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11 May 2009 : Column 860
Clause 12 : Ownership of a company
22: After Clause 12, insert the following new Clause—
The requirement that a Royal Mail company be publicly owned does not prevent the establishment of an employee share scheme provided the Crown continues to own (directly or indirectly) more than half of the company.”
23: After Clause 12, insert the following new Clause—
“Annual report on post office network
(1) A Post Office company must send to the Secretary of State each year a report on its network of post offices.
(2) The report must give details of—
(a) the number and location of the company’s post offices, and
(b) their accessibility to users of postal and other services.
(3) The report must, in particular, provide information about the accessibility of the company’s post offices to—
(a) individuals living in rural areas,
(b) individuals living in urban areas,
(c) small businesses,
(d) disadvantaged individuals, individuals with low incomes and individuals with disabilities, and
(e) individuals who are elderly.
(4) The report must contain such other information as the Secretary of State may from time to time require.
(5) The Secretary of State must lay a copy of the report before Parliament.
(6) References in this section to a company’s post offices (or network of post offices) are to those post offices (whether or not owned or operated by the company) that the company is engaged in providing.”
Amendment 24 (to Amendment 23) not moved.
Clause 14 : Interpretation of Part 1
Amendments 25 to 31 not moved.
32: Clause 15, page 8, line 1, leave out subsection (2) and insert—
“(2) For the purposes of the definition of “qualifying accrued rights”—
(a) references to pensions or other benefits (including future benefits) do not include money purchase benefits within the meaning given by section 181 of the Pension Schemes Act 1993 (c. 48) but, subject to that, do include benefits attributable to additional voluntary contributions, and
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(b) references to a right include a pension credit right within the meaning given by section 124(1) of the Pensions Act 1995 (c. 26).”
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): My Lords, the Government are proposing this amendment in response to an amendment tabled by my noble friend Lord Clarke of Hampstead during discussions of the Bill in Committee. It clarifies on the face of the Bill the proposed treatment of benefits built up within the Royal Mail pension plan through additional voluntary contributions or AVCs.
As I explained during that earlier debate, members of the scheme can at present make additional contributions in order to increase their provision for retirement. They can do this either through contributions for the purchase of “added years” of reckonable service, which are invested with the Royal Mail pension plan’s main assets, or by investing in a range of pooled investment vehicles as part of a “money purchase” arrangement, separately from the main assets of the scheme.
The amendment reflects the Government’s policy intention as I set out in responding to my noble friend’s earlier amendment. Where AVCs have been paid prior to the qualifying time for the purchase of added years, it is right that the additional service already bought before the qualifying time should transfer to government with the other qualifying accrued rights. That is because the purchase of “added years” relates closely to the defined benefit provisions in the main scheme, and carries many of the same risks in terms of longevity and investment returns.
In contrast, the investments related to money purchase benefits do not have these same characteristics. The assets falling into this category—which totalled £84 million in respect of additional voluntary contributions as at March 2008—are held separately from the main assets of the scheme. The intention, reflected in the amendment, is that they should not be included within the scope of the qualifying accrued rights to be transferred to the new public service scheme, and should therefore remain with the Royal Mail pension plan, as is the case at present.
In addition to money purchase AVC-type arrangements within the RMPP, there is a small number of other categories of money purchase benefit that may apply to a limited number of members. These include transfers in from other schemes, where these include benefits provided on a money purchase basis, and special employer contributions for certain members of the scheme. In these cases, the Government consider that such money purchase benefits should be treated consistently, according to the principles I have set out in relation to AVCs. This is why the amendment refers to money purchase benefits in general.
6pm
For members entitled to money purchase benefits, this amendment means that the responsibility for paying those benefits will continue to rest with the administrators of the Royal Mail pension plan, as at present. Given that the Government are already planning for the close co-ordination of the administration of the new public service scheme with that of the Royal Mail pension plan, we are satisfied that the effect of the
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I hope that this explanation is helpful in setting out the purpose of the amendment. I would like to thank my noble friend Lord Clarke for raising the issue originally. I beg to move.
33: Clause 15, page 8, line 11, at end insert—
“(4) For the purposes of sections 16 and 17(2), references to the RMPP include references to any occupational pension scheme sponsored by the original holding company to provide relevant pension benefits for senior executives, and the terms “qualifying member of the RMPP” and “qualifying accrued rights” shall be construed accordingly.
(5) For the purposes of subsection (4) “relevant pension benefits” are benefits payable to or in respect of people on their retirement, on having reached a particular age or on termination of service in employment, other than money purchase benefits within the meaning of section 181 of the Pension Schemes Act 1993 (c. 48) (general interpretation).”
Lord Clarke of Hampstead: My Lords, if I had been quicker into the Chamber for the last one I would have got up and welcomed the Government’s help in changing what was there in the beginning. Amendment 33 deals with senior executive staff. Royal Mail sponsors three occupational pension schemes other than the RMPP. First, there is the Royal Mail retirement savings plan, which is the full name of the defined contributions scheme that was created when RMPP was closed to new employees in April 2008. As a defined contribution scheme, it can never have a deficit. We may have strong views about the decision to close RMPP and to set up a defined contributions scheme for new employees, but there is no need for it to become involved in any restructuring of the Royal Mail.
Secondly, there is the Royal Mail senior executive pension plan. This is a defined benefits scheme. The regulatory impact assessment said that there are no plans to change it, but no explanation is given. My noble friend Lord McKenzie said the same thing on 20 April, col. 1281 of Hansard, but did not explain why. The valuation of the senior executive scheme, as at 31 March 2006, showed that it had a deficit of £43 million. It costs £5 million each year to pay off the deficit. The cost of providing the scale of benefits in the senior executive scheme for future service, ignoring any question of the deficit, is 48.2 per cent of pensionable pay.
I ask the Minister, why is it being treated differently from the RMPP? Its deficit is also a millstone around the neck of Royal Mail, and it ought to be dealt with in the same way. My amendment would mean that if a new public sector scheme is created under Clause 16, the qualifying accrued rights of the senior executive scheme will be transferred to it, just like the RMPP. If there is to be no new public sector scheme, and instead the qualifying accrued rights of the RMPP are transferred to a new government-sponsored section of the RMPP
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Administrative savings could be made if the schemes were amalgamated so that the assets and liabilities of the senior executive scheme were transferred into the RMPP. There would be one fewer firm of actuaries, one fewer firm of solicitors and accountants, all of which cost money, and it would be much more sensible to be under one scheme. More importantly, it would also be seen as fairer to the ordinary members of the RMPP if the senior executives were earning their pensions on the same scale as the ordinary members. I beg to move.
Lord McKenzie of Luton: My Lords, in response to the points raised by my noble friend Lord Clarke, the Government cannot accept the amendment proposed by him. I hope that my comments will set out clearly the reasons for this. I understand that, in part, my noble friend is probing the position. I revisit the rationale for the measures set out in Part 2. They provide the Government with powers that, subject to conclusion of a partnership agreement for Royal Mail and to state-aid clearance from the European Commission, we intend to use to take responsibility for the historic pension liabilities within the Royal Mail pension plan that relate to benefits accrued by members of the plan prior to 16 December 2008.
The Government’s view is that such action, taken as part of a package of measures including partnership and a new regulatory regime, is essential in ensuring that Royal Mail can modernise its operations and respond successfully to the challenges of a rapidly changing market. It must also be balanced against the interests of taxpayers, for whom the implications are significant, and of members of the scheme who may be affected.
In relation to the Royal Mail senior executive pension plan, the Government are clear that there is no convincing value-for-money case for equivalent action to that proposed for the RMPP. As Richard Hooper’s report set out, it is the size of the RMPP’s liabilities relative to the size of Royal Mail’s business that is at the core of the issue in relation to pensions faced by the company and the postal market more generally. Given that the total liabilities of the senior executive pension plan are around 1 per cent of the liabilities of the RMPP, the same arguments cannot be applied to the senior executive plan.
Accordingly, in policy and value-for-money terms, the Government’s view is that there is no equivalent argument for intervention in relation to the senior executive pension plan. This fact is based not on the relative pay, status, or role of members of the plan. It is based on the relative size of the plan compared to the RMPP, and the risks this presents to the Government’s proposals in relation to the modernisation of Royal Mail through a strategic partnership.
In relation to the interests of members, it has been suggested that members of the Royal Mail senior executive pension plan will somehow be worse off as a result of the proposals set out in the Bill. I do not accept that proposition. There is nothing in the
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The senior executive pension plan has, since April 2008, been closed to new members, with future benefits being accrued on the basis of career average-related earnings, rather than final salary. These changes are in line with those made to the RMPP. Importantly, this will reduce the future cost to Royal Mail as the sponsoring employer. Further, Royal Mail will, by virtue of the Government’s proposals on pensions and in relation to the measures set out in the other parts of the Bill, be in a much better position to meet its obligations to both schemes. In the unlikely event of Royal Mail’s insolvency, members of the senior executive pension plan would be entitled to protection from the Pension Protection Fund, as is the case now.
Both of these facts are relevant in reassuring members about the Government’s broader proposals. I hope, on that basis, that my noble friend will feel able to withdraw his amendment. The amendment, should it be accepted, and we are not able to do so, does not say anything about assets transferring, only liabilities. Of course, if the Clause 17 route were adopted, it would not provide for the sectionalisation of the scheme to take account of the Clause 17 provisions. I hope that also for those added reasons, my noble friend will not press his amendment.
Lord Clarke of Hampstead: My Lords, my noble friend has made a good fist of trying to justify something that is pretty hard to justify in the eyes of those in the pension plans. I noted again this argument about the Government’s view that Royal Mail can modernise its operations. What on earth has that got to do with fairness within a pension scheme? We still have not had any real details of the modernisation but that is another subject. When discussions between not just the union of the pension scheme members but the trustees take place on the structure of their pension scheme, it is difficult to argue that they can have two schemes: one that appears to favour senior management and one that is good enough for the rank and file workers.
I understand what my noble friend has said. Obviously, I will take that away. I do not know whether there will be an opportunity in the future but, on the basis of fairness, the Government should be looking at a scheme that treats all of the employees, from the chairman of the board down to the newest member of the pension scheme, the same. On that basis, I beg leave to withdraw the amendment.
Clause 16 : Transfer of qualifying accrued rights to new public scheme
34: Clause 16, page 8 line 17, at end insert—
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“( ) The new public scheme shall be a public service pension scheme within the meaning of section 1 of the Pension Schemes Act 1993 (c. 48) (categories of pension schemes), notwithstanding that it is not established by a person employing qualifying members.”
Lord Clarke of Hampstead: My Lords, the new public scheme, dealt with in Amendments 34 and 35, should be a public service pension scheme within the meaning of Section 1 of the Pension Schemes Act 1993, notwithstanding the fact that it was not established by a person employing qualifying members.
Amendments 34 and 35 are about strengthening the protection for members in the new public scheme. In previous debates, my noble friend Lord McKenzie has said that there is no reason in principle why the new scheme cannot operate on a pay-as-you-go basis, just like some of the major public sector schemes such as those of the Civil Service and the National Health Service. The Minister said:
“The interests of members are reflected through statutory protection for benefits, and through other stakeholder consultation arrangements as part of the broader governance of the scheme”.
He also said that the governance of the new scheme would follow the model used in other public schemes. He stated:
“Given the nature of the liabilities that will be transferred to the new scheme, and the protection for members provided through the Bill and in the related secondary legislation, the Government regard the established model for governance of public service schemes as the most appropriate model to be applied”. —[Official Report, 20/4/09; col. 1284.]
However, members of the other public sector schemes, such as the Civil Service and NHS schemes, have some of the rights and protections of members of private sector trust-based schemes. For instance, they have the automatic right to the disclosure of information. That is because they fall within the statutory definition of a “public service pension scheme”. Some generally applicable legislation applies to public service pension schemes, such as the disclosure of information regulations, and some does not, such as Section 67 of the Pensions Act 1995, which was much discussed in Committee and will not apply to the new scheme any more than it applies to, for instance, the Civil Service or NHS schemes.
The new statutory scheme is neither fish nor fowl. It will clearly not be a trust-based scheme but it does not fall within the definition of a public service pension scheme like the NHS or Civil Service schemes because it has not been set up by an employer. The purpose of Amendment 34 is to bring the new scheme within the statutory definition in Section 1 of the Pension Schemes Act 1993. That would mean that, just as my noble friend Lord McKenzie indicated, it would be subject to the same protections and rights as other public schemes.
Secondly, although my noble friend Lord McKenzie said that the new scheme would follow the established model for the governance of public service schemes, there is, in fact, no such single model. Each scheme has a slightly different arrangement. For local government and NHS schemes, for instance, there is a statutory obligation to consult trade unions and employers before any amendments are made, but the power to amend is in the hands of the relevant Secretary of State. That protection is contained within primary legislation: the
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We said on numerous occasions in Committee that we want to see a protection of the accrued rights transferred to the new scheme. I am danger of trespassing upon the next amendment so, for the moment, I simply beg to move.
6.15 pm
Lord McKenzie of Luton: My Lords, in responding to the points raised in my noble friend’s speech, I will begin by addressing some key definitions. My noble friend and I are not far apart in what he seeks to achieve through the amendment, but the Government believe that it is unnecessary.
In the relevant legislation, “public service pension schemes” fall within the broader category of “occupational pension schemes”. As a group, they benefit from certain exemptions from requirements in pensions legislation—my noble friend referred to this—that apply to occupational pension schemes in general, where those requirements relate to trust-based schemes operating on a funded basis. The relevant schemes are not, in general, designated as public service pension schemes in the legislation under which they are established. Rather, they qualify as public service pension schemes by virtue of the fact that they meet the requirements set out in the Pension Schemes Act 1993. The new scheme that the Government propose to establish under Clause 16 will share many of the features common to other public service pension schemes—indeed it, too, will satisfy the key requirements of the definition of public service schemes as set out in the 1993 Act. That is the sense in which I previously described it as a “public service pension scheme”. Having established these key definitional points, I will explain why the Government consider that the amendment would not in practice deliver any beneficial effect over and above the Government’s existing proposals.
Clause 16(4) has the effect that the scheme will be capable of being treated as an occupational pension scheme for the purposes of the relevant legislation. These purposes will be set out in secondary legislation, following consultation with the RMPP trustees. As I have just mentioned, it is this treatment as an occupational pension scheme that is the key in terms of the application to the scheme of wider requirements set out in pensions legislation. Designation as a public service pension scheme, as in the amendment, does not have the same effect. In the application of the exemptions I have described earlier, the effect of Clause 16(4) is that, once the new scheme is treated as an occupational pension scheme, it will benefit from the relevant exemptions that apply to similar public service pension schemes. The route to what my noble friend wishes to achieve is therefore through the operation of Clause 16(4). The amendment does not add substantively to the existing provisions in the Bill.
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