| Previous Section | Back to Table of Contents | Lords Hansard Home Page |
Baroness Hollis of Heigham: The noble Lord is right; the context of this matter is to be found in the rules introduced, I think, by Nigel Lawson in 1988. I seek help on that point. In order to prevent employers using pension funds to build up tax privileges through surpluses the figure was capped at 105 per cent. There has been some controversy about the matter since then. I read a recent Bank of England article on the matter which suggested that in some cases there was manipulation of the 105 per cent rule to enable employers to extract funds from pension funds which they did not need to do and in the process calling it a contributions holiday. The trade union movement was concerned about the substantial sums of money that came out of funds as a result of that. None the less I am not suggesting that that was done always or necessarily in bad faith as it was done within a context of the regulations laid down by the Chancellor of the Exchequer.
The current tax rules about requiring the run-down of a surplus to a 105 per cent cap will disappear. Trustees will have the freedom to decide whether to retain a surplus within the scheme in the event that there is a surplus in it. Payment could be made only from a surplus above and beyond the amount needed to secure the full buy-out rights of every member and beneficiary. The valuation certificate needed for such payments would be of limited duration. What is being said here is, should we return to a situation of soaring stock markets that resulted in pension schemes being
14 Sept 2004 : Column GC374
not only not underfunded but having substantial funding over and beyond that necessary to meet full buy-out—which is a very high hurdle and much higher than exists under the 1995 Act—the trustees can decide, if they believe it is in the members' interests, to return that surplus to the employer. It is quite hard to conceive of circumstances in which it might be in the members' interests; the obvious one is if there is some question about the solvency of the company and the employer needing access to the fund. That would immediately raise a question mark as to how safe the pension fund might be.
Any such surplus would exist only when all the need to meet full wind-up liabilities could be met. In that case, the trustees could—although I am not saying that they would—make a decision that it could be returned to the employer. There is a very high hurdle that fully protects the employee. The provisions say that under the circumstances—who knows when they might occur, but should we return to that position—there is a route that trustees, the employer and scheme members can follow should they so choose. That is the point of the clause. It is necessary partly because there are no longer Inland Revenue rules, given the tax simplification with which we are now proceeding.
Lord Higgins: As I said, there is still a great deal of controversy legally about who does or does not own the surplus, and one would have thought that there might be a corresponding clause for repaying the surplus to the employees. We seem so far from that situation at the moment that we must only hope that this clause is necessary as soon as possible. But it seems strange to legislate for it now, when it has not been a situation that has persisted in the past.
Clauses 240 and 241 agreed to.
Clause 242 [Non-European scheme to be trust with UK-resident trustee]:
On Question, Whether Clause 242 shall stand part of the Bill?
Lord Higgins: This clause relates to non-European schemes to be a trust with UK-resident status. Again, it is one of the international aspects of the problems with which we are dealing. I am not clear about a minor point, at Clause 242(4)(b), where it says that one of the conditions is that,
Does that mean that there must be a trustee—rather than the trustee—in the United Kingdom? Perhaps it refers to a company trustee rather than a set of individual trustees. Or does it mean that one of the trustees of a trustee board must be resident in the United Kingdom?
I am not sure when it will be best to debate my other point, which relates to the controversial issue of the Nikko Bank, and the fact that an overseas non-European scheme can effectively evade its pension commitments. Is it intended that the clause would
14 Sept 2004 : Column GC375
cover that sort of situation? We are in fairly deep water, so it would be helpful if we could have a little clarification.
Baroness Hollis of Heigham: I am perfectly happy to have a go at describing the clause. On the other point, which the noble Lord has referred to on a previous occasion, I would be grateful if he could write to me and identify his concerns. Part 7 may be the appropriate place to raise the matter—I am not absolutely sure about that. I am broadly aware of the issues involved, but I would welcome his take on what policy issues he believes that that raises, which he believes that we should address. Then I could see where the debate might fit the Bill and could come back to him as to where we might raise the question. My first reflex is that Part 7 might be a more appropriate point than this one.
Clause 242 provides similar provisions to Clause 241, which dealt with UK-based schemes. This clause, as the noble Lord rightly identified, deals with occupational pension schemes which have their main administration outside the member states of the European Union. We are largely dealing with American companies in that regard. Part 7 deals with cross-border provisions for EC companies.
This clause applies to schemes that have their main administration outside the UK but in which there is a UK interest—either a UK-based employer is paying contributions to the scheme, or an overseas-based employer is paying contributions in respect of a UK employee employed in the UK. The clause provides that a UK-based employer can pay contributions into such a scheme and an overseas-based employer can pay contributions into such a scheme in respect of employees employed in the UK only if certain conditions are satisfied. The scheme must be established under trust and a trustee must be resident in the UK. The powers allow the Pensions Regulator a sanction if that is not the case.
More broadly, the noble Lord asked whether the trustee could be an individual or corporate trustee. It could be either, but the point is that the Pensions Regulator must have some person on which to exercise the leverage of regulation. That is what the clause sets up. Any company in that situation, such as an American bank, might have a UK pension scheme, but it would have to have a UK trustee drawn from the UK side. That might be a corporation or individual and the rest of its trustees can be based in the USA, but there must be some body or somebody resident in the UK, so that the regulator has leverage on it and so that the obligations to which I referred may be fulfilled.
I believe that the noble Lord understood those points well in his opening remarks; I am happy if he thinks that I have now confirmed his understanding.
Lord Higgins: I am grateful to the Minister. It seems a rather thin line of communication if all that is necessary is an individual trustee, and if the regulator
14 Sept 2004 : Column GC376
can communicate with an individual trustee who is resident in the United Kingdom—who does not even need to be a United Kingdom citizen.
Baroness Hollis of Heigham: I would be interested to hear about the noble Lord's experience in that regard, and in the experience of other Members of the Committee. How would he toughen up the provision? I would genuinely be interested to know. Given trustee law, given the status and the regulator's leverage, and given therefore that the board corporately will end up funding whatever the individual trustee resident in the UK is required to do by virtue of the regulator's powers, what would the noble Lord suggest? Perhaps someone will write to me about the matter.
I take the point that the noble Lord has made. If he believes that this is too slender an edifice—
Lord Higgins: Right off the top of my head, I should have thought that a majority of the trustees should have to be resident in the United Kingdom. That is absolutely off the top of my head. Otherwise, there will be one trustee here and all the other trustees will not be registered in the United Kingdom. The regulator may come up to the trustee who is resident in the United Kingdom and say, "Hey, you're doing something wrong!". The trustee may reply, "Yes, but every time I raise the matter with my board, I'm outvoted". That is the best that I can do on the spur of the moment—but the thread seems pretty thin as it is.
On the other point, it may be the case that the issue that I have raised on several points will come up better in Part 7. I am referring to the case of an overseas company in Japan which has pensioners in the United Kingdom and reneges on the pension commitments—and very little can be done about it, apparently. But let us discuss that at a later stage, as the Minister suggests.
Clause 244 [Activities of occupational pension schemes]:
On Question, Whether Clause 244 shall stand part of the Bill?
| Next Section | Back to Table of Contents | Lords Hansard Home Page |