner or latercertainly by the age of 75they will have to buy an annuity and they resign themselves to doing it on retirement, because many of them have seen the returns from annuities getting worse as time goes on. That, as well as retiring, may be a driver for them to get an annuity. However, if suddenly it were announced that there were no such compulsion at 75, or at all, does not the Minister think it entirely possible that his chart would change shape altogether?
Mr. Plaskitt: I do not and I do not accept that this is a circular argument. If there were merit in the argument that the hon. Gentleman is making, we would see a completely different distribution on that chart now, because people would be going into retirement and opting to hold on before annuitising at the last possible moment. However, they are clearly not doing so. The vast majority are annuitising at the point of retirement.
I do not accept that, if we changed the age to 78, for arguments sake, the whole graph would shift to the right in the same way. The driver is the decision point when people move into retirement, not expectations of how long they may be in retirement. That is a different point.
Mr. Greenway: I apologise for not having heard all the speech made by my hon. Friend the Member for Eastbourne. I am familiar with the arguments that he will have outlined, but I was less familiar with what the Chancellor and the shadow Chancellor were saying about the business in the main Chamber, which explains my absence.
I am listening carefully to the Minister's argument. Perhaps I could put the position to him in a slightly different way. The chart flows the way it does because the majority of people who are realising funds from retirement annuity or personal pension investments now need to convert to an annuity to have a basic income. We are dealing, in the Bill and in the management of the pensions issue generally, with a situation where, as fewer people have defined benefits, more will be in some form of money purchase scheme. The amendments provide a golden opportunity to send a signal to that community that says that, provided they meet minimum income requirements through the purchase of an annuity at retirement, they should, having had to manage the risk of what their income in retirement was likely to be
The Chairman: Order. The hon. Gentleman is stretching my patience. An intervention should be an intervention and should be brief. That was almost a speech. If he wants to speak, he could catch my eye later.
Mr. Plaskitt: I was enjoying it, but it went on a bit too long, so I take your guidance, Sir Nicholas.
The decision is clearly driven by the point of retirement and by the need to annuitise and, therefore, secure an income in retirement. I take the point that there is a change in the market and that the annuity option looks different from the way it looked 15 or 20 years ago when we lived in a much higher inflation environment with shorter life expectancies. Nevertheless, the market is fairly priced. That is not my view, but that of independent analysts of the marketplace.
There is also a great deal of choice in the form of annuity on offer. In the so-called mid-market, there is a lot more choice in the annuity field than there was before. A lot more flexibility has come into it that gives the real choice that people are looking for. The idea that the denied choice is all to do with people around 75 is a distraction from the real choices that people want to make, and are making, and which they have sufficient freedom and discretion to make under the rules as they are.
The retirement income fund would remain invested and withdrawals between a minimum and maximum amount would be permitted. An annual minimum withdrawal allowance would be set by the provider, and we presume that a member would have to withdraw at least that amount each year, although that is not clear. In setting that minimum withdrawal allowance, the provider would have to ensure that the members total income was at least equivalent to a minimum retirement income defined in the clause, although, again, we do not have much information on how that would be determined. Nothing appears to stop the minimum allowance being set at zero if the members income from other sources for future years is greater than an MRI. In those circumstances, it is unclear how the maximum withdrawal allowance would work or indeed what its purpose would be.
It would be possible for a provider to set a high maximum withdrawal allowance, because it is impossible accurately to assess an individuals life expectancy, and there is no express requirement that the RIF must be spread over the whole of the individual's expected lifetime. So if the members other income outside the pension scheme is above the minimum retirement income, they could theoretically withdraw large lump sums of tax-advantaged pension savings, or they might choose not to draw any pension income and to pass the money on to their heirs.
Like previous RIF amendments, these are silent on how withdrawals would be taxed and what would happen on a members death. I hope that the intention is that RIF withdrawals would be taxed, but, in most cases I would expect the likely tax charge on RIF withdrawals to be lessoften considerably lessthan the amount of tax relief enjoyed on the funds. It would be unfair to expect taxpayers to foot the bill for people who take the tax relief for pension savings, but choose to convert the money into something other than an income in retirement. The terms are transparent when someone moves into such a fund. I do not accept arguments that suggest that there is unfairness and that people sometimes want their money back. That would be true if they had been lured into the fund and did not know what the terms were, but they are clear and explicit, and apply at both ends of the dealon coming in with savings, and on coming out and drawing down income in retirement. RIF savings
Another flaw of the RIF is the risk of running out of money in retirement because it is impossible accurately to assess an individuals life expectancy. That is a problem with the Canadian system which the hon. Gentleman prayed in aid, and there have been many examples of Canadians running out of income in retirement. Bankers associations in Canada repeatedly warn individuals about that when they go into such schemes. That is a problem. In contrast, insurance companies can predict average life expectancy of particular cohorts. That enables them to provide a guaranteed income for life, regardless of how long that life is, by pooling the risk. That unique feature of annuities is another reason why they are an excellent source of retirement income.
Andrew Selous: The Minister mentions uniqueness. Why does he think we are the only country in the world to operate pensions schemes in this way?
Mr. Plaskitt: Largely because this country has the largest private pension provision of income in retirement. A large proportion of the money for retirement income is drawn from private saving and private schemes, which are tax-advantaged, so the public element in support of that private source of funding is much larger than in other countries, which is why, more than 30 years ago, we settled on such an arrangement.
Annuities achieve exactly the same outcome for defined contribution pension schemes as exist for defined benefit schemes or, for that matter, state pensions, namely that pensions are paid as a regular stream of income until death and, barring dependants pensions, they end with the members death. No refund of contributions is given to the estate. It is therefore hard to understand why, in the case of defined contribution pensions, the amendments seek to allow lump sums to be paid and money to be passed on to heirs, on death, from tax-advantaged pension funds. I can only conclude that the RIF would be a complex product, aimed at being especially attractive to people with greater wealth, with the objective of using the tax reliefs granted to pension savings for other purposes at the expense of the general taxpayer. In contrast, we are committed to promoting better outcomes for all pensioners in retirement through the reforms in the Bill.
I have rehearsed and further illustrated why we do not accept the proposition of the hon. Member for Eastbourne. I hope that in light of my comments, he will withdraw his amendment.
Mr. Greenway: I rise not merely to apologise to you, Sir Nicholas, for the length of my intervention, but to respond to your invitation. I should like to add the two sentences that I was not allowed to add earlier, which I am sure will require no response from the Minister. By moving from a defined benefit world to a defined
The world of annuity provision has changed, and is changing, and there are several products on the market that could help resolve some of the issues that my hon. Friend the Member for Eastbourne mentioned. We need to widen choice as a point of principle. Clearly, the Minister will not accept the amendments today, but my hon. Friend was right to table them and have this debate. I fear, however, that it will require the return of a Conservative Government to office to provide future pensioners with the wealth and breadth of pension choice in retirement that the Conservatives think appropriate.
Mr. Waterson: I am disappointed by the Ministers response but not surprised as I have heard it all before. All I can do is endorse the comments of my hon. Friend the Member for Ryedale. This ideas time has not quite come, but it will come shortly. I hope that officials do not put those files away too deep in the archives because when the next Conservative Government are elected, this idea will be high up on our to-do list. We may want to return to this issue at a later stage of the Bill, but for the moment, I am happy to beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Chairman: With this it will be convenient to discuss the following: Government amendments Nos. 191 and 192.
Government new clause 23Appointment of trustees.
Mr. O'Brien: With these measures, we seek to provide innovation in the pensions market while understanding the risks that new development might present and ensuring that the Pensions Regulators powers remain adequate to the task.
The amendments revise the regulators powers under the Pensions Act 1995 to appoint trustees. Trustees have a central role in our occupational pension system. They are responsible for running pension schemes in the best interests of members. However, there can be times when a board of trustees is not able to deal with the challenges that it faces, perhaps because it does not collectively have the knowledge and expertise it needs, or because of a conflict of interests. Under the Pensions Act 1995, the regulator has to install trustees. Where appropriate, those trustees can be independentprofessional trustees that are fully independent of the employer or any other interest in the scheme. That power is a key element of the regulators risk-based approach to regulation. For
Mr. Waterson: I have been following the Ministers case closely. Surely the example that he gives in support of his case would be amply covered by the existing wording, necessary, as opposed to the new wording that he wants to introduce under new clause 23, which would be reasonable.
Mr. O'Brien: I will come to that point in a moment, but let me continue to illustrate the example that has recently become evident. The regulator took the view that in order to ensure that members were properly protected it needed to install independent trustees to safeguard those members interests. That case is one example of the way that developments in the pensions market can be very fast moving.
Risks in the pensions environment can change quickly. New clause 23 makes two changes. First, it would replace the necessary task in section 7(3) of the Pensions Act 1995 with one of reasonableness, so that the Pensions Regulator may take action to appoint trustees where it is reasonable to do so. The necessary test was introduced in the context of a different regulator and a different market environment. A key shortcoming of the former regulator, the Occupational Pensions Regulatory Authority, was its inability to respond adequately to the emergence of new risks. The necessary test requires a high burden of proof that can unnecessarily inhibit appropriate regulatory intervention. Reducing that threshold to reasonableness provides a more appropriate tool for tackling risks to members interests.
I have already illustrated how those risks can quickly change. If regulation is to be effective it must be sufficiently agile to enable swift intervention where there is justification. A reasonable test would deliver that: it is well known in law, it will provide the regulator with a less fettered power, and it will remain transparent and proportionate. The second change will give the regulator the flexibility to install trustees in circumstances where doing so is in members interests, but the case does not meet the current narrow tests for action. Those changes do not alter the fact that the Pensions Regulator has to abide by the well-established principles of fairness and reasonableness in making decisions. The use of those powers remains subject to the approval of the regulators independent determinations panel and is subject to appeal to the Pensions Regulator tribunal. Amendments Nos. 190 to 192 are minor and technical changes consequential on the new clause.
I close with a few words about the general context of the amendment. There have been a number of recent developments in the pensions buy-out market, with the
For our part as the Government, we are watching developments closely. We continue to keep the legislative framework under review to ensure that it remains effective, and that the regulatory regime is proportionate to the risks to members benefits and, indeed, to the Pension Protection Fund; and, of course, we remain in discussion with the regulator on such issues.
If developments in the market suggest that further changes to the regulators powers are required, we will consider such changes carefully, but we would not legislate in ways that could add costs to legitimate business transactions unless we are convinced that change would deliver proportionate improvements to the regulatory system.
I hope that that has been helpful in setting out the background to the amendments, and that it flagged up where our thoughts are. It is important to respond to developments in the market such as those that we have seen. As I said, some of them are welcome, but some have raised concerns. It is right that we should keep the issue under review, and that is what we are doing.
Let me just say about the necessary test, and the point raised by the hon. Member for Bournemouth, that if a range of options is available to the regulator, necessary is hard to demonstrate, even if installing trustees is the most cost-effective way of dealing with an issue. It is better to have a phrase that says that we need to ensure that the regulator acts in a reasonable way, rather than one that says that we have to meet the high level of proof that is required with the word necessary.
It may appear that the amendment will give massive extra powers, but it will not in practice. It merely clarifies the position of the regulator. In my comments a few moments ago, I demonstrated that we will keep a careful eye on the buy-out market, which is an area that we consider needs to be watched with a great deal of care.
The Chairman: Order. Before I call the spokesman for Her Majestys Opposition, the Minister referred to the hon. Member for Bournemouth. I believe he meant the hon. Member for Eastbourne.
Mr. Waterson: Thank you, Sir Nicholas. Just to clarify, I represent Eastbourne, the jewel of the south coast. It was known as the empress of watering resorts in its day.
I want to focus on new clause 23. This is an important debate, and the Minister was right to set out carefully the background to it. Something that has certainly caused me concern for some time is whether the regulatory framework is keeping up with developments in the market.
Yes, there is a respectable and welcome business model for buy-outs. I met with Paternoster and Mr. Mark Wood, for example, who I believe were first into the field, but there has been a plethora of other people piling in, if I can put it like that, to what is clearly the way of the future. Indeed, on one occasion I slightly jokingly asked Lawrence Churchill of the PPF whether he thought that in due course the PPF would be needed if the buy-out process continued at the level that it might in the future.
Clearly, there is a benefit to be had with a properly regulated and properly resourced buy-out market by moving anxieties from both the sponsoring employers and the members of the schemes, as long as we can ensure certainty that they will still receive their pensions. Who knows? In due course, that might considerably reduce the need for the PPF, and that might not be a bad thing.
I am puzzled by the direction that the Minister is coming from because the argument that will be put forward by the buy-out specialists is that we are already heavily regulated. As I understand their business model, they are regulated as though they were insurance companies via the Financial Services Authority, I assume, and have significant requirements for capital and so on to ensure that they can deliver what they promise. In fact, it could be argued that they are more heavily regulated than they would be if they were regulated as pension funds.
Mr. O'Brien: Does the hon. Gentleman have concerns when some buy-outs are orchestrated from beyond regulatory direct control by companies based in the Channel Islands or parts of Europe?
Mr. Waterson: That is a subject for legitimate concern. I totally agree. Who knows how that market will develop as time goes on? Clearly, people are in it for the reason that there is money to be made. There is nothing wrong with that. We are all capitalists now. We believe in a fair profit. No doubt, new Labour is a firm believer in profit. I hope that it is anyway.
Assuming that we are talking about the Paternoster business model, which is substantially resourced and extremely well run by people with massive experience who know exactly what they are doing and who, in turn, are fully regulated by the FSA, we need have no concerns. However, there may be some fringe operators about whom we must be more worried. Taking the mainstream business model as it has developed so far, the regulatory framework is in place. In some respects, it is as strict asif not stricter thanthe pension regulatory framework so I am puzzled by the need for such a measure at the moment.
Nor am I entirely with the Ministers arguments. His initial example was entirely satisfactory in respect of the necessary test under section 7 of the Pensions Act 1995, but it would be interesting to know whether that point has been taken as a matter of law. What is driving
The hon. Gentleman did not touch in as much detail on the insertion of a new paragraph (d), which would state:
otherwise to protect the interests of the generality of the members of the scheme.
For the life of me, I do not understand why that is not covered already under section 7 of the Act. The whole point of that is
to secure that the number of trustees is sufficient.
Well, that is fairly obvious and simple. It is also to secure that the trustees have
the necessary knowledge and skill for the proper administration of the scheme,
which is obviously for the generality of the membershipand to
secure the proper use or application of the assets of the scheme.
Again, that is presumably for the generality of the members of the scheme. I am not particularly in favour of putting in words that seem to add nothing to a provision. However, if the Minister can persuade me more carefully and suggest instances on which that has been a problem, I would be much more relaxed.
I return to the broader issue, which is that we are entirely with the Minister. We need to keep a close eye on this fast-moving scheme that could bring enormous security and benefits to pension scheme members, but which has to be carefully regulated. The Government of the day would have to move fast as particular matters arise that do not seem as promising or secure. We are with him entirely on, but I am still not wholly convinced that the provisions before us are the right way in which to do that.
Mr. O'Brien: I am concerned by recent developments in the market, although I agree with the hon. Member for Eastbourne that some of them are beneficial and might produce positive outcomes. In the broad sense, innovation in the financial sector is a good thing, providing that it brings overall benefit. As he indicated, we have seen the evolution of new types of pension vehicles suggesting that the regulator is likely to face situations in the future that might make it difficult, under the current wording, to intervene, because challenges could be made to us over whether such intervention is necessary. That wording represents a hurdle higher than the one that we are seeking to impose.
We want to ensure that there is not the ability to circumvent the regulators power through attempts to install trustees in pensions schemes where the actions taken by those trustees could be argued to be to the benefit of certain, but not all, membersnot the generality of members. The regulator must consider the overall way in which the pensions industry operates and ensure that it operates to the benefit not just of the generality of members in a particular scheme, but of the pensions industry as a whole. It is important that
The hon. Gentleman asked whether the regulator wants those powers, to which the answer is yes. However, I indicate to him that we are considering the matter and might revisit it, either during the passage of this Bill or in subsequent legislation, if necessary and if the market continues to develop. I am happy to meet with him to discuss some of those developments, because he will no doubt be aware of legal cases arising from some of them. However, I do not want to go into those now.
Mr. Waterson: I was going to suggest anyway that this is one of those issues where there is a lot of common ground between the Government and the Opposition. We and the Minister and his officials often talk to the same people. It would be helpful, on a kind of Privy Council basis, if necessary, if we could occasionally compare notes. Something might have to be done in a great hurry, which we would be in a position to facilitate.
Mr. O'Brien: I am very grateful for that indication and I can reassure the hon. Gentleman that we are happy to enter into such discussions with him. It might well be that at some stage we have to act very quickly. If we find ourselves in such a position, I shall take him up on his offer.
As I have said to the hon. Gentleman, the regulator feels that the change would be helpful, in light of the changes in the buy-out market. I hope, therefore, that hon. Members will support the amendment.
Amendment agreed to.
Schedule 8, as amended, agreed to.
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