Session 2009-10
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Delegated Legislation Committee Debates

Draft Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2010



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

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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. 

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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. 

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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

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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. 

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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. 

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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

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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,

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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

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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.

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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

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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. 

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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. 

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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.

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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

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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. 

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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

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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

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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.  


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Prepared 11:30 on 25th March 2010