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Baroness Hollis of Heigham: My Lords, yes, there will be neither an overlap nor a gap. I hesitated because rules of eligibility will still need to be met under both schemes, but they will be seamless in that the PPF will kick in where the FAS stops.

Lord Higgins: My Lords, if I understand the situation correctly, the government amendment will achieve what we seek. I presume the implication is that it also covers our amendment, Amendment No. 67, specifying that members would qualify under one scheme or the other but cannot qualify in any way for both. However, provided that all the eligibility criteria are met and that they fall later than the amended start date we discussed in our earlier debates, they will all be entitled to one or the other. I see that the noble Baroness is nodding her head. If that is so, the government amendment will set to rest the problem before us. It has at least settled one of the points about which we have been unclear in the single clause covering the FAS which even now is only partially clarified. That is an advantage from everyone's point of view and I hope that the scheme will work satisfactorily.

As the noble Baroness said, there may still be a tendency for people to delay winding up, although it seems that despite the criteria for eligibility, the wind-up date will be the crucial one. On the assumption that all that is so, I beg leave to withdraw my amendment and I shall not move the subsequent amendment. I presume that in due course the House will agree to Amendment No. 68.

Amendment, by leave, withdrawn.

[Amendment No. 67 not moved.]

Baroness Hollis of Heigham moved Amendment No. 68:


On Question, amendment agreed to.

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Lord Oakeshott of Seagrove Bay moved Amendment No. 69:


    Page 242, line 22, at end insert—


"( ) Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section"

The noble Lord said: My Lords, this amendment, tabled in my name and that of my noble friend Lady Barker, seeks to make it clear that,


    "Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section",

which means that they would be eligible for inclusion in the financial assistance scheme.

This covers a small number of people, but a group which in our view rightly feels a burning sense of injustice. We think that just under 4,000 people had their schemes wound up while the company was still solvent—in many cases solvent but probably very shaky; and in other cases the company has become insolvent and so is no longer in a position to help its pensioners. It is our intention, as I hope the amendment clearly implies, that this should apply only to funds which were wound up before 11 June 2003 when the relevant statutory instrument came into effect following the Maersk case.

When we discussed this in Committee there was a good deal of talk about moral hazard, to which I make two responses. First, I do not think that there is any moral hazard here, or it is a rather odd form of retrospective moral hazard because we are talking about a clearly defined group of people in the past, rather than anything that may happen in the future. Secondly, so far as concerns the pensioners of these companies, it makes no difference to them, when their fund is in serious deficit and they have lost a large part of their pensions, whether years ago the employer technically was or was not insolvent.

For all these reasons, we believe that this is a small but appropriate action to take. In Committee, the Minister tended to ask us not to tie her hands and not to chip away at the structure of the FAS. We believe that it would be wrong to exclude this small group of people from eligibility for the FAS, however modest the FAS benefits eventually turn out to be.

We were struck by the similar remarks made by the noble Baroness, Lady Turner, in Committee. I hope that she will feel able to support the amendment. I beg to move.

Baroness Turner of Camden: My Lords, I spoke to a similar amendment in Committee. Like many noble Lords who have been involved with the Bill, I have received a great deal of information from a small group of people who have been adversely affected because they seem to be excluded from any kind of assistance at all. As was said in Committee, it is a very small group of people involved in a "once only" situation. I hope that my noble friend will feel able to respond sympathetically.

Baroness Hollis of Heigham: My Lords, I am not sure I shall be able to do that. Amendment No. 69

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seeks to ensure that assistance from the financial assistance scheme may be given in respect of members of pension schemes with solvent employers. We had an extensive and helpful debate at Report stage on this point. The debate underlined that there are real and important principles at stake which are not easily reconciled.

The noble Lord, Lord Higgins, made some apposite remarks at the time. He said:


    "it is highly deplorable for a company which is perfectly solvent to renege on its pension promises, a classic moral hazard argument would ensue if the company concerned believes that the FAS will pick up the pieces".—[Official Report, 8/11/04; col. 707.]

Further, if all solvent employers renege on their promises, the cost on the financial assistance scheme will be considerable and the taxpayer would be picking up the tab. That was the argument and I agree with every word.

Noble Lords also discussed cases where a company may be insolvent but has a parent company or other connected company which is solvent and well able to contribute to the pension scheme. On the other hand, the noble Lord, Lord Oakeshott, also drew the House's attention to the situation where an employer is technically solvent but still in a very weak financial position in respect of funding the pension liabilities.

The range of views expressed shows how complex the issue is. The Government's starting point is the principle that solvent employers should be responsible for the occupational pension schemes they provide. If they make that promise they should, if their finances permit because they are solvent, deliver it. They should not ask other people, whether as taxpayers through FAS or levy payers through the PPF, to deliver it on their behalf because the pension promise is now inconvenient to some degree.

However, we are aware that the blanket term "solvent employer" covers an enormous variety of different circumstances. The purpose of our ongoing consultation and research is to understand what these are and whether and to what extent there may be sensible, workable distinctions to be drawn in the detail of the regulations while protecting the principle that neither the taxpayer nor the levy payer should stand behind an employer's voluntary pension promise.

Now that we have announced—this refers back to our previous discussion—that there will be no gap between FAS and PPF, the principle is even more important. Let us consider the position of a solvent employer and pension scheme trustees, tomorrow, who are negotiating a compromise agreement relating to an underfunded pension scheme. Let us assume that they believe they could find 70 or 60 per cent. If they know that FAS will include schemes with solvent employers up until April 2005, the trustees will have less incentive to press for a high level of employer contribution and the employer has less incentive to agree to a high level. Therefore, instead of settling at 50, 60 or 70 per cent, they might very well compromise at a much lower level, expecting FAS to take up the strain.

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The impact could extend to solvent employers with ongoing pension schemes. Solvent employers would know for certain that FAS assistance will be available to them only up until April 2005 as, being solvent, they will not qualify for the PPF. So it could encourage solvent employers to decide to start winding up underfunded schemes before April 2005, compromise their debt at artificially low levels—20, 25, 30 per cent or whatever—and obtain FAS assistance. The additional demands on FAS in these circumstances could be vast.

I appreciate the desire for clarity on the position of schemes with solvent employers and I have given assurances that issues around employer solvency remain under consideration. We are not closing the door entirely. However, I hope that I have demonstrated that the price of making that decision now is unacceptably high. Given the very real moral hazard issues that would follow, I ask the noble Lord, Lord Oakeshott, to withdraw the amendment.


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