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If we are to do that, we have to be certain of the pension fund’s position. The government amendment destroys that, particularly because it allows retroactivity but also because it destroys the concept of good faith. Look at a building company that has frankly felt pretty prosperous till this year, has presumably paid good dividends, and might even have paid money back to shareholders at one stage or another. All those things will be revisited. Unless you have the good-faith defence, they will all be taken apart. All the directors will become personally liable. People who have bought businesses from those companies for fair value will find that they are suddenly landed with contribution notices; at least, that is the way the amendment can be read. Matters have been run far too widely. If we want to preserve the companies as anything other than moribund, unfundable entities, we have to allow scope for a proper commercial compromise to be reached between the pension fund and those who are interested in putting money into a company that can be stood by.

That seems the essence of what I am asking for, although my later amendments go into rather more detail. However, as I said, we have time to go through this. There is no need to rush. The long Summer Recess allows us some scope to think through these things carefully, and for them to be discussed and got right, particularly with those who are involved in rescuing companies in difficulties. We ought to take advantage of that and not rush into the government amendment now.

Lord Oakeshott of Seagrove Bay: It may help the Committee if, like the noble Baroness, Lady Noakes, I set out briefly our general attitude on these Benches to the amendments and issues. First, I thank my former colleague the noble Lord, Lord Lucas, for the thoughtful way he spoke to the amendment. It reminded me of how much I used to enjoy working with him at Warburg’s 30 years ago, looking at balance sheets and making investments. Like the noble Baroness, I have had representations from industry, particularly the CBI and the private equity industry; it calls itself the BVCA, but private equity is what basically matters in this context. I also had a helpful meeting with the Pensions Regulator and discussed the issues.

We on these Benches agree very much with the statement of principle that the Minister made on behalf of the Government just now about not weakening the employer covenant and standing behind pension schemes. In general, we support his approach of looking at the effect and not necessarily the intent of what has been done. Having said that, as the noble Lord, Lord Lucas, said, serious work needs to be done over the summer so that we are much more specific, much clearer and much firmer than where we are today.



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I have a strong feeling of déj vu here. I had a little trip down memory lane with the noble Baroness, Lady Hollis, over supper; I well remember that we had an exactly similar situation in 2004 when serious worries were expressed. Then good work was done over the summer and, as a result, we ended up with a settlement between industry and the Pensions Regulator that has worked well so far. I very much encourage the DWP to look again at the model and take it seriously.

The CBI accepts the logic for action that the Government have set out—that uninsured pensions providers did not exist in 2004 when the regulator’s powers were set out. I worry a great deal. The potential risk from the large buyouts is great and we are in uncharted territory. Further powers are needed. Equally, we do not want to leave everything to secondary legislation. The Government must do more work in thinking that through.

The BVCA’s statement contains some echoes of the grave concerns—to say scare stories would be putting it too strongly—expressed by people in that industry in 2004. The impression was given that it would be almost the end of private equity transactions as we knew them. Since then, of course, there has been the most enormous private equity boom that there has ever been in this country. Therefore, I take the warnings with a pinch of salt, but it is perfectly reasonable that those people want to know more clearly where they stand. In particular, it is absolutely right that there should be a full regulatory impact assessment in good time. It is all very well for the Government to say that the costs will be negligible, but they are assuming what they have to prove by having a regulatory impact assessment. If they are right, the whole point of doing that is to show that people have nothing to worry about.

I have provided a general flavour of where we stand. As in 2004, we thought that some of the warnings from the private equity industry were overdone, but it is perfectly reasonable that there should be more clarity and that we should not effectively be giving a blank cheque through secondary legislation. We would be very happy to be involved in discussions over the summer as I have some experience of these matters. We have good will to what the Government are trying to achieve, but they must try a lot harder.

Lord McKenzie of Luton: I am grateful to all noble Lords who have spoken. It has been a useful opportunity to discuss genuine issues and concerns. I wish to speak specifically in response to the three further amendments tabled by the noble Baroness and the noble Lord, Lord Lucas.

The purpose of the first of these amendments, Amendment No. 130EX, is to group together contribution notices, financial support directions and restoration orders under a single heading. I appreciate the intention as regards drafting efficiencies. However, the amendment is not necessary for the intended operation of the legislation.

Regarding Amendment No. 130EY, one of the Pensions Regulator’s objectives when it was set up in 2005 was to protect the benefits of members of work-based

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pension schemes and to protect the PPF. As part of this objective the regulator needs to ensure that employers do not sidestep their pension obligations and it has a number of powers available to enable it to do so. In considering whether, without regulations, there is a material risk to the security of members’ benefits or to the PPF, the Secretary of State will have to form a judgment after getting the views of the Pensions Regulator and of other stakeholders. It would clearly not be appropriate to exercise the power if it did not reduce the existing material risks or, indeed, if it created serious new risks. I should like to reassure noble Lords that it is not our intention that by introducing provisions we materially increase such risks.

The Government’s new clause proposed in Amendment No. 130EW includes safeguards to the power to amend provisions, including the requirement to consult the regulator and other key stakeholders. This will ensure scrutiny by relevant parties who will be alert to, and will actively seek to prevent, material increases in such risks. The consultation process should identify any unintended consequences that could increase such risks.

The noble Lord’s amendment touches on the wider issue of ensuring an appropriate level of regulation. I agree that it is essential that we strive to achieve the difficult balance required to put in place regulations to enable the regulator to meet its statutory objectives but avoid undue burdens on sponsors of defined benefit schemes. It has been a fundamental principle that the regulator should act reasonably and on a risk-based approach. We now have a number of years’ operational experience that demonstrate the efficacy of that approach. I reassure the noble Lord that it is not the Government’s intention to use the new power to change this fundamental approach, but simply to ensure flexibility in the face of an increasingly sophisticated and fast-moving market.

My view is that the safeguards that we have put into our amendment, together with the history of practice so far, offer reassurances of the intent of the Government and demonstrate the efficacy of the fundamental approach of the regulator. I hope that he will not press the amendment.

9.45 pm

The third of this series of amendments, Amendment No. 130FK, in the name of the noble Baroness, Lady Noakes, would do two things: it would require the Secretary of State to lay a regulatory impact assessment before Parliament in respect of these powers and, secondly, it would require its approval by both Houses. In the consultation document, we said that the overwhelming majority of pension schemes would not be affected by these changes and that they would have a negligible impact on the private and voluntary sectors. However, the consultation document confirmed that a full impact assessment would be produced if the assumption in the document of a negligible effect on business was incorrect.

Some of the responses to the consultation indicated that they do not agree with this government assumption but we have had no specific examples or data to support this argument. We would expect stakeholders to provide specific examples of what does not need to

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be referred for regulator clearance now but what they consider would need clearance under the new regime. This would allow us fully to assess the impacts.

Many of the organisations and pensions professionals that responded have offered to discuss their thoughts further with the department. I expect us to take up the offers in a number of cases as we work on the detail of the regulations throughout the summer. It will also provide an opportunity to discuss with them their concerns about an impact assessment—those concerns were expressed by noble Lords this evening—and I am sure that we will receive valuable input.

I turn to the second point in the amendment. Normally, impact assessments do not need parliamentary approval. The regulations made under this power will be affirmative, providing Parliament with an opportunity to consider and debate further. As I have said, we intend to have further discussion with stakeholders on the detail of the regulations. To be clear, I include as stakeholders noble Lords who participated in these exchanges. If the case for an impact assessment is made out, we will attach one to the Explanatory Memorandum to the regulations. However, I do not think that it is necessary for there to be an express commitment in this Bill for parliamentary approval. I hope that noble Lords agree that it would tie up parliamentary time unnecessarily, delay enactment of legislation and go well beyond the proportionate levels of scrutiny that usually apply. I therefore hope that the noble Baroness will not press the amendment.

I want to pick up on some of the specific points that have been raised. The noble Baroness said that there was no proposal for a wide power in the consultation. With respect, I disagree; it is pretty explicit in paragraph 1.38 of the consultation document. She also said that it was not targeted on buyout. We do not think that a simple prohibition on new buyout models will work. The BVCA and lawyers have offered to attempt draft legislation but, frankly, nothing has yet been received. The noble Baroness also said that there was no consultation consensus. In consultation discussions, parties had varied views. The BVCA did not want any action but the CBI and NAPF share the Government’s concerns about new business models.

The noble Baroness asked whether we would withdraw the amendment. Given the rate that we are moving at, I do not think that we will move it tonight. However, that is not the way in which we want to go. We want to engage on the draft regulations. That is the appropriate way forward.

The noble Baroness also suggested that the amendments are stopping deals. I am bound to say that we have no evidence of increased clearance applications to the regulator, which could provide certainty to parties if they want that. That is a well tried and tested route.

The noble Lord, Lord Lucas, said that we would have to deal with the effects of this 10 years after the event. Clearly, that is not the case; there is a six-year time limit on contribution notices in any event. There is no intention to extend this—

Lord Lucas: That is, with respect, not the time limit that I was referring to. The fact is that the amendment contains the power to make regulations retrospectively.

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That retrospection is limited only to April this year, so in 10 years’ time, regulations could be made changing that six years to 10—or, indeed, 20—years. The problems are with the amendment, not the regulations.

Lord McKenzie of Luton: I apologise to the noble Lord. I think that I understand the point he is making, but there is no intention of this enabling us in 10 years’ time to make a change which would be retrospective to April of this year. As the noble Lord acknowledged, retrospection to April was intended to stop people pre-empting what might come forward in changes to the legislation.

Baroness Noakes: I am sorry but in their amendment the Government are trying to take a power that would allow them to rewrite the rules without any time limit and to relate them back to April 2008. That is a very serious power and it would create huge uncertainty for the business community where a defined benefits scheme was involved. The Minister cannot just stand there and say that they want the power only for this first set of amendments. They are taking the power and that is what is so problematic about Amendment No. 130EW.

Lord Oakeshott of Seagrove Bay: Perhaps I did not make my position clear. I do not think that going away over the summer and working out some regulations will really meet the scale of what we are asking for. We are asking for serious amendments and changes to the draft primary legislation.

Lord McKenzie of Luton: I understand the noble Lord’s position and realise where he was coming from. Perhaps I may deal with the point concerning retrospection. The Government’s statement on 14 April meant that the principal amendments to regulator powers would be introduced with effect from 14 April 2008. It was crucial that the Government’s announcement of their proposals did not prompt the kind of market behaviour that they were attempting to address before legislation came into effect. A Government, or future Governments, could make retrospective provision only if they had already announced their plans in the way that we did in April this year. The April announcements were in respect of the regulations that we are discussing now. The power is therefore not as wide as might first—

Baroness Noakes: Would the Minister accept an amendment to Amendment No. 130EW to reflect what he has just said? At present, that is not what the amendment says.

Lord McKenzie of Luton: I shall certainly take that comment away and consider whether I need to speak to officials about the impact of our drafting. However, we believe that the power is not as wide as might first appear. It does provide retrospection but only in relation to novel situations of material risk, and it would require consultation before it could be used to introduce changes. However, I shall take away that point and reflect on it. We shall not get to vote on the amendment tonight in any event; we have at least a day to do that.



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The noble Lord, Lord Lucas, asked whether the powers had been found wanting. The DWP and the regulator have seen many proposals for managing pensions liability and many are likely to be robust. However, the 2004 Act was not drafted with such innovation in view, and we need to keep on top of the innovations that are in the market at the moment.

The noble Lord said that clearance could be torn up. The regulator has made it plain that if clearance has been given, it will not reopen that clearance as it must have been based on proper facts. That applies to any clearance. It is likely to be against the ECHR to legislate that existing clearance has become valueless but, in any event, that is not the intent.

The noble Lord also touched on the issue of good faith. The legal principle of good faith sets a very high evidential burden and can easily be circumvented by those whose intent is avoidance. It therefore safeguards not only those who should be protected but those whose activities are, rightly, the target of the regulator. Good faith currently applies only to one of the two limbs in relation to issuing a contribution notice—namely, where the main purpose of an act is to prevent a debt becoming due or otherwise to settle or compromise it. It does not apply where the main purpose is to prevent recovery of a debt. The Government consulted on additional grounds to act on the basis of outcome rather than intent. They are exploring the safeguards that would be appropriate, such as additional reasonableness factors and test of material detriment, but those are still under consideration.

The proposal to remove good faith is something that generated a considerable number of comments in the consultation exercise. We need to give full and proper consideration to the responses we have received, including alternatives that have been suggested, before formulating detailed regulations for further consultation.

On the fair value point touched on by the noble Lord, it is not the Government’s intention that a transaction, whereby a person purchases assets or securities at fair value, would normally trigger the regulator’s use of its anti-avoidance powers, provided that, as part of the transaction, the pension scheme was properly considered and adequately addressed. However, the fact that a person had purchased assets or securities at fair value would not necessarily provide the reassurances needed. That would be only the first step in ensuring that capital was available to mitigate the risks to the scheme; it does not of itself get the capital to the scheme.

I have tried to deal with the points that have been raised. Given the time, we will perhaps have an opportunity to consider the Government’s amendment at greater length on Wednesday, but I hope that the amendment to the amendment will be withdrawn.

Lord Lucas: I thank the Minister very much for that explanation. As the noble Lord, Lord Oakeshott, said, it is not the regulations which give us cause for concern—they are proceeding along a quite reasonable process and are being consulted on and I have no reason to think from anything that the Government have said that that will cause problems—it is this amendment

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and the width of it. The noble Lord says that clearance statements will be sacrosanct, but that is not what the amendment says. The noble Lord says that retro-activity will apply only to the date of announcement of each new set of regulations, but that is not what the amendment says. Our problems are very much focused on the amendment. Those two elements—retro-activity and the sanctity of clearance statements—lie at the heart of people’s concerns. If they were dealt with, it would be much easier to get on with.

Lord McKenzie of Luton: I have listened carefully to what the noble Lord says. I am not in a position to withdraw the government amendment this evening, but as we will not vote on it this evening, I shall discuss those two points with officials to see whether greater clarity can be introduced into the amendment. I do not make a commitment that we shall do so, but at least we shall have a breathing space. I understand the points made by the noble Lord and the noble Baroness.

Baroness Noakes: In view of the time, I shall not make such extensive remarks as I had intended, for example, in relation to Amendment No. 130EW, which the Minister dismissed rather quickly. He does not wish to have a reference to increasing the risks to the matters referred to in the amendment. Much of that is arguable and not simply to be dismissed.

The most important point that has come out from the noble Lord, Lord Oakeshott, and from my noble friend Lord Lucas is that it is not a matter of consulting on regulations. We believe that Amendment No. 130EW is unacceptable in its current form. Precisely how it needs to be changed is open for discussion. When we resume our consideration in Committee, I believe we should go through those remaining issues which have been identified by my noble friend’s amendments because each in its own way raises some of the concerns that go to the heart of why people are unhappy with the Government’s proposals. I hope that by the time we return to Committee, the Minister will be able to respond.

It would be a gesture of good faith on the part of the Government not to move this amendment. They would lose nothing by so doing and it would demonstrate that the Government were prepared to listen and to engage fully with the community which has real, genuine concerns about the potential impact on the way in which business operates in this country. With that, I beg leave to withdraw Amendment No. 130EX.

Amendment, by leave, withdrawn.

Lord Tunnicliffe: I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.


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