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10.11 pm
Mr. Graham Stuart (Beverley and Holderness) (Con): I am grateful for this opportunity to plead for justice for the pensioners of the Armstrong group of companies, formerly Armstrong’s of Beverley. I also pay tribute to my constituent, Sam Dunkerley, who has fought tirelessly for those, like him, who lost out when the Armstrong pension scheme collapsed. He is the spokesperson for the 110-strong Armstrong pensioners’ society, which represents some 3,000 people who suffered a loss of income or future income when the Caparo group wound up the scheme in 2006.
Caparo is a British-based company founded by the Labour peer Lord Paul. According to its website, it is a fast-growing global manufacturing group with a turnover of €1 billion. It has business interests in the manufacture of steel and automotive and general engineering products and employs 8,000 people worldwide. It has more than 60 sites in the UK, north America, India, Poland and Spain. This year’s rich list in The S unday Times named Lord Paul as the 88th richest man in Britain, with a personal fortune of about £500 million. He has been a Labour party member since the 1970s and was ennobled at Tony Blair’s instigation in 1996. He funded the Prime Minister’s leadership campaign in 2007 and urged him to call a general election in the autumn of that year, promising to donate “whatever he could afford” to the party’s campaign fund.
Caparo’s empire is highly complex. It is a large conglomerate with many subsidiaries, all of which have supposedly separate financial interests. The ultimate holding company is incorporated in the British Virgin Islands. I will focus mainly on the activities of Caparo Automotive Ltd—CAL—and its subsidiaries Armstrong Fastenings, Willenhall Manufacturing and Armstrong Equipment. It was those plants that were covered by the Armstrong Group scheme.
In 1989, the Caparo Group acquired the assets and capital of Armstrong Engineering and secured them under a subsidiary named Caparo Automotive. Armstrong was cash-rich and the accompanying pension fund was more than 30 per cent. in surplus. For the next eight years, the Caparo Group made no contributions to the Armstrong pension fund. That pension holiday cost the fund £8 million. During the same period, the pension fund paid out £6 million for early retirement and redundancy programmes. As a result, the pension fund was reduced by a total of £14 million.
In March 2000, the fund’s liabilities exceeded its assets by £8 million. At about the same time, a triennial actuarial valuation was carried out, which recommended that the company inject some £2 million annually into the scheme over a five-year period to cover the shortfall. That was accepted by both the company’s management and the trustees of the pension scheme. However, Caparo did not make the first instalment and, in April 2002, it announced the freezing of its final salary pension scheme. That followed its decision to close the scheme to new employees in 2000.
Stakeholders who had yet to draw a pension from the scheme—some 1,200 people—would in future not receive an income based on their years of service and final
salary; instead, it would be based on what was left in the fund after the entitlements of existing pensioners had been secured. The 1,800 pensioners who were already in receipt of their pension, such as Mr. Dunkerley, had their annual increase immediately stopped. Workers were notified of the change in a memo circulated by Caparo’s chief executive, Lord Paul’s son, Angad. He said:
“As a result of the winding up, the pension benefits of current Automotive Group employees on retirement are likely to be significantly less than they may have expected.”
The decision was a hammer blow to the scheme’s 3,000 members. Bryan Tipton, who worked as an assembly worker at Willenhall for more than 47 years, told the This is London newspaper that after contributing to the scheme for 22 years he was expecting some £3,782 a year plus a tax-free lump sum. Instead, after the winding up of the scheme he could look forward to just £2,983 a year—£57 per week—and no lump sum.
The winding-up decision was criticised heavily at the time. Ros Altmann, an independent pensions adviser who worked closely with No. 10 Downing street, said:
“It seems unfair and unjust that a company as strong and as big as Caparo can wind up a pension scheme without being held accountable for its actions.”
Mr. Greg Knight (East Yorkshire) (Con): Is my hon. Friend aware that some of my constituents, like his, are affected by this situation and that many of these pensioners who are now on modest incomes feel cheated by these decisions?
Mr. Stuart: My right hon. Friend is absolutely right, and what he says goes to the heart of what I am seeking to raise this evening.
“At the time of a wind-up, a solvent company, which Caparo is, should be required to make up in full the pensions it has promised its members, whether they have retired or not.”
Discussions between the company and the trustees continued for several years after the initial pension wind-up decision was made but while the company continued to trade. The debt owed on the scheme was estimated at £36 million and in May 2005 Caparo Automotive offered to pay for a portion of that, over a number of years. That was rejected by the trustees because they had been independently advised that the company was unlikely to be able to make those payments.
In February 2006, the Caparo Group made a final offer to the trustees of just £3.2 million—that is less than 10 per cent. of the debt—based on its calculation of the amount the trustees would hope to receive under the Government’s financial assistance scheme. Again the trustees rejected the company’s offer. Steve Barmont of Law Debenture, who sat on the trustee board, said:
“Accepting this offer would have resulted in the scheme being ineligible for the Government's Financial Assistance Scheme. The trustee was also advised that the offer would not materially improve the position of scheme members. The trustees were led to believe that a revised offer would be received by March 1. This was deferred and then never materialised, and the next we heard was that they had called in the receivers.”
Having failed to buy off the pension trustees with 10p in the pound, Lord Paul’s group called in the receivers in March 2006. Outrageously, it made every attempt to
blame the situation on both the trustees and the Government’s financial assistance scheme. Angad Paul said in a statement:
“This is a bizarre world when a pension fund can only access government subsidy by closing down a successful firm and damaging its suppliers. The situation we are in is ridiculous and frustrating. The FAS was to be available to schemes where companies were already insolvent, not as a reason to push companies into bankruptcy to gain the FAS benefit.”
The trustees hit back, saying that they were
“disappointed that there was no greater offer of support from elsewhere in the substantial Caparo Group.”
That is the crux of the case against the Caparo Group; in 2005, it had a turnover of more than £600 million, compared with Armstrong’s £33 million. The Armstrong pension deficit was £36 million thanks to Caparo’s mismanagement. Caparo could have, and should have, stepped in to save the company and the pension scheme from collapse.
Worse was to come, however. By pushing Caparo Automotive into receivership, Caparo was absolved from paying off the debt and instead the burden fell on to the state. Shortly afterwards, the Caparo Group bought back the assets and businesses of the Armstrong Group, but—conveniently—without the huge pension liability. That was a cynical act in the extreme, by people who were more interested in profit than morality. When the pension scheme was wound up in 2002, and the trustee issued a debt to Caparo of £36 million, it was told that Caparo Automotive was a stand-alone company whose accounts and pension scheme were ring-fenced away from the main group. Then, when the receivers were brought in and the pension deficit was taken out of its hands, the group ruthlessly bought back the same businesses.
Some 3,000 people who were members of the Armstrong pension scheme have lost out because of the actions of the Caparo Group, some significantly so. The Minister will know that, for existing workers, the financial assistance scheme covers only those people above or within three years of a company’s normal retirement age. For pensioners who had already retired, their annual increases came to a sudden stop. Mr. Dunkerley e-mailed me this morning to say that
“since 2002 we have had no increases to our pensions which means that our income is now more than 28 per cent. lower than it would have been”.
Mr. Robert Goodwill (Scarborough and Whitby) (Con): Would I be right to say that Lord Paul still takes the Labour whip in the other place and still professes to be a socialist, despite the facts that my hon. Friend is recounting tonight—
Mr. Deputy Speaker (Sir Alan Haselhurst): Order. I have been listening carefully to what the hon. Member for Beverley and Holderness (Mr. Stuart) has been saying, and we have now had the intervention from the hon. Member for Scarborough and Whitby (Mr. Goodwill). It is undesirable for the name of a member of the other place to be mentioned in a debate of this kind in personally critical terms. I have been hoping that a clear distinction was being made, but the frequent mention of the name has given me concern. Reference may be made in relation to acts in another capacity, but reflections on conduct should be the subject of a substantive motion.
Mr. Stuart: Thank you, Mr. Deputy Speaker. The facts of the case are clear.
We all know that the days of the final salary pension scheme are almost numbered, thanks to the actions of the Prime Minister in taxing pensions, coupled with the performance of the equity markets. So many schemes have been closed, and the combined pension deficit of the FTSE 100 is estimated to be at least £50 billion. However, Ministers have repeatedly said that wealthy companies should not drop inconvenient pension deficits in subsidiaries.
In 2005, the Home Secretary, then the Secretary of State for Work and Pensions, said that
“the Government strongly believes that solvent employers have a duty to support their pension schemes.”
Two years later, one of his successors, the right hon. Member for Stalybridge and Hyde (James Purnell) said:
“Ongoing solvent employers have a clear moral duty to support their pension schemes and to provide the benefits that members were expecting. The taxpayer should not be expected to step in and make up such shortfalls in scheme funding levels where there is a sponsoring solvent employer.”—[ Official Report, 4 June 2007; Vol. 461, c. 10.]
Moreover, the 2004 Pensions Act made it clear that member companies of a group should not be able to avoid their pension debts by declaring themselves insolvent if the asset value of the group to which they belonged was sourced sufficiently to meet the debt.
Those are the arguments that have been made by the trustees. In 2006, they made representations to the pensions regulator asking it to issue a financial support direction to the Caparo Group to pay £36 million into the pension scheme. The trustees requested that the regulator make use of its “moral hazard” powers, which were granted under the Pensions Act 2004 to
“prevent companies and individuals from avoiding their obligations under defined benefit pension schemes and, most importantly, to prevent them from avoiding pension debt.”
Unfortunately, the pension regulator was less than helpful, and refused to exercise those powers. Not only that, but the pension regulator stated that it was unable to reveal the reasons for its decision not to exercise its contribution notice or financial support direction powers. However, in a letter to Mr. Dunkerley, it revealed that
“in this case, exceptionally, it would approach the trustee and target company and ask for their consent”
to disclose this information. The trustees immediately agreed to that, but the Caparo Group refused. The pensions regulator stated in its letter that
“we understand this was on the basis that disclosure would involve revealing commercially sensitive information, which those entities would prefer to make confidential. As a result, we are prevented from disclosing this information to you.”
This is a shameful state of affairs. The pensions regulator has rejected the trustees’ request that it use its moral hazard powers to seek justice for the pension scheme members and yet it is unable to explain to those members why they have lost out and why it will not do what Ministers have repeatedly said that it should do to ensure that those with resources make up any losses from pension funds associated with them.
May I finish by asking the Minister a few questions? Will she meet me and representatives from the Armstrong pensioners society to discuss the issue in more detail? Will she seek a meeting with Lord Paul to tell him the
plight of the Armstrong pensioners and ask him to make good the losses for which his family firms bear responsibility?
Would it not be extraordinary if a company such as Caparo, which has treated its pensioners in this manner, continued to receive Government contracts? Will the Minister assure me that Caparo is not receiving and will not receive any benefit from UK taxpayers? Will she explain why, or how, the regulator could fail to use the Pensions Act 2004 to demand rectification of this gross injustice? Will she tell me that the peculiar and sinister refusal of the regulator to enforce Caparo’s moral responsibility was in no way influenced by Lord Paul’s privileged position at the heart of the new Labour establishment? Will she explain how it can be right that the regulators reasoning cannot be made public because of the refusal of the guilty companies concerned to allow that information’s release?
The plight of Armstrong’s pensioners and the brazen refusal of one of Britain’s wealthiest families to do the right thing by them stinks to high heaven, but may I appeal to the Minister, whatever her ties of loyalty to her party and its dwindling band of donors, to put justice for the many before protection for the few?
10.27 pm
The Minister of State, Department for Work and Pensions (Angela Eagle): I am sorry that the hon. Member for Beverley and Holderness (Mr. Stuart) chose to make such partisan points; I do not think that they helped this debate. I congratulate him, though, on securing it and I am pleased to have the opportunity to discuss the important matters that it raises.
The protection of pension scheme members’ benefits is an important area of public policy for the Government, which is why we established both the Pension Protection Fund and the financial assistance scheme. Those bodies, along with the Pensions Regulator, are delivering better protection for scheme members. We will ensure that the regulatory framework remains appropriate and that the important compensation arrangements that we put in place work as effectively as possible.
People who contribute to a company pension scheme can reasonably expect to receive their pension benefits. There can be few greater cruelties than to find that those benefits, and the retirement they were expected to fund, have been put in jeopardy because an employer has gone bust, in whatever circumstances. Through the Pensions Act 2004, the Government introduced a wide programme of new pension protection measures including the creation of the financial assistance scheme. That was a vital measure to support thousands of workers who would otherwise have lost out through no fault of their own. The scheme did not exist prior to 1997.
The scheme provided assistance to those who lost significant amounts when their pension schemes started winding up between 1 January 1997 and 5 April 2005 as a result of the sponsoring employer becoming insolvent. We have since introduced new reforms to the financial assistance scheme. On 17 December 2007, the Government announced a package to deliver 90 per cent. of the expected pension to about 140,000 people subject to a cap of £26,000, the value of which will be protected. That proportion of assistance derived from post-1997 service and will be increased in line with inflation,
which is subject to a 2.5 per cent. limit, and assistance will be paid from the scheme’s normal retirement age subject to a lower age limit of 60. The Government have already implemented key changes to give priority to those elements that offered the most help to FAS members. For example, we have introduced an increase in assistance from 80 to 90 per cent. of a member’s accrued pension, payable from the member’s normal retirement age but subject to a lower age limit of 60 and an upper limit of 65. We have also enabled those who are unable to work due to ill health to apply for access to the scheme up to five years before their normal retirement age, subject to actuarial reduction.
The hon. Member for Beverley and Holderness rightly went through the history of the Armstrong Group pension scheme. It began to wind up in April 2002, and so is eligible under the FAS. It has 2,984 members, made up of 1,096 deferred pensioners and 1,888 actual pensioners. The scheme’s assets at 31 March 2005 were £55 million and its section 75 debt, which the hon. Gentleman mentioned, was £36 million. That is the additional amount required to secure full benefits through an insured buy-out. So far, 242 pensioner members of the Armstrong scheme have received £888,583.11 gross from the FAS—money that they would not have received without the reforms that the Government have put in place.
The hon. Member for Beverley and Holderness raised a number of issues about the involvement of the pensions regulator with the Armstrong Group pension fund. He was interested specifically in the transparency of the regulator’s decisions relating to the use of its anti-avoidance powers, and I shall address the matters that he raised.
The pensions regulator was established under the Pensions Act 2004 as an independent risk-based regulator charged with protecting pension scheme members’ benefits and the Pension Protection Fund. It started operations in April 2005. The 2004 Act broke new ground by giving the regulator statutory objectives—for example, to protect member benefits and the PPF—and Parliament gave it a range of new powers to address risks to members’ benefits and the authority, as an independent regulator, to determine when it was appropriate to exercise them.
The 2004 Act contained a number of new measures to address the avoidance that the hon. Gentleman has alleged took place. Avoidance is the risk that sponsor employers deliberately manipulate their affairs so as to shift their pension scheme deficits on to the PPF. That would put the PPF at risk, and have a cost consequence for responsible employers who were required to pay the risk-based levy.
The two main anti-avoidance powers available to the regulator are contributions notices and financial support directions. Contributions notices allow the regulator to require a company or person involved in a deliberate act to avoid pension liabilities to put money into the scheme. Financial support directions enable the regulator to direct that associated or connected persons put in place arrangements to guarantee the pension liabilities of an employer that is insufficiently resourced to do so itself, or which is defined as a “service company”.
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