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Public Bill Committee Debates

Occupational, Personal and Stakeholder Pensions (Miscellaneous Amendments) Regulations 2009

The Committee consisted of the following Members:

Chairman: Mr. Martyn Jones
Baron, Mr. John (Billericay) (Con)
Blackman, Liz (Erewash) (Lab)
Burden, Richard (Birmingham, Northfield) (Lab)
Dhanda, Mr. Parmjit (Gloucester) (Lab)
Dorrell, Mr. Stephen (Charnwood) (Con)
Eagle, Angela (Minister of State, Department for Work and Pensions)
Gerrard, Mr. Neil (Walthamstow) (Lab)
Jones, Helen (Warrington, North) (Lab)
Ladyman, Dr. Stephen (South Thanet) (Lab)
McCartney, Mr. Ian (Makerfield) (Lab)
Rowen, Paul (Rochdale) (LD)
Smith, Geraldine (Morecambe and Lunesdale) (Lab)
Swire, Mr. Hugo (East Devon) (Con)
Taylor, Mr. Ian (Esher and Walton) (Con)
Waterson, Mr. Nigel (Eastbourne) (Con)
Webb, Steve (Northavon) (LD)
Annette Toft, Committee Clerk
† attended the Committee

Fourth Delegated Legislation Committee

Wednesday 10 June 2009

[Mr. Martyn Jones in the Chair]

Occupational, Personal and Stakeholder Pensions (Miscellaneous Amendments) Regulations 2009

2.30 pm
Mr. Nigel Waterson (Eastbourne) (Con): I beg to move,
That the Committee has considered the Occupational, Personal and Stakeholder Pensions (Miscellaneous Amendments) Regulations 2009 (S.I. 2009, No. 615).
I welcome you to the Chair, Mr. Jones, and I look forward to your fair, impartial and expeditious chairmanship of the Committee, which deals with the rather complicated regulations. I also welcome the Minister to her new responsibilities. It is a fun world, the world of pensions legislation. Some of us have been at it longer than others. I have worked out that she is the sixth Pensions Minister whom I have shadowed, and the 10th since 1997. Since her term of office is unlikely to be longer than a year at most, I hope that she enjoys what she will do in the next few months. We will do our best to make it fun and interesting—I am sure that I speak for the Liberal Democrats as well.
The regulations are complex and important. They deserve a full debate, and not simply being rubber-stamped. That is why we, the official Opposition, will pray against some of them during the debate. The regulations cover quite a mixture of different issues, but you will be relieved to know, Mr. Jones, that I do not intend to go through all of them one by one. I understand that the hon. Member for Northavon, who speaks for the Liberal Democrats, will do that for us if I leave anything out.
Some of the regulations are very welcome—at least, we have no particular problem with some of them. I particularly single out changes to help schemes wind up more quickly and efficiently, because it is a scandal how long it takes some pension schemes to wind up. We also welcome the provisions on pension-sharing orders on divorce.
I want to focus my remarks on regulations 3 and 7, which are precisely why we have prayed against the regulations. Their stated aim, if I can put it simply, is to allow schemes that have been unable to implement provisions in the Pensions Act 2008, because of their own rules, to do so now. Those provisions deal with the cap on pensions in payment and the revaluation of accrued rights under those schemes.
By way of background, we need to return to the efforts of Messrs. Chris Lewin and Ed Sweeney, who were appointed by the Government as part of what is referred to as the rolling deregulatory review. The word “rolling” suggests some kind of forward motion, but I do not think that that is often apparent in the deregulation—it has been a relaxed process, which is part of the problem that we face in the regulations. In any event, the two gentlemen laboured long and hard in the vineyards of pension deregulation and produced their report, “Deregulatory Review of Private Pensions”, as long ago as July 2007. We are now nearly two whole years on, so if it is rolling at all, it is almost imperceptible. The Government then produced their response that October.
It is important to see, when looking at the explanatory memorandum and in particular the amended evidence base attached to it, what the Government’s stated objectives are supposed to be. They talk, quite rightly, about striking a balance between reducing legislative complexity—making legislation simpler—and protecting the interests of pension scheme members. They state that
“it is important there should be scope, where appropriate, for scheme rules to be amended to reflect any legislative easements... the Government want to provide those schemes with the scope to make amendments to reflect relaxations in the statutory requirements.”
What are we talking about in simple terms? The future of defined benefit schemes in this country. I think a report last week that said that only four FTSE 100 companies still have DB schemes open to new entrants. The trend in recent years, which has accelerated under this Government, has been to close DB schemes. That is a huge shame, because whatever the other pros and cons we know that DB schemes have a huge track record of providing decent income in retirement for many workers across the British economy.
Steve Webb (Northavon) (LD): I welcome the fact that the hon. Gentleman and his colleagues have prayed against the regulations, as that has given us the opportunity for a debate. One obviously might infer that he opposes the regulations because he is praying against them and I do not wish to spoil the dramatic flow of his speech, but so that we can place his comments in context, will he clarify whether he is in favour of or against regulations 3 and 7?
Mr. Waterson: The answer is both, I imagine. If the hon. Gentleman allows me to develop my argument, I will explain to him and the rest of the Committee that we do not think that the regulations go far enough. To answer his question in simple terms, we agree with the Government’s objective of helping companies to take advantage of the provisions in the 2008 Act, but the regulations will not help in that respect. I will come to the comments of the CBI, the Engineering Employers Federation and others.
The Government want to allow companies with such schemes to go ahead and take advantage of what was in the 2008 Act, and in some cases what was in the long-ago Pensions Act 2004.
I was talking about the future of DB schemes. At the heart of this debate is the fact that if we are to try to keep employers in the DB business, which is still a legitimate aim of public policy, we must make it easier and less burdensome for them. That means giving them the flexibilities of such things as indexation, statutory override and other methods of deregulation that will keep them in the DB game. Otherwise, there is a huge fear, as the hon. Gentleman well knows, that the advent of personal accounts will be the impetus for some employers finally to get out of the DB business and point their employees in the direction of the new system of personal accounts with Government backing, although, as we know, in almost every case the contribution will be significantly lower than in existing schemes.
Continuing with the Government’s aims, the explanatory memorandum states that
“a number of employers have not been able to take advantage of the flexibility”—
in the indexation—
“because of restrictions in their scheme rules... Anecdotal evidence is that around a quarter of occupational pension schemes are unable... to make changes”
because of such constraints. The document also sets out rather helpfully the possible benefits to employers of the provisions. There are estimated savings of £250 million or perhaps £400 million a year, which seem designed to help employers to stay with their existing DB schemes.
This will probably bring the right hon. Member for Makerfield to his feet, but it never ceases to amaze me that whenever there is discussion about tinkering with such issues, the TUC throws its collective toys out of the pram. If it thought a little more long term, it would see that, for its members who are members of those schemes, the only option at the moment is to close the scheme and move to defined contribution, where the whole risk falls on those employees, many of whom are members of trade unions.
There is much more scope for co-operation between employers and trade unions of the sort that there is in places such as Holland in trying to ensure the long-term health of DB schemes. In Holland, more than 90 per cent. of employees are in schemes that we would recognise as DB schemes. I am not trying to provoke the unions but simply suggest that we need a dialogue to ensure that we can make the changes with an element of consensus.
The CBI in particular is not happy with the regulations as they stand. Its brief refers to the Lewin-Sweeney review and states what it calls
“A basic principle of pension policy”
“dictates that employers have control over future accrual, while trustees oversee accrued rights.”
That seems to be very clear as a historical approach to these matters. It goes on to say:
“The position of sponsors of defined benefit schemes in the UK has worsened significantly over the past 18 months”,
and points out that the deficit in DB schemes in the private sector is running at about £188 billion. It states:
“Now is the time to have a proper debate about what can be done to help sponsors by way of longer recovery plans and deregulation.”
The CBI broadly welcomes the proposed statutory override, but describes it as “only partially helpful”. It says that
“the Government should consider again the logic behind requiring trustee agreement”.
That is the nub of it. The way in which regulations 3 and 7 are drafted requires the agreement of the trustees of the scheme, most of whom feel constrained by those obligations not to agree to the proposals. The CBI states that
“trustees should have control over accrued benefits, but as this easement refers only to future accrual after the date of the decision to cut the indexation rate is taken. Longstanding practice dictates that employers have control over future accrual, while trustees oversee accrued rights...After all, these self-same employers, who are apparently not trustworthy enough to be allowed to adjust the revaluation cap, can close the scheme completely if they wish, a move vastly more detrimental to members.”
The CBI goes on to mention the experience of dealing with trustees who have to apply the members’ interests rule. There is no reason why trustees should take a chance, as it were, by stepping outside that restraint. It states that
“even sympathetic trustees have struggled to see how they could justify agreeing to this change where the employer was not imminently facing insolvency or having to close the scheme completely.”
The real problem is that everyone agrees that statutory override is a good idea. Sweeney and Lewin came up with it as a good idea, we support it and the Government support it in principle, but when they came to draft the regulations, it was diluted to the point at which, for most schemes and most employers sponsoring those schemes, it will have no effect at all.
The views of the Engineering Employers Federation are also significant. It says that in principle it will support these regulations
“as they will enable some employers to be able to reduce the annual revaluation ‘cap’ for both pension increases and increases in deferred pensions”,
which will help them to reduce costs and so on as I have described. It goes on to say:
“However, we are disappointed that this statutory override is only available to employers if they obtain the consent of trustees”
and that the wording of their trust deeds and rules is such that is often impossible or very difficult for them to agree. It states that
“even if they have been able to introduce this reduction, this has often involved lengthy and time consuming discussions....At this stage, we are not aware of any EEF members who have made use of the statutory override provision in Regulations 3 and 7.”
That is quite significant, because if someone such as the EEF cannot find a single member who has felt able to take advantage of those changes, then perhaps the Government should think again about how the regulations are drafted.
Incidentally, the EEF also says that
“the Government should be progressing more quickly with its planned ongoing programme to deregulate occupational pensions”.
We agree with that. Although we have no intention of inviting members of the Committee to vote against the regulations, we have prayed against them because it is important to debate them. It is also important to ask Ministers to look again at precisely how these regulations are worded because if we all agree on the aim, which is to allow sponsoring employers and existing schemes to take advantage of the provisions that are already in primary legislation to reduce indexation, these regulations dilute the possible effect of statutory override. It is symptomatic of this Government’s timidity when it comes to deregulation.
As I have said—I will conclude on this note—the point about DB schemes is that they have a proven record of providing security in retirement for millions of workers in this country. This Government have given up on DB schemes. I hope that the Minister is different. Her two predecessors had given up on DB schemes altogether.
Mr. Ian McCartney (Makerfield) (Lab): I could not resist rising to intervene in the end. The hon. Gentleman talks about deregulation protection, but he must have a short memory. In 1997 to 2001, this Government’s priority was the Treasury, the Department then responsible for pensions. The Department of Trade and Industry, as it was then, had to resolve the issue, whereby the previous Government, without proper regulation, encouraged people to opt out of defined benefit schemes and £11.5 billion later to mis-sell their pensions. In my constituency, this amounted to up to £60,000 of losses for retired miners and teachers and other public sector workers. The Conservatives did nothing. They neither apologised nor supported the efforts of the Government between 1997 and 2001 to get that money returned, as they did in the end. It cost the taxpayer more than £1.5 billion to return £11.5 billion lost by the hon. Gentleman and his predecessors.
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Prepared 11 June 2009