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Session 2007 - 08 Publications on the internet General Committee Debates Pensions |
Pensions Bill | ||||||||||||
The Committee consisted of the following Members:Mark Hutton, Committee
Clerk
† attended the
Committee
Public Bill CommitteeTuesday 19 February 2008(Afternoon)[Sir Nicholas Winterton in the Chair]Pensions BillSchedule 8Repeals
4
pm
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—
‘Part
2A
Financial
assistance
scheme
The
Chairman:
With this it will be convenient to discuss
Government new clause 20—Financial 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 Young’s 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
take those assets into Government ownership. In return, we guaranteed to
provide a higher level of assistance, which was broadly comparable to
the compensation paid by the Pension Protection Fund. It was not the
same, but it was broadly comparable. As a result, the FAS will need to
take over responsibility for payments to those members who would
otherwise have had all their benefits secured by way of annuity if
their pension scheme had carried on winding up in the previous way and
purchased annuities for
them.
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 benefits—it is important
to emphasise that—but 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
the core payment or pension is no longer appropriate to discussions. It
was valid at the time, but we have moved
on.
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 tribute—let me get the bouquets out of the way
first—to 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 ago—a matter of weeks, rather
than months—that 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.
4.9
pm
Sitting
suspended for a Division in the
House.
4.19
pm
On
resuming
—
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 State’s 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 wrong—all to
no avail. I shall return to the court case later. Last summer, we tried
to float a series of amendments setting up a
so-called lifeboat fund to ensure that compensation could be delivered
to pension victims, but the Government stepped in to invoke the
Parliament Acts and stifle debate on the matter. However, last
December, things started to happen quickly. The Daily Mail of 10
December
stated:
“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 ombudsman’s
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 been—or were at serious risk of being—deprived 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 Government’s favour on the
key point relating to the Ombudsman’s
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 Ombudsman’s 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
Government’s conclusion that the maladministration was not a
significant contributory cause of the financial losses suffered by
individuals”,
but
“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 Committee—and 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
Executive’s attitude to the findings of an ombudsman—on
this or any other issue—but 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.
4.30
pm
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 scheme’s 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 members—I assume that he wrote to all of
us—on 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
recess—that would be some time in May—and
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
less—in most cases, less than half—of 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 Committee—one by the Pensions Action Group and one by Dave
Baker, who worked for Sifam Ltd—both 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
require further consultation. I want to put a number of amendments into
primary legislation.”——[Official Report, Pensions
Bill Committee, 17 January 2008; c.120, Q146]
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 complex—as he says—pieces 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.
4.45
pm
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 Minister’s 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 midlands—which can be very expensive—to 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
right hon. Member for Neath who, in the end, secured a proper deal on
this issue. That deal is hugely welcome to a great many people whom I
represent.
I know
there are some people—I am not aware of any in my patch, but
sadly there may well be—who 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 one’s own and without realising it was even
possible—because previous Governments and the present Government
had said that pension saving is safe, that it is the right thing to do
and so on—one 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 one’s 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
PPF—only 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 money—there 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 company—I 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 Sharpness—1,000 people altogether in one
company—were 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
my constituency from the UEF, who also played a valuable role, and I
would like that to be on the record.
The
Chairman
: The gentleman will be
pleased.
5
pm
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 Minister’s 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 ombudsman’s report. I disagree with the hon. Gentleman
about what the key point in the appeal was—it 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 party’s
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
commitment on that now. We are still discussing whether and how we can
resolve the matter. The point that was put to us about particular
individuals was
good.
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, Pinney’s 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 regulation—I 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.
On the first set of recommendations, which to pay 90 per cent. of the
crude pension from normal retirement age—that is at the age of
60, as currently they are paid from aged 65—we expect to issue
draft regulations on 6 March. I am grateful to the Opposition for
indicating that they would agree to a two-week exceptional written
consultation period so that we can move quickly. During that time, we
will conduct face-to-face consultation with key stakeholders to get
feedback. We will publish a further set of draft regulations before the
end of March for a longer period of consultation. The precise content
of the package will depend on where we need to make further changes to
existing primary powers, but it will include early payment for those
over 60 who are unable to work due to ill health.
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 summer—in
June, or that sort of period—with 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 so—that 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
Fund. The Government are taking in the assets—to have
them—and then making the payments. There is an argument for
saying that the PPF should not take over something that is an entirely
different sort of process. The new scheme is not holding assets and
then making payments from them. It is operating more like the DWP:
having a pot of Government money from the Treasury and then spending it
by making benefit payments to various people. Its operation is more
akin to what we at the DWP do than to what the PPF does. However, I am
conscious of that view, and I have not made a final decision on whether
it is possible for some people at the PPF to oversee the operation, or
to see if we can find ways more effectively to administer the
scheme.
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 system—at least in
significant respects—from 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 pensions—towards
£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
O’Brien.]
5.15
pm
‘Part
5
Removal
of annuity protection lumpsum death
benefit
The
Chairman:
With this it will be convenient to discuss the
following: New clause 9—Retirement 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 member’s life expectancy, and a
member’s 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 member’s
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 member’s 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 member’s 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 member’s life
expectancy.
(8) The seventh
condition is that the maximum and minimum withdrawal allowances must be
set at the same level if a member’s 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 10—Withdrawal 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 11—Minimum 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 clauses—I think that the Minister
is nodding—because 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 world—we established
this during the passage of the previous Bill—that 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
iniquitous that they should be required, at or before the age of 75, to
annuitise. Incidentally—this is not central to my
argument—there have been recent discussions about at least
changing the age for compulsory annuitisation. From latter exchanges
during this morning’s debate on increased longevity, I got the
impression that Ministers were thinking about that. In order to bring a
little novelty to proceedings, it would be interesting to hear whether
there has been any progress
there.
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 people—many,
perhaps—it 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 person’s
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
argument B. However, we do not agree. To pick up on a point that was
made very eloquently by my hon. Friend the Member for Bromsgrove during
the previous debate, surely everything should be about restoring
confidence in the pensions system and encouraging young people, who
overwhelmingly are turned off the whole issue of pensions, to start
saving for their pensions now. It is no good them waiting until 2012
for personal accounts to arrive, because that would result in several
years of lost contributions. Anything that we can do in this Committee
and elsewhere to encourage them to save for retirement has to be a good
thing.
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 put—and, indeed, should be
putting—their 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 said—indeed, it was what I was
saying—about 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 wounds—the Minister and I have
jousted about this before—we now come to the important issue of
alternatively secured
pensions, on which the Government have got themselves into a frightful
mess because of representations from the Christian Brethren, which is,
no doubt, an admirable group of people. It is certainly a small group
of people, as at the last count there were only 738 of them in the
entire country. They have their own legitimate and principled objection
to the pooling of risk of mortality, as I understand that they put it.
They lobbied the Government—successfully, as it turns
out—for a change in the law, and ASPs were introduced.
Then—surprise, surprise—the Treasury got worried because
lots of people who were not Christian Brethren suddenly thought that
they would quite like to do the same thing. Like an ice cream salesman
who sells only vanilla ice cream, the then Chancellor, who is now
occupying No. 10 as he did the Treasury—gloomily—said,
“Oh, you can’t have that. We meant it only for those
700-odd people,” and so the Government had to reverse their
position completely in the Finance Act
2007.
Surprise,
surprise, what did the Government do? They introduced a requirement to
withdraw a minimum income level—it is thus not beyond the wit of
man to specify a minimum figure—but 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 people’s 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.
5.30
pm
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 IMA’s views.
There is a great deal of support
for the concept, and the Minister’s 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 Government’s belief that pension saving is about giving an
individual an income in retirement—nothing 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
50—55 by 2010—and 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
quite a narrow range, mainly between 60 and 65. Very few people choose
to annuitise pre-60, and very few indeed choose to annuitise post-67.
The natural choice people make is clearly bunched around the point at
which they choose to retire, and the notion that 75 should somehow be
indexed to longevity is the wrong way of looking at this. The driver is
when people choose to retire. This is about establishing an income in
retirement. The trigger is therefore a decision to retire, and the
distribution graph confirms that the annuity choice on offer generously
encompasses the points at which people choose to turn these pots into
income in retirement.
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 commission’s 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
alternative——the 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 one’s 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 Government’s 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 75—people 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
pension, the more it might be worth. Notwithstanding that, the
distribution chart shows that the great bulk of people annuitise
between 60 and
65.
Mr.
Waterson:
Is not the Minister's argument entirely
circular? People know that when they retire, sooner or
later—certainly by the age of 75—they 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 argument’s 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 member’s
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 member’s 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 individual’s 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
member’s 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 member’s 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 less—often
considerably less—than 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 deal—on coming
in with savings, and on coming out and drawing down income in
retirement. RIF savings
would clearly be tax advantaged compared with other forms of savings. I
fear that the amendments are designed to allow a small group of wealthy
or relatively wealthy individuals to pass their pension funds on to
their heirs on death, rather than to secure a regular retirement
income.
Another flaw
of the RIF is the risk of running out of money in retirement because it
is impossible accurately to assess an individual’s 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
member’s 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
contribution world, we are changing the parameters of pension provision.
One of my criticisms of the defined contribution world is that, in that
world, the pensioner takes all the risk. I simply do not understand the
argument that, when people reach retirement age, they will be unable to
take any more risks and will have to purchase an annuity. That was the
basis of the Minister’s argument.
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 Minister’s
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
idea’s 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 23—Appointment 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
Regulator’s powers remain adequate to the task.
The
amendments revise the regulator’s 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 independent—professional
trustees that are fully independent of the employer or any other
interest in the scheme. That power is a key element of the
regulator’s risk-based approach to regulation. For
example, the regulator recently used that power to install independent
trustees in a scheme whose employer had been taken over by a new
organisation that sought to install its own senior staff as trustees
and to manage the scheme’s assets, so as to achieve returns to
shareholders of the new organisation from those scheme assets. The
regulator identified that that situation posed a serious risk to
members’ benefits because the proposed trustees would have a
conflict between their fiduciary duty and their duty to maximise
returns to shareholders.
Mr.
Waterson:
I have been following the Minister’s 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 regulator’s
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
emergence of new providers and new business models. Much of that
innovation is welcome, but we must ensure that risks are appropriately
managed. Traditionally, pensions have been backed either by an employer
or by the capital reserves that insurers must have. That backing is
critical in giving members security that their benefits will be
provided as promised. We need to ensure that trustees are looking
carefully at proposals for new buy-out solutions to make sure that they
provide the right levels of security for their scheme members. A
business model that does not have either of those sources of backing
should prompt questions about the security of member
benefits.
6
pm
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
regulator’s 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
Majesty’s 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
as—if not stricter than—the pension regulatory framework
so I am puzzled by the need for such a measure at the
moment.
Nor am I
entirely with the Minister’s 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
it? Presumably the regulator has said that there is a chink in the
armour and has asked for it to be sorted out. That is my point about
the substitution of the word “reasonable” for
“necessary”. I entirely understand the legal arguments;
the substitution obviously makes it significantly less burdensome to
prove the need for the appointment of new
trustees.
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 membership—and
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
regulator’s 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, members—not
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 organisational design of the regulator’s power provides for
sufficient flexibility to address situations that might develop in the
market, as well as those developing now, so that if attempts are made
to circumvent the regulator’s powers, we have in place the
necessary provisions.
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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