Pensions Bill

Written evidence from Hogan Lovells International LLP (PB 53)

  Request to amend Clause 39 of the Pensions Bill 2013 /14 [HC Bill 6]

We act for BT Pension Scheme Trustees Limited (the "Trustee"), the sole trustee of the BT Pension Scheme (the "Scheme"), and are writing on behalf of both the Trustee and the Scheme's principal employer, British Telecommunications plc ("BT"). BT and the Trustee wish to express their concerns regarding clause 39 of the Pensions Bill 2013/14 [HC Bill 6] ("Clause 39") and are therefore writi ng to request an amendment to that clause.

1. Background

 

1.1 Clause 39 relates to the obligation to pay levies to the Board of the Pension Protection Fund (the "PPF") under sections 117, 174 and 175 of the Pensions Act 2004 (the "Levies") by occupational pension schemes where some or all of their pension liabilities are guaranteed by a "relevant public authority" [1] . Such a guarantee is known as a "Crown Guarantee".

1.2 Before 8 March 2010, schemes with a Crown Guarantee were not eligible schemes [1] (as defined in section 126 of the Pensions Act 2004) and so were exempt from paying the Levies to the PPF. Where a scheme was partially guaranteed, the legislation effected a notional segregation, so that the "unsecured part" was an eligible scheme, but the "secured part" was not [2] . Following the decision by the European Commission on 11 February 2009 [3] that the non-payment of Levies in respect of the "secured part" amounted to unlawful state aid (the "State Aid Decision"), regulations were brought into force [4] to require payment of the Levies where the exclusion from this requirement amounted to unlawful state aid (the "2010 Regulations"). The 2010 Regulations came into effect on and from 8 March 2010.

1.3 Clause 39 introduces a power permitting the Secretary of State to make regulations which provide for the 2010 Regulations to have retrospective effect to when the Pensions Act 2004 itself first took effect. This will allow the PPF to recover Levies for the period before March 2010, as the State Aid Decision requires the PPF to recover all Levies that would have been due if the whole Scheme had always been an eligible scheme, and not just those Levies payable subsequent to the publication of the State Aid Decision.

2. The Escrow Agreement

 

2.1 In light of the European Commission’s "Recovery Notice", BT, the Trustee, the PPF and The Law Debenture Trust Corporation p.l.c. (the "Escrow Agent") entered into an escrow deed dated 29 March 2007 as subsequently amended (the "Escrow Agreement"), according to which the full amounts of the Levies that would have been due (disregarding the Crown Guarantee) had to be paid into an escrow account administered by the Escrow Agent (the "Escrow Account") until the earlier of:

(a) the conclusion of the proceedings brought by BT and the Trustee in the General Court of the Court of Justice of the European Union (formerly called the Court of First Instance of the European Communities) seeking annulment of the State Aid Decision, and any subsequent appeal of those proceedings (the "Annulment Proceedings"); and

(b) the implementation of an alternative means of complying with the State Aid Decision, subject to certain conditions.

2.2 In essence, the Escrow Agreement operates so that if BT and the Trustee were successful in the Annulment Proceedings, the monies in the Escrow Account would be returned to the Scheme, whereas if they were unsuccessful the monies in the Escrow Account would be paid to the PPF.

2.3 Following amendment to the Escrow Agreement in 2009 and in light of the 2010 Regulations, no further amounts were paid under the Escrow Agreement after 2009. Levies for the years 2009/10 and subsequently have been paid in full to the PPF.

3. BT's and the Trustee's concerns regarding Clause 39

 

3.1 BT and the Trustee are concerned by the wide regulation-making powers in Clause 39. Although apparently motivated by the administration levy under section 117 of the Pensions Act 2004, the regulation-making power in Clause 39 expressly applies to the Levies under sections 174 and 175 as well [1] . BT and the Trustee are therefore concerned that the power could be used to make regulations for the recovery of the Levies for PPF levy years 2008/9 and earlier, which could include either terminating the Escrow Agreement (and paying the monies in the Escrow Account to the PPF) or demanding the Scheme pay the balance of the Levies to the PPF immediately, notwithstanding that amounts equal to those Levies have been paid to the Escrow Account (i.e. double recovery). BT and the Trustee believe that there would be no justification for this whatsoever, as it was recognised by all parties (the PPF, Her Majesty's Government and even the European Commission itself [2] ) that the Escrow Agreement was an appropriate interim remedy for resolution of any issues of unlawful state aid whilst the Annulment Proceedings were ongoing. It is not appropriate for the Secretary of State to seek regulation-making powers which are so wide that he could enact legislation in respect of an agreement which all relevant parties have agreed is an appropriate interim remedy.

3.2 BT and the Trustee have therefore asked us to write to Her Majesty's Government to petition for an amendment to Clause 39 to ensure that, where binding arrangements, such as the Escrow Agreement, are already in place to provide for full payment of the Levies (once the Annulment Proceedings have concluded), the Secretary of State's regulation-making powers should be restricted.

4. Suggested amendment to Clause 39

 

4.1 To address BT's and the Trustee's concerns regarding arrangements already in place to provide for payment of the Levies, we suggest that Clause 39(2) is amended by the deletion of the full stop at the end of (b), by replacing it with a comma, and then by inserting the following at the end of Clause 39(2):

"provided that, where an occupational pension scheme has in place alternative arrangements with the Board from time to time for payment of any pension levy, the Secretary of State may not by regulations make provision for payment of so much of any pension levy as is covered by those arrangements."

4.2 If Clause 39(2) is amended as suggested, the following definitions should also be added in Clause 39(3):

""the Board" has the same meaning as in Chapter 1 of Part 2 of the Pensions Act 2004;"

""occupational pension scheme" has the same meaning as in Part 1 of the Pension Schemes Act 1993;"

4.3 For ease of reference, a mark-up of the draft Clause 39 is attached as an annex to this letter. Please let us know if you require any further information.

July 2013

Annex

CLAUSE 39 OF THE PENSIONS BILL 2013/14 [HC BILL 6]

MARK-UP SHOWING SUGGESTED AMENDMENTS

39 Power to require pension levies to be paid in respect of past periods

(1) The Secretary of State may by regulations provide for the Pensions Act 2004, and regulations made under it, to have effect, so far as relating to the requirement to pay pension levy, as if the amendments made by the 2010 regulations had always had effect.

(2) Regulations under this section may in particular –

(a) modify the application of the Pensions Act 2004, or regulations made under it, in relation to amounts of pension levy required to be paid because of regulations under this section;

(b) provide for interest to be charged at a specified rate on such amounts (including in respect of periods before the coming into force of regulations under this section). ,

provided that, where an occupational pension scheme has in place alternative arrangements with the Board from time to time for payment of any pension levy, the Secretary of State may not by regulations make provision for payment of so much of any pension levy as is covered by those arrangements.

(3) In this section –

"the 2010 regulations" means –

(a) regulations 2, 3 and 8 of the Pension Protection Fund and Occupational Pension Schemes (Miscellaneous Amendments) Regulations 2010 (S.I. 2010/196), and

(b) regulation 2 of the Occupational Pension Schemes (Levies) (Amendment) Regulations 2010 (S.I. 2010/1930);

"the Board" has the same meaning as in Chapter 1 of Part 2 of the Pensions Act 2004;

"occupational pension scheme" has the same meaning as in Part 1 of the Pension Schemes Act 1993;

"pension levy" means –

(a) a levy under regulations made under section 117 of the Pensions Act 2004 (administration levy),

(b) a levy under regulations made under section 174 of that Act (initial levy), or

(c) a levy under section 175 of that Act (pension protection levies).