The
Committee consisted of the following
Members:
Chair:
Mr.
Jim Hood
†
Baron,
Mr. John (Billericay)
(Con)
†
Beckett,
Margaret (Derby, South)
(Lab)
†
Blackman,
Liz (Erewash) (Lab)
†
Bottomley,
Peter (Worthing, West)
(Con)
†
Cairns,
David (Inverclyde)
(Lab)
†
Davies,
Philip (Shipley)
(Con)
†
Eagle,
Angela (Minister for Pensions and the Ageing
Society)
†
Hodgson,
Mrs. Sharon (Gateshead, East and Washington, West)
(Lab)
†
Ingram,
Mr. Adam (East Kilbride, Strathaven and Lesmahagow)
(Lab)
†
Main,
Anne (St. Albans)
(Con)
Rowen,
Paul (Rochdale) (LD)
†
Ryan,
Joan (Enfield, North)
(Lab)
†
Twigg,
Derek (Halton) (Lab)
†
Waterson,
Mr. Nigel (Eastbourne)
(Con)
†
Wicks,
Malcolm (Croydon, North)
(Lab)
†
Willott,
Jenny (Cardiff, Central)
(LD)
Glen McKee, Committee
Clerk
† attended the
Committee
Ninth
Delegated Legislation
Committee
Wednesday 24
March
2010
[Mr.
Jim Hood
in the
Chair]
Draft
Financial Assistance Scheme (Miscellaneous Amendments)
Regulations
2010
2.30
pm
The
Minister for Pensions and the Ageing Society (Angela
Eagle):
I beg to
move,
That
the Committee has considered the draft Financial Assistance Scheme
(Miscellaneous Amendments) Regulations
2010.
I
welcome you to the Chair, Mr. Hood, for our deliberations
today, which might become technical given the nature of the
regulations, which were laid before Parliament on 3 February 2010. As I
am sure all members of the Committee are aware, the financial
assistance scheme provides financial help to members of qualifying
pension schemes who face significant losses because their scheme winds
up underfunded. My right hon. Friend the Member for Croydon, North was
the Minister responsible for taking the original legislation through
the House in 2004, and I am sure that he is enjoying getting a final
sight of his
handiwork.
There
can be few greater cruelties than people finding that the pension that
they had earned has suddenly disappeared through no fault of their own,
which is why the financial assistance scheme that we are completing
today under the regulations is so important to about 150,000 people. I
appreciate that the measure has taken time, but it is a complex issue
that involves more than 900 different schemes, the individual
circumstances of which are
varied.
Since
the financial assistance scheme was announced in 2004, we have been
able to extend the help that it provides to a level that is now broadly
similar to that provided by the Pension Protection Fund: 90 per cent.
of the defined pension scheme accrued by individuals when the scheme
began to wind up is paid from their normal retirement age. That costs
the taxpayer some £3.5 billion—in net present
value—and will be funded in part by the Government absorbing the
assets remaining in the affected pension schemes.
In December
2007, Andrew Young of the Government Actuary’s Department
explored ways in which the assets of the FAS qualifying schemes could
be used and whether better value can be obtained for the assets. He
laid out his recommendations in “Financial Assistance Scheme
Review of Scheme Assets”. It is a thick document, but it sets
out in precise terms—as we expect from actuaries—the
benefits of acting in such a way. He recommended that the remaining
scheme assets be transferred to the Government. Implementing that
recommendation fundamentally changes the structure of the financial
assistance scheme and how it operates. Under the regulations, the
financial assistance scheme moves from a scheme that provides only
top-ups to reduced scheme pensions purchased as annuities into a system
that, in some cases, is responsible for the payment of the whole
pension.
Since December
2007, we have increased the proportion of accrued pension covered by
the FAS from 80 to 90 per cent. We have increased in line
with inflation those payments derived from post-1997 service, subject
to a 2.5 per cent. limit. We have provided for assistance to be paid
from the scheme’s normal retirement age, subject to a lower age
limit of 60. We have increased the cap on payments and allowed for it
to be protected against inflation. We have extended survivor payments
to certain partners, survivors and dependent children, created new
payments for those unable to work due to ill health and extended the
financial assistance scheme to members of schemes that wound up
underfunded when the employer is still
solvent.
We
have also transferred the management of the financial assistance scheme
to the board of the Pension Protection Fund to make the best of its
expertise in winding up pension schemes and handling the transfer of
scheme assets. As a result, I can report that, as at 28
February this year, the financial assistance scheme is helping 14,272
people and has paid out £87 million in assistance. As a result
of the legislation and the secondary legislation that we are dealing
with, about 136,000 more people will be helped in the years to come, as
they reach retirement
age.
Mr.
Nigel Waterson (Eastbourne) (Con):
The Minister will
recall that the FAS, in its early and middle stages, was beset by long
delays in making the payments to people in need. Does she have any
up-to-date data about how quickly claims are being turned around at the
moment?
Angela
Eagle:
It varies from scheme to scheme, partially because
of the technical issues that have to be completed—the
information and processing in particular. Generalising is difficult
over more than 900 different schemes at different stages of wind-up.
However, the board of the Pension Protection Fund now has targets to
complete the wind-up of schemes in the financial assistance
scheme—I can talk about that if the hon. Gentleman wishes, but
it is difficult to give a generalised view, because there is a range.
Getting things done as quickly as the available information allows is,
clearly,
important.
I
was about to talk about the second and most important part of the
regulations, which provide for 20,000 people to be paid through the
financial assistance scheme, whose share of scheme assets would be
worth more than the 90 per cent. assistance. They will receive
equivalent payments through the financial assistance scheme in
future.
Peter
Bottomley (Worthing, West) (Con):
The Minister said
equivalent payments, but I am not sure that I heard her say to what
they are
equivalent.
Angela
Eagle:
There is a category of people in the schemes who
were receiving payments, usually prior to the wind-up of their schemes,
amounting to more than 90 per cent. The regulations ensure that when
the assets are transferred they do not suffer any detriment, so that
they maintain the level of their scheme payments which, in those cases,
is more than the 90 per cent. that everyone else gets. That feature of
the regulations is a wholly beneficial one.
Hon. Members
will note that the draft regulations are significantly larger than
those we consulted on, being necessary to capture the wide range of
circumstances of members who will move to the financial assistance
scheme as a result of the transfer of
assets.
The
draft regulations provide for the transfer of the estimated £1.7
billion remaining assets of relevant schemes to Government. They
provide for assets to be valued before transfer. That valuation will
also establish the asset share relating to each relevant beneficiary,
helping to ensure that members receive appropriate payments from the
financial assistance scheme. Not all of the detail of the valuation is
set out in the draft regulations. Instead, we intend that additional
operational information is provided in guidance, so that processes can
be easily adapted in the light of operational experience. A package of
draft guidance was published for consultation on 28 January
and we intend to publish the final guidance as soon as possible after
the regulations come into
force.
The
draft regulations amend the assistance structure for those members
whose schemes will be transferring assets to Government. In that area
the draft regulations are admittedly complex. However, the changes made
essentially relate to just two areas. First, the changes protect the
interests of those individuals who will have an asset share that would
have provided an annuity higher than normal assistance—the
20,000 I referred to in answer to the hon. Member for Worthing, West.
In such circumstances, the FAS payments will reflect the full value of
that asset share, so there is no detriment to those people. We
considered structuring the payments in line with normal assistance
rules, which would have provided a consistent approach to calculating
all FAS payments. However, it could have meant that some people already
receiving a pension higher than FAS levels, but with, for example, no
indexation from their scheme, would have seen the monthly pension in
payment reduce initially when the financial assistance scheme took
over. Although the introduction of indexation would mean they receive
the full value of their asset share over time, stakeholders made strong
representations to us that reducing the pension payment in that way
would not be acceptable. The regulations, therefore, provide for the
assistance to be structured to ensure that wherever possible
such a situation will not occur. If members are not yet
entitled to payments, the assistance will be structured in
line with the normal assistance
rules.
Secondly,
if members are not receiving a scheme pension before the transfer of
assets, the changes in the draft regulations will enable qualifying
members to commute part of their assistance for a lump sum. The
calculation will be broadly in line with tax legislation for pension
commencement lump sums and restricted to the amount of the
member’s share of scheme assets. That area was an important part
of the consultation we undertook last year, in particular with the
Pensions Action Group, the trade unions and affected scheme members. I
advise the Committee that responses were broadly supportive and that it
was recognised that we had made a real effort to ensure that the new
category of members would be treated
fairly.
The
draft regulations also amend the reconciliation provisions and enable
the financial assistance scheme manager to take into account all
pension payments made from the start of the wind-up, and to make
corresponding adjustments to financial assistance scheme payments. That
will ensure that all beneficiaries receive the correct amount from
their scheme and from the financial assistance scheme from the start of
the wind-up onwards.
The draft
regulations make certain changes to the information, review and appeal
provisions, which are consequent to the changes that I have already
outlined. They allow the financial assistance scheme manager to waive
any information required where they consider it appropriate. That will
enable a balance to be achieved between the information needed by the
financial assistance scheme and the burden that those needs place on
trustees and insurers.
To reduce
further the information burden on trustees and insurers, we have made
provision to enable Her Majesty’s Revenue and Customs to share
certain information with the financial assistance scheme manager and
its commercial provider, where that information is relevant and
necessary to the work. In the light of operational experience, we have
also made changes to the time scales for the provision of information
and applications for reviews of decisions.
In moving the
draft regulations, I am happy to say that the Government fulfil their
promise to provide a just and final settlement for those who lost
pension savings, some of whom would have received nothing at all if it
were not for the creation of the financial assistance scheme by the
Government. I commend the regulations to the
Committee.
2.41
pm
Mr.
Waterson:
It is a great pleasure to serve under your
chairmanship, Mr. Hood, and I hope that we will not detain
you long this afternoon. I am delighted to see such a high-powered
Committee and such a galaxy of ex-Ministers. I can only assume that it
is a ploy by the Whips to keep them out of
mischief.
Mr.
Adam Ingram (East Kilbride, Strathaven and Lesmahagow)
(Lab):
We are future pensioners.
Mr.
Waterson:
We are all future pensioners, of course.
[
Interruption.
]
And one or two
pensioners—I will not ask people to put their hands
up.
It is a
particular pleasure to see the right hon. Member for Croydon, North,
who was the architect and pilot of the 2004 legislation. As he sits
surveying what has become of his handiwork, I hope that he is not too
horrified at the sheer complexity that we have got into, largely
because of some unfortunate decisions made in 2004. For example, he
might like to cast his eyes idly over the formulae on pages 29 and 30,
or 51 and 52, which are of mind-boggling complexity. Perhaps I am being
a little unfair as one measure relates to people with polygamous
marriages, but even so it is an incredibly complex set of regulations.
They are extraordinarily voluminous—unnecessarily so, in my
view. I shall develop that point in more detail in a minute.
I should also
mention, with a tinge of sadness, that this is almost certainly our
last get together before the big day, and I thank the Minister for her
unfailing courtesy and for usually retaining her patience with me. I am
sorry not to see the hon. Member for Northavon (Steve Webb), but I
understand that he has other pressing commitments. I am, however,
delighted to see his colleague, the hon. Member for Cardiff,
Central.
I will mention
a couple of issues by way of background to the financial assistance
scheme. If one reads the explanatory memorandum, or listens to the
Minister, one would think that it was all the Government’s idea.
However, as the right hon. Member for Croydon, North will testify, the
only reason that we have a financial assistance scheme at all, let
alone these regulations, is because in May 2004 the Government were
forced by a combination of Opposition Members and principled Labour
rebels to concede the issue. Up to that point they had no intention of
providing financial assistance of any sort to the 150,000 or 160,000
people of whom the Minister spoke—I am happy to give way to
right hon. Gentleman if he thinks that I am rewriting
history.
Six years on,
let us not allow Ministers to try to claim any credit for this scheme.
That is bad enough, but what makes it worse is that every single
concession on the financial assistance scheme has had to be wrung out
of the Government—like drawing teeth—at different stages
along the way. Having grudgingly agreed to set up the FAS, the
Government then decided to set it up completely separately at the other
end of the country, because they did not want it to be like and on the
same terms as the PPF. Yet the regulations are making it equivalent
to the PPF, so we have come in a huge, long expensive circle
to get to where we should have
started.
Angela
Eagle:
I thank the hon. Gentleman for giving way, as
always, with great courtesy. Will he tell the Committee what
legislation was passed that gave any protection to people who lost
pensions in the 18 years of Conservative
Government?
Mr.
Waterson:
We are talking about pensioners and would-be
pensioners. I served on the 1995 Pensions Bill Committee, which put in
place for the first time some protection for pensioners, although I
appreciate that it did need a bit of tweaking along the way, hence the
2004 Act. I will not digress any further once I have pointed out that
the 150,000 or 160,000 victims, whom the regulations are about,
miraculously came about only after 1997. All the failures occurred
after the Labour Government was elected. Let us be clear about
that.
The
point that I was about to make is that the administration was set
up—the wheel was reinvented for the FAS—in York, quite
separately, and we said at the time and have consistently said,
“Why not let it be run by the PPF? It could have a separate
fund, but be run by the same people.” And it is now being run by
the PPF. As the right hon. Gentleman surveys his handiwork, he might
like to reflect on those historical points.
Malcolm
Wicks (Croydon, North) (Lab):
I hope to catch the
Chair’s eye later. Of course, it is the Minister who needs to be
scrutinised, not a former Minister. The hon. Gentleman has made two
references to the FAS being established at the other end of the
country. As a former worker at the university of York, may I point out
that, from a York perspective, Eastbourne is at the other end of the
country?
Mr.
Waterson:
As someone who was born at the other end of the
country in Yorkshire, we could get into a slightly philosophical
debate.
Malcolm
Wicks:
It is geography.
Mr.
Waterson:
Yes, but the country has two ends and,
demonstrably, the PPF is at one end with the FAS was in York at the
other. I think we can agree on that.
[
Interruption.
]
The
Chair:
Order. I ask the hon. Member not to be tempted down
that road.
Mr.
Waterson:
I will get back to the regulations. We broadly
welcome them, as far as we can understand some of them. I will not
invite my hon. Friends to vote against them today, partly because I
suspect we are in a general end-of-term mood.
The
explanatory memorandum, as such things go, is good—except for
the missing paragraphs about the history, but I will not go there any
more. It sets out the purpose of the instrument cogently. It could not
be simpler. Paragraph 2 says that the
regulations
“complete
the legislative implementation by allowing part of the funding of an
enhanced level of the FAS to be achieved through the transfer of
pension scheme assets to government and for the FAS to make
payments”.
It
could not be simpler, and yet we have masses of formulae, complexity
and loads of pages of regulations to try to achieve that simple thing.
As the Minister rightly says, this all flows from the Young
review—an excellent document in many respects—and his
recommendations that it should all be administered as if it were the
PPF, that the Secretary of State should be in charge, notionally at
least, of the fund, and that, if it was paying out the benefits, it
made logical sense for the remaining assets of the schemes to be
transferred to the Department for Work and Pensions. We have no problem
with the principle of that, but the reality is that trying to achieve
that simple aim produces so much complexity because of what went
before.
I
raised the point earlier about the speed of payment. We had statistics
in the past about the average speed of turning claims around. I
appreciate that we are talking about schemes within a scheme, if I can
put it like that, but it would be helpful if the Minister could dig
out, as she is emptying her filing cabinets, the current figures so
that we can compare them with the old figures. I think that over time
there has been a speeding-up, which is welcome, and we argue that that
is entirely down to it being run—finally—as it is now, by
the
PPF.
Angela
Eagle:
Perhaps I can help by saying that it is important
that people can receive this assistance when they reach pension age. As
far as we can tell, nobody has had any delays in payments when they
reached pension age. Obviously, it is important to get the information
and get it through the system as quickly as possible. I hope that the
hon. Gentleman recognises that dealing with more then 900 differently
arranged pension schemes—some of which keep good records, some
of which do not—can be complex. I would like at least to
reassure him that nobody has had their pension payments or assistance
payments held once they reached retirement age. I am happy to write to
him about the current rate of wind-ups and gathering information, if
that is what he wishes to have information
on.
Mr.
Waterson:
I am grateful for that and I think that the
information would be helpful, but I am trying to remind the Minister
that in the early days of the FAS, the Pensions Action Group and others
were incensed by
how long it was taking to get claims dealt with. That was before her
time and I am sure that it has sped up in the meantime, but I would
like clarity on how much and how
far.
Peter
Bottomley:
The Minister, in a helpful response to a point
from my hon. Friend, talked about normal retirement age. It used to be
clear, but I am not sure such things are legal now. Will it be
necessary to come back with another statutory instrument to define what
the retirement age might be? If it is no longer necessary to have a
fixed retirement age, what happens to people in schemes that have
failed and been taken over or brought into the remit of the
measures?
Mr.
Waterson:
My recollection, which the Minister may need to
correct, is that there is a standard retirement age applied by the FAS,
albeit the original scheme in which the person was enrolled
might have had an earlier retirement age. I think that that applies to
the PPF as
well.
There are some complex, but necessary, regulations
about the valuation of assets, which is important, before they disappear
into the hands of the Department for Work and Pensions. I welcome
the Minister’s point about assistance payments to the 20,000 people,
who will not be disadvantaged by the transfer of the assets. It would
be egregiously unfair if those people were receiving payments of a
certain level and then had them reduced simply as an unintended consequence
of the regulations. The Minister, rightly, touched on the various
concessions on survivors and other issues over the years. Again, the
Government made those concessions under duress, but they made them
none the less. Regulations have to deal with those issues, particularly
survivors and surviving dependants.
Finally,
I would like to ask the Minister a question on
consolidation.
Derek
Twigg (Halton) (Lab):
Before the hon. Gentleman concludes,
he may correct me but he said that there were no cases before 1997 that
needed help from the scheme. Has he heard of a company called H. H.
Robertson in the constituency of my hon. Friend the Member for
Ellesmere Port and Neston (Andrew Miller)? My hon. Friend raised that
case with the then Tory Minister for Competition and Consumer Affairs
in March 1997 and that company was in trouble in
1996.
Mr.
Waterson:
I do not know the details of that problem, but I
am happy to accept what the hon. Gentleman says. In which case, I will
amend what I said to say that the overwhelming majority of cases arose
after 1997 after the change of Government. I was trying to deal with an
assertion that we, as the previous Government, had not done anything to
protect pensioners. Of course, the Pensions Act 1995 was all about
dealing with Captain Bob, who, as I recall, was a Labour Member of
Parliament, but I do not want to develop that point too
much.
Peter
Bottomley:
A non-dom as well.
Mr.
Waterson:
Probably. I was asking the Minister about
consolidation because, having sat through a number of Committees
dealing with regulations about the FAS, it seems to me that if anything
ever needed consolidation,
it was those regulations. I was delighted to see, in paragraph 7.69 to
the explanatory memorandum, a commitment to consolidate all the
regulations into one place
“at a later
stage when the operation of the scheme is more
settled.”
The
scheme has been going for six or seven years—since
2004—so at what stage might it be regarded as being settled? Is
this just another messy, difficult and complicated job being left to
the next Government? The paragraph goes
on:
“The
Department proposes to undertake consolidation of the Regulations at
the next convenient
opportunity.”
I
would like to ask the Minister—she may have to answer in writing
if it is easier—how far the thinking has got on consolidation.
For anyone who does not have an advanced degree in either actuarial law
or any other subject, finding their way around all the different
regulations, learning how they relate to each other and which is
relevant and still enforced would be a full-time job. Therefore, it
would be hugely beneficial if consolidation could proceed apace. I do
not want to detain the Committee any longer. I broadly welcome most of
the regulations and I do not wish to oppose
them.
2.55
pm
Malcolm
Wicks:
I want to make a brief contribution to the debate.
I thank the Minister for her clear introduction. For the background, we
can look at chapter and verse in the detail of companies getting into
trouble. Certainly, in the 1990s and later, we became more and more
aware of a new scandal in British social life. As companies were
running into financial difficulties and going bust, workers who had
contributed to their defined benefit or final salary pension schemes
since the age of 14 or 15—I met some of those guys
when they were approaching retirement—suddenly realised that the
pension they had worked hard for, often in difficult skilled manual
circumstances, would no longer be at the level that they had
anticipated. It would not be nothing, but it might be only 20 or 30 per
cent. of their anticipation. That was the issue a Labour Government had
to confront. We can argue about the history, but the record shows that
the Conservative Government did not confront the problem when they had
the
opportunity.
Although
many people contributed to the success of the legislation and policy,
the ministerial hero, in my view, was my right hon. Friend the Member
for Macclesfield, who argued the case for what became the Pension
Protection Fund in the Department and with Government, so it was
legislated for. The PPF is a substantial new institution in Britain. It
is helping, and will help, large numbers of people to get the pension
that they deserve. [
Interruption.
] The hon. Member
for Worthing, West looks a bit agitated. If he wants to get something
off his chest, I am happy to give way.
Peter
Bottomley:
I am just trying to help to clarify the report
in terms of the right hon. Gentleman’s excellent speech. Perhaps
we should have heard “Makerfield” rather than
“Macclesfield”.
Malcolm
Wicks:
That was a helpful intervention. The hon. Gentleman
may help his honourable colleagues soon with some of the algebra if he
is trying to be
helpful. Those of us hailing from north London have our own way of
pronouncing things—but let us not be put off by
pedantry.
It
was my right hon. Friend the Member for Makerfield (Mr.
McCartney) who argued the case for the Pension Protection Fund, which
is now helping substantial numbers of people. However, of course, an
issue then arose about people who were already in danger of losing
their pensions when a company collapse preceded the legislation for the
protection
fund.
The
hon. Member for Eastbourne is right: there was a substantial lobby, not
least by steel workers and by colleagues—more from the Labour
side, I am bound to say, than from Opposition parties. There was
argument and discussion in Government about what could be done about
the matter, which was complex, with significant sums of money at stake.
The regime could not be the same as the PPF because a levy operation
would pay for the PPF pensions, which was perfectly reasonable. There
was debate in Government. The Department for Work and Pensions and the
Treasury were key actors in how the scheme might be presented. Out of
that came the financial assistance scheme to help people. It was the
right thing to do. The hon. Member for Eastbourne might make fun of
such matters, but I hope that he never has an opportunity to realise
that they are more complex than a short speech. We had to devise a new
scheme. We could not know all the details at the outset, but the FAS
came into being. It has been a significant success in bringing pension
justice to some of our best workers and most responsible citizens in
this
country.
As
a former Minister, I am pleased to see the details being put into
place. Inevitably, as I have implied, such matters are complex. We are
looking back at the PPF and the FAS at the end of a week, which
unfortunately has again seen part of Parliament at its worst, bringing
Parliament and former Ministers into serious discredit with the public.
My former Parliamentary Private Secretary, my hon. Friend the Member
for Inverclyde, is a member of the Committee. He later rose to the
dizzy heights of the Scotland Office. It was kind of him to turn up
today, should I need any help. I look back on the role played by my
right hon. Friend the Member for Makerfield with some pride. The
measures were the result of Parliament and the Government getting to
grips with a difficult issue and doing the right thing. Their detailed
regulations and algebraic formula put good principle into
practice.
3.1
pm
Jenny
Willott (Cardiff, Central) (LD):
It is a pleasure to serve
under your chairmanship for the first time, Mr. Hood. For
me, it is nice to return to the financial assistance scheme at the end
of the Parliament, as it was an issue with which I was involved before
I was elected to this place. One of the biggest schemes that went bust,
Allied Steel and Wire, is based in Cardiff, in the constituency that I
now represent. As the hon. Member for Eastbourne said, I was also
involved in wringing some concessions out of the Government over the
years of this Parliament. It is good to see the regulations today, and
we welcome the proposed changes. Hopefully, they will boost the level
of support that people receive and make it more financially
stable.
Following
the consultation, I welcome the Government’s commitment to
ensure that the FAS scheme manager provides details of members’
asset share along with the forecast of assistance and a lump sum
entitlement soon after the assets are transferred, and the annual
forecasts after that. It is important for members to know what they are
likely to receive when they retire, as it can help them with planning.
They have been through horrendous experiences over the past few years
and faced massive uncertainty. They have been subject to a difficult
and worrying time, so a little more certainty and regular updates would
be
helpful.
However,
I wish to raise several issues with the Minister, the first of which
concerns the meaning of 90 per cent. As she knows, one of the main
worries of members of the Pensions Action Group and other recipients of
FAS money is the level of compensation that they are likely to receive.
In December 2007, when he was Secretary of State for Work and Pensions,
the right hon. Member for Neath (Mr. Hain)
said:
“All
scheme members will be guaranteed 90% of their accrued pension at the
date of commencement of wind up, revalued to their retirement
date”.—[Official Report, 17 December
2007; Vol. 469, c.
100WS.]
During
debates on the Pension Bill in 2007, the then Minister of State for
Work and Pensions, the right hon. and learned Member for North
Warwickshire (Mr. O'Brien), said that the level of
compensation paid to FAS recipients would be comparable to that paid
out by the Pension Protection Fund. However, it is clear that most
people affected do not receive anywhere near 90 per cent. of what they
were expecting. I should be grateful if the hon. Lady clarified whether
the Government intend to change their language so that they avoid
raising false
hope.
Angela
Eagle:
The slight difference and the nuance in what the
hon. Lady said is crucial to understanding the regulations. I shall be
happy to deal with such matters when I respond to the debate, but she
referred to what members were expecting, which is often different from
90 per cent. of what they have accrued when the pension scheme winds
up. Will she acknowledge that that is the cause of a lot of the
confusion?
Jenny
Willott:
The cause of the confusion does not necessarily
matter. The issue is that there is a lot of confusion and many people
do not receive the 90 per cent. of payments that they are expecting.
Whether that is a result of nuance, misunderstanding or confusion, will
the Government clarify exactly what people can expect? At the moment,
people are often disappointed and concerned about how much they will
receive. Will the Minister go into that in
detail?
Angela
Eagle:
Will the hon. Lady acknowledge that a recipient who
had carried on working and paying in would expect a certain amount in
pension on retirement? Will she acknowledge that part of the difficulty
with the 90 per cent. issue is that people are thinking about that
number rather than about the pension accrued by the time that the
company with which they had worked ceased trading due to unfortunate
circumstances? That confusion is at the heart of the
difficulty.
Jenny
Willott:
That may very well be the case for some members.
Clearly, there is an issue about the difference between what they have
accrued at date of wind-up and what they would have accrued had the
business carried on operating. However, even given the date of wind-up,
there is a lot of confusion among recipients about what they can
expect. The expected 90 per cent. does not always seem to be
what they finally receive. Above and beyond the Minister’s
point, there is still confusion among
recipients.
The
second issue is the effect on small businesses. The impact assessment
says that the additional cost to trustees of providing the information
necessary to transfer the assets is estimated to be between £1
million and £3 million. The Government have committed
to minimising the impact on firms that employ fewer than 20 people.
That discretion is clearly welcome and will be important for
firms of that size. However, what response have the Government
had from small businesses regarding the new requirements? Have
they had any feedback as a result of the concessions made by the
Government?
Another
issue raised by the impact assessment concerns the arrangements to
monitor the PPF board as the manager of the FAS—its
effectiveness in transferring assets and in assessing the assistance
payments. As the hon. Member for Eastbourne said, at the beginning of
the financial assistance scheme, massive delays were an issue. People
do not expect the same issues to arise again, and most of the problems
now seem to have been resolved, as clarified by the Minister, but the
impact assessment said that the administrative costs of transferring
assets would be spread over four years. Is that the length of time that
the Minister anticipates it will take for all the assets to be
transferred from the schemes we are discussing? The Government said
elsewhere that the process is likely to take between two and three
years, which is a discrepancy. Will the Minister clarify the time
frame, which will have a knock-on impact on
recipients?
The
PPF board will submit accounts and reports to the Department for Work
and Pensions for scrutiny, and an annual report will be laid before
Parliament. How frequently will the PPF board be expected to submit
reports to the DWP for scrutiny? The answer will give us some idea of
how regularly it will be monitored over the next few
years.
Potential
disruption for pensioners who are currently receiving pensions in
payment has already been mentioned. The impact assessment says that
there are about 23,000 pensioner members who are currently being paid
their pensions by their pension scheme and will be paid by the FAS in
the future. What will the transfer mean for those members in
particular, in practical terms? Can the Minister assure us that they
will not experience a break in payments during the transfer process?
How many non-pensioner members will be covered by the transfer of the
450 schemes and when might they expect to receive a valuation of their
likely pensions? When might they hear the first
information?
Angela
Eagle:
The hon. Lady needs to recognise that the financial
assistance scheme contains more than 900 different pension
schemes of various sizes and sorts. It also contains various levels,
with higher or lower quantities of information about, for example,
deferred members, members in the scheme, where they are and how much
they have paid in. She must know that it is impossible for me to
generalise or give a single figure about all 175,000 people who will
benefit from FAS support and when the scheme will be up and running and
everyone has retired.
Jenny
Willott:
With respect to the Minister, that is not what I
asked. I made it clear that I am talking specifically about the schemes
that are referred to in the regulations. The impact assessment mentions
how long it is likely to take for the asset transfer to take place. As
I understand it, once the asset transfer has taken place, the scheme
manager should be able to identify how much scheme members are likely
to receive in future. I am asking when that is likely to take place. I
am asking not for information about when people who are in their 30s
and 40s are likely to retire, but for specific information in the
regulations.
The
impact assessment says that the cost of gathering information by
trustees before the transfer of assets is likely to be recovered by the
pensions trustees from the scheme assets before transfer to the
Government, so members’ scheme asset shares may be reduced. It
says that a small loss to a small number of individuals is expected. I
accept that, but I would like the Minister to clarify how that links in
with the issue of lump sum payments. The Government are proposing that
certain FAS scheme members will be entitled to access lump sums when
they reach retirement age, up to a maximum of 25 per cent. of the
capital value of their pension. However, as I understand it, it would
also be limited to the amount—as a maximum cap—of the
individual’s asset share when the transfer of assets takes
place. Clearly, if the costs of gathering information by trustees are
recovered from the asset share, in some cases that could reduce the
amount of asset share accrued by each individual, so that accessing a
lump sum could reduce the amount of money that they can get as a lump
sum.
Liberal
Democrats are very supportive of lump sum payments. Most people think
that they are a good idea. They are usually used to pay off mortgages
and suchlike, which puts people in a much better position when they
retire. I would be grateful to the Minister if she clarified whether
the impact on those individuals has been considered, even if they are a
relatively small number, whether any estimate has been made of the
number of people who might be affected and whether anything can be done
to balance out the loss that they might
incur.
My
final point relates to the Joint Committee on Statutory Instruments,
which the Minister did not mention in her opening remarks. As she will
know, it has reported the regulations. Despite the Government’s
explanations of how the system works, it still casts doubt on whether
this type of situation was ever contemplated. I do not want to query
whether they should be reported, but I would like the Minister to
comment on that Committee’s report and its uneasiness about the
transfer of powers in the regulations. With all those queries answered,
we will be happy to support the
regulations.
3.13
pm
Peter
Bottomley:
If this were not such a serious subject, one
could have a good deal of fun with the equations and the different
definitions that are scattered through the statutory instrument. I pay
tribute to the Minister because she has shown the skill of a good chess
player in dealing with a complicated subject without too much
excitement. She has also responded helpfully to the hon. Member for
Cardiff, Central. Although the explanatory memorandum talks about the
expected pension, which could be a way of misleading people who read
such things, this has been a helpful exchange.
The only point
that I want to put on the record is that, although it is more frequent
now, it is not normally new Labour or Conservative policy to
nationalise pension schemes. I am glad that people have followed the
advice of Andrew Young, who said in his review that the simplest and
most effective thing to do was to transfer the obligations, as well as
the assets, and then to come up with a scheme that would be seen as
pretty fair. I have a background in the steel industry, industrial
relations and—wearing another hat in a different
time—merging pension schemes. Looking after the interests of
pensioners is common in both the public and private sectors. It is one
of the things that the Public and Commercial Services Union strike
today could be thought to be about.
The scheme is
trying to pick up some of the casualties. I say this to some in the
private equity business: when they started piling debt on to businesses
that otherwise had some resilience, they were making some of their
staff’s pension entitlements and expectations more vulnerable.
That is one of the reasons why I spoke up in public and said that that
was a bad way of doing business. I look forward to a time when most
people will say that a pension scheme that members of staff and
employees agree with is one that can have a degree of resilience and
that business is not unnecessarily put at risk by extreme financial
engineering.
3.15
pm
Angela
Eagle:
I thank the members of the Committee who have
spoken in favour of the regulations. I hope that I can satisfy some, if
not all, of the questions that have been asked. I will be the first to
admit that the regulations are complex. It is never ideal to have
statutory instruments of such complexity. However, by definition, we
are in a complex area. We have 928 different schemes of varying lengths
and sizes, with many different rules that our pensions regulations had
allowed to create. We are trying to put them together into one scheme
and ensure that no one loses any of the rights that they have been
accruing. By definition, none of us finds such complexity ideal.
However, many of us have to spend our time swimming in it to try to
achieve the desired result, which is a fairly simple one, as my right
hon. Friend the Member for Croydon, North, the ex-Pensions Minister,
referred to in his excellent remarks. He also gave us an insight into
some of the issues that were around when the approach was adopted and
decision to create the FAS were
taken.
It
is important that we protect the interest of all the members in their
various different schemes. The regulations are complex because they
need to cover a wide range of scenarios to capture all possible
circumstances of members who will move to the FAS as a result of the
transfer of assets. That means ensuring that the payments that they
receive will reflect the full value of the member’s share of the
scheme assets. Unfortunately, that is complicated, but we hope that we
can manage to achieve it in the simplest way. None the less, I will be
the first to acknowledge that the statutory instrument does not look
simple when one picks it up.
The hon.
Member for Eastbourne broadly welcomed the regulations. He had his bit
of fun, which all of us do when we make various political points in
Committee.
I do not intend to revisit those points, except by saying that I support
the observations made by my right hon. Friend the Member for Croydon,
North.
The
hon. Member for Worthing, West asked about normal retirement age. The
FAS pays assistance from the member’s normal retirement age. In
the scheme, that is subject to a lower limit of 60 and an upper limit
of 65. If wider changes on retirement were to be made, it would be for
future Ministers to ponder the possible implications in the context,
and I am sure that many people in the DWP would write submissions
about the
issue.
Peter
Bottomley:
They would be retired by
then.
Angela
Eagle:
I do not wish to anticipate what may happen in the
future, or we could be here for a very long time. Those are the figures
that apply at the moment.
The hon.
Member for Eastbourne also asked about consolidation. The regulations
are, in essence, the final piece of the jigsaw of the package of FAS
regulations that bring into being all the decisions, extensions and
settlements that have been made. Once the final piece is in place and
all the policies have been established, we hope to consolidate the
regulations in the near future to create a more coherent whole. I do
not want to lower the morale of DWP civil servants in this area too
much, but I am sure that they will turn their minds to looking at how
consolidation can work pretty soon. It is certainly in the interests of
sensible legislation to ensure that we consolidate as soon as we
can.
I
should like to welcome the hon. Member for Cardiff, Central to the
Committee, albeit to what may be our last sitting before the
forthcoming general election. She asked a series of questions and I
hope that I can answer them to her satisfaction. I welcome her broad
support for the regulations. She ventured into the “What does
90 per cent. actually mean?” area of debate which, as
those who have been involved in this matter for a while will know, has
featured from the beginning. I hope that I was able to tease out at
least some part of the difficulty that there has been in understanding
what the 90 per cent. is.
For
definitional purposes, it is the accrued pension revalued from the date
of wind-up to an individual’s normal retirement age. It is
revalued according to FAS rules. That means that the 90 per cent. of
their expected pension has to be within the context that I have just
read out. That is not and never could have been 90 per cent. of what an
individual would have got if they had worked and carried on
contributing to that pension until they would have retired. There has
been a lot of confusion about that.
Again,
circumstances vary so much. There are 928 different sets of
rules, some of which have indexation, some of which do not. It is very
difficult to generalise about that using single figures. That is the 90
per cent. within that definition. I accept that there has been
confusion but pensions are an inherently confusing subject. There are
928 different pension schemes. It is very difficult to generalise about
them.
The hon. Lady
also asked about the effect on small business. The recent consultation
responses to the actuarial guidance have welcomed the flexibility that
these regulations provide. The supporting guidance also waives certain
requirements to ensure that costs are minimised. We have tried as far
as we can to ensure that we do not put
too much of a burden, particularly on smaller companies, in providing
this information. Obviously we will continue to keep that under
review.
The
hon. Lady was also interested in how much the information that these
regulations require will cost to the providers of the information. She
pointed out the figure in the impact assessment. It is estimated to be
around £1 million to £3 million above the costs that
would have been incurred if schemes had bought annuities for their
members from an insurer. But these costs will be met from scheme assets
in most cases. This will effectively be a cost to the public sector
because the Government will be taking in the assets. Again, that should
not have an impact.
The hon. Lady
also asked about the impact on small and medium-sized enterprises and
what the consultation said. Unsurprisingly, the Government received
mixed responses to their information requirements. Some feel that the
information requirements are time-consuming and costly. Others consider
that supplying the information would not be unduly onerous. Again, I
can assure the Committee that we appreciate the concerns and we have
included within the draft regulations discretion for the manager of the
FAS to waive some or all of the information requirements where they
consider it appropriate to do so. So we will not pursue information
requirements in a pedantic way. Only information that is really needed
will be
pursued.
The
hon. Lady also asked about statements and forecasts. Explanations of
how the assistance that people will receive has been calculated are
provided, but the calculations are complex and can be difficult to
understand. So we will look at ways of ensuring that statements and
forecasts clearly explain the assessment and how it has been reached.
She asked about admin costs and she noticed that we believe that these
will be spread over four years. She asked whether that would be the
time we anticipated for the transfer of all scheme assets. We
anticipate that the vast majority of schemes will be transferred over
that four-year period. We expect a good proportion of them, certainly
the assets anyway, to be transferred within two years, but there is
always a tail of much smaller, more complex laggards—if I may
put it that way—where perhaps the information on members is not
accurate enough, or is difficult to substantiate. The Pension
Protection Fund works within in those boundaries, but we hope that the
vast majority will be done within four years.
The hon. Lady
was worried that there might be some break in the payments to
pensioners already receiving a pension when assets are transferred. We
will work closely with the trustees of individual schemes to ensure
that payments continue without a break when assets are transferred. I
do not imagine that there would be a break in payments when the
essentially administrative process of transferring the assets into the
Government takes
place.
The
hon. Lady asked how frequently the Pension Protection Fund would give
progress reports to the Department for Work and Pensions. We anticipate
that the board of the PPF will provide an annual report that the
Secretary of State will publish. In addition, performance will be
monitored within the DWP on a regular basis. Therefore, those are the
parameters of monitoring the information.
The hon. Lady
said that the JCSI had reported the regulations for unusual use of
powers. Section 286(1) of the Pensions Act 2004 confers wide power on
the Secretary of State to make regulations to provide a financial
assistance scheme. Section 286(3)(j) provides the power to apply parts
1 and 2 of the 2004 Act with modifications to the FAS. Section 161 in
part 2, along with schedule 6, includes provisions in relation to
transfer of assets to the board of the PPF. The draft regulations
modify section 161 and schedule 6 for the purpose of the FAS
to allow transfer of scheme assets to the Secretary of
State.
The JCSI set
out in its report that that may be an unusual or unexpected use of the
power, because section 286(3)(c) confers an express power for
regulations to provide for the transfer of property rights and
liabilities to the scheme manager. As you are aware, Mr.
Hood, the FAS manager is now the PPF and not the Secretary of State.
The report suggests that to fall within the powers in the primary
legislation, assets should be transferred to the scheme itself.
However, unlike the PPF there is no scheme fund in which assets are
held and then used to pay assistance in the context of the FAS.
Instead, the FAS sets out who qualifies for assistance and how payments
should be calculated. Funding for those payments is provided by the
Secretary of State, directly out of the DWP budget. It is therefore
appropriate that any funds brought in should be transferred to the
Secretary of State and not the scheme manager. In practice, the funds
will be transferred to the consolidated fund that the Government
hold.
We
took the view that the list in section 286(3) of the 2004 Act
illustrates and amplifies how the power in section 286(1) could be used
and it is not intended to be restrictive. When the clause was debated,
it was not clear how the FAS would be delivered. It was made clear then
that there were a number of alternatives that would need to be
considered. The clause was, therefore, widely drafted deliberately and
subject to an affirmative resolution, which is why we are all here this
afternoon, to allow additional scrutiny by Parliament when proper
consideration had been given to the practicalities of the matter. That
was something hinted at by my right hon. Friend the Member for Croydon,
North in his brief history of how we got where we are today. Transfer
of the assets to Government was one possibility, as was making the PPF
the scheme manager. The provisions made in these draft regulations,
therefore, sit squarely within that and we consider that they clearly
fall within the provisions of the 2004 Act. The JCSI has a slightly
different view, but there is simply no scheme manager or fund to
transfer these assets to. We therefore feel that this is the only way
of ensuring that we achieve what the Young report suggested. That is
why we have decided to do it in this
way.
Jenny
Willott:
Will the Minister comment on my final question
concerning the impact of cost recovery by trustees from scheme assets
on the amount available for lump sum payments for FAS recipients when
they
retire?
Angela
Eagle:
Is the hon. Lady asking how much it would cost to
make lump sum payments available to all, or something else? Will she
clarify?
Jenny
Willott:
The issue, as far as I understand it, is that the
regulations say that recipients may apply for a lump sum up to a
maximum of 25 per cent., or they can
reach the cap of the amount of their asset share at transfer of the
assets to the Government. Therefore, if the cost of gathering the
information is being recovered from the scheme’s assets, each
individual member’s asset share is reduced, which means that the
amount that they can get as a lump sum could technically be reduced as
well. Has the Minister looked into that? Are there implications for the
amount that people can get, and how many people are likely to be
affected?
Angela
Eagle:
I now understand the hon. Lady’s question.
We have looked at the issue and it is possible that a small number of
people with asset shares in
excess of 90 per cent. will see a small reduction in the value of their
payments due to the cost of information provision, which will reduce
their asset share. We think that it is a small reduction and that it
will affect a small number of
people.
Question
put and agreed to.
R
esolved
,
That
the Committee has considered the draft Financial Assistance Scheme
(Miscellaneous Amendments) Regulations
2010.
3.32
pm
Committee
rose.