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If the Royal Mail is broken up into a number of different companies—which we sincerely hope will not happen—a sectionalised scheme would possibly be necessary. However, the power to amend the RMPP is
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Amendment 43 says simply that the Clause 17 mechanism should not exist. It is not referred to in the regulatory impact assessment, and the need for a back-up mechanism has not been explained at any stage. Unless and until it is, Clause 17 should simply be removed from the Bill.
Amendment 44 deals with the power to amend the RMPP. As I have said, we accept that an amendment power is necessary to remove entitlements from the RMPP that are being transferred to the new public scheme; otherwise there would be double entitlements. However, if Clause 18 is going to enable the cancelling of entitlements under the RMPP, the trustee has a moral—if not legal—obligation to ensure that what is being removed goes no further than what is required. Trustees will also have views about how the scheme should go forward. They will have to manage it in a way that is administratively workable after the qualifying accrued rights have been removed. The amendment would insert a requirement for trustee consent.
Amendment 46 is consequential: it deletes the reference to Clause 17. Amendment 51 is also consequential. Reference to a new public sector scheme is unnecessary. If the representatives of members have to be consulted and agree to any adverse changes, then if any amendment is made to the RMPP that adversely affects rights under the RMPP, the trustees of the scheme will have to obey the law and obtain individual consents. The RMPP is subject to Section 67 of the Pensions Act 1995, even if the new public scheme, like every other public service scheme, is not.
Subsection (6) is still required, however, in case, by a side wind, an amendment to the RMPP has a detrimental effect on qualifying accrued rights that are to be provided under the new public scheme and the RMPP. I beg to move.
6.45 pm
Lord McKenzie of Luton: My Lords, I start by expressing some difficulty: I thought that we were going to have a revised grouping. However, I will attempt to respond. I think that we are dealing with Amendments 43, 44, 45, 46 and 48.
As we have just discussed, Clause 17 has two main functions. One is to allow the Secretary of State, by order, to sectionalise the RMPP so that it has different sections for Royal Mail Group and Post Office employees. This would ensure that pension assets and liabilities relating to Post Office Ltd are completely separate from those relating to Royal Mail Group.
The second function of Clause 17 is to provide for the possibility of a government-sponsored section containing qualifying accrued rights. This, as I have mentioned, is purely a contingency measure should it not be possible to set up and transfer qualifying accrued rights into a new public service scheme.
The amendments that the Government tabled earlier on Clause 17 aim to clarify that we have no intention of playing an ongoing role in the RMPP, except in respect of the fall-back case of a government-sponsored
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Amendment 43 would remove Clause 17. If this is in response to concerns that the intended use of powers in Clause 17 was unclear, I hope that my noble friend has found the earlier government amendments helpful in clarifying our intentions. If Clause 17 were removed altogether, the Government would have no power to sponsor a section containing qualifying accrued rights. They would not be able to make payments to the trustees to pay benefits as they fall due. Nor could they make payments to cover any discretionary payments. Although the option of a government-sponsored section containing qualifying accrued rights is only a contingency measure, it is a necessary precaution should it not be possible to transfer qualifying accrued rights into a new public service scheme. Thus we are unable to accept Amendment 43—or Amendment 48, which appears to be consequential.
The removal of Clause 17 does not necessarily exclude the possibility of sectionalising the RMPP into different Royal Mail Group and Post Office Ltd sections. This might still be achieved through the power to make amendments to the RMPP under Clause 18; but crucially, Amendment 44 would require the agreement of the trustees.
Amendment 44 goes wider than just requiring the trustees’ formal agreement to sectionalisation. It would require trustee agreement to any amendments to the RMPP in connection with Clauses 16 or 17. This is not necessary for two reasons. First, scheme members are already protected by the protections set out in Clause 19. These protections are an integral part of the Government’s proposals, and there is no possibility of an order being made under Clause 18 that would have a material adverse effect on relevant pensions provisions contained in the RMPP.
Secondly, Clause 24 already requires the Government to consult the trustees; the Government are working closely with them to ensure that the pension changes are effected as smoothly as possible. It is therefore unclear what extra protection Amendment 44 would provide. Nor do the Government think it appropriate to place a responsibility on the trustees of the RMPP to make a decision in relation to an order proposed by the Secretary of State. As I set out in Committee, we consider that the ultimate decision on the detail of an order laid by the Government must rest with the appropriate Secretary of State.
Finally, Amendments 45 and 46 would broaden the scope of the Secretary of State’s power to amend the RMPP, which currently can be exercised only in connection with an order made under Clauses 16 or 17. We do not think that this is necessary or desirable.
The Bill has strong protections for members, and requirements to consult the trustees. Given the issues that I have mentioned, I ask my noble friend to withdraw his amendment.
Lord Clarke of Hampstead: My Lords, as I said, I will withdraw it. The grouping of these amendments has not only confused the Minister but confused me,
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Clause 18 : Amendments of the RMPP
Amendments 44 to 46 not moved.
47: Clause 18, page 9, line 38, at end insert—
“(4) No order may be made under this section unless the qualifying accrued rights and the rights to future benefits under the RMPP of every qualifying member of the RMPP are the same after the making of the order as they were before it was made.
(5) For the purposes of subsection (4), the rights of a qualifying member of the RMPP include the rights of that member that are contingent upon the retirement of the member in the event of his retirement on the grounds of redundancy or ill-health.”
Lord Clarke of Hampstead: My Lords, Amendment 47 deals with the protection of members’ rights under the RMPP. As we have said before in these debates, the power to amend the RMPP needs to go no further than dissecting out the rights that will be transferred to the new public scheme. At the end of the exercise members should have the same rights as they had immediately before the order under Section 16 was made.
I have some concerns about the nature of some rights or expectations under the pension scheme. They relate to the entitlement of members in certain events which cannot be anticipated. If a member currently has to retire early because of his or her health or if he or she is made to leave because of redundancy, the RMPP provides a pension. That is very common in pension schemes. Until that person’s health breaks down or until he or she is made redundant it might not be clear that he or she has an entitlement to ill-health or redundancy terms.
The second part of Amendment 47 makes it plain that the division of the RMPP into qualifying accrued rights and other rights would not affect the position. It does not say that a member would have a right to a pension in any particular circumstance; it just says that the division will not change the picture.
Amendment 49 is also consequential. If accepted, subsection (3) would read,
“‘The relevant pensions provision’ means the provision for the payment of pensions or other benefits which is contained in the RMPP and includes the rights of members that are contingent upon the retirement of a member in the event of his retirement on the grounds of redundancy or ill-health”.
Early retirement and loss of job for all sorts of reasons are pretty basic matters in pension schemes. If the Government do not feel able to accept these words, I would have thought they could come back with some
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Lord McKenzie of Luton: My Lords, I can give my noble friend the assurance that he seeks and we do not need to change the wording of the Bill. This group of amendments is focused on the protections that members of the RMPP are afforded in Part 2 of the Bill. Amendment 47, proposed by my noble friend, covers the topic of member protection and how it applies to any changes made by the Secretary of State to the ongoing RMPP under Clause 18. The creation of the new public service scheme and the creation of a new section in the RMPP will both require consequential amendments to the RMPP. The power to make these changes is set out in Clause 18. This power is necessary to ensure that the overarching requirement of protecting scheme members against adverse treatment can be fully met.
However, the power to make amendments to the RMPP is subject to a number of important restrictions. First, the Secretary of State can make an order under Clause 18 to make appropriate amendments to the RMPP only if it is in connection with an order to create a new public service scheme, to transfer rights to the new scheme under Clause 16, or to divide the RMPP into sections under Clause 17. In addition, any such order under Clause 18 to amend the RMPP is also subject to the member-protection test set out in Clause 19(2). This requires that when exercising the power in Clause 18, the Secretary of State must ensure that the “relevant pensions provision” in respect of each person is in all material respects at least as good immediately after the exercise of the power as it was immediately before.
The word “material” is used because the RMPP is set up under trust while the new scheme will be a statutory arrangement and we expect that this may require some differences in the way in which benefits are determined or provided. However, the intention is that the value of members’ benefits will be no different.
The definition of “relevant pensions provision” is set out in subsection (3). The definition is deliberately wide to capture the payment of both pensions and other benefits to which members are entitled. This would include a member’s right to continue to accrue future benefits on the current basis and any contingent rights, including any rights to receive benefits in the event of redundancy or ill-health. I agree with my noble friend on the importance of having those facilities. The Secretary of State cannot use the power in Clause 18 to change the way in which future benefits accrue in the RMPP or to remove a member’s right to receive particular benefits in the event of ill health.
Amendment 49 also deals with the definition in subsection (3) of the “relevant pensions provision”.
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In summary, therefore, I would like to provide assurance that any amendment made by the Secretary of State to the RMPP is subject to robust restrictions designed to protect members. Any amendments need to be appropriate in connection with an order made under Clauses 16 or 17 and also need to comply with the significant member protection set out in the Bill. Therefore, I ask my noble friend to withdraw his amendment.
Lord Clarke of Hampstead: My Lords, I am suitably reassured and I happily withdraw the amendment.
Clause 19 : Protection against adverse treatment
Amendments 48 and 49 not moved.
Lord Clarke of Hampstead: My Lords, Amendment 50 is in two parts. The first was an issue discussed in Committee in relation to subsection (4). This subsection would allow the Secretary of State to override any commitment if, in his view, another domestic or European legal requirement said it was not necessary. That is the job of the courts. If the Secretary of State has any doubt in his mind whether what he is proposing is lawful, he needs to clarify his thinking before bringing the Bill before Parliament.
The other part would delete subsection (5) because it is not necessary. If the new public scheme guarantees qualifying accrued rights and leaves RMPP rights well alone, there is no need for a provision which says that the form of any scheme should be designed or operated in a particular way.
Amendment 51 also is consequential. The need for a reference to the new public sector scheme is unnecessary if the representatives of members have to be consulted and have to agree to any adverse changes. If any amendment is made to the RMPP which adversely affects the rights under the scheme, then the trustee of the RMPP will have to obey the ordinary law and obtain individual consents. The RMPP is subject to Section 67 of the Pensions Act 1995 even if the new public scheme, like every other public service scheme, is not. Subsection (6) is still required just in case, by a side wind, an amendment to the RMPP has a detrimental effect on the qualifying accrued rights—the words I used a little while ago. It is very straightforward and I hope the Minister will give some comfort on these amendments. I beg to move.
7 pm
Lord McKenzie of Luton: My Lords, as my noble friend Lord Clarke has explained, this group of amendments is also focused on the member protection set out in Part 2. Amendment 50 would remove
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Subsection (4) makes it clear that Clause 19 does not require the Secretary of State to include any provisions in the new government scheme which would be incompatible with any obligations under UK or EU law such as tax requirements or EU anti-discrimination requirements. It is clearly important that the Government act lawfully in setting up the new government scheme. As we work through the detailed drafting of the secondary legislation setting up the new scheme it is possible that some provisions may not be strictly compatible with, for example, the requirements for registration of a new scheme for tax purposes under the Finance Act 2004. We expect any such issues covered by subsection (4) to be of a technical nature rather than to have an impact on members’ benefits. Nevertheless, we will need to maintain sufficient flexibility to ensure that the new scheme complies with UK and EU legislation. I should say to my noble friend that it is nothing more sinister than just making sure at a technical level. It would not be until all the fine detail was worked through technically that one would know that there was proper compliance.
The purpose of subsection (5) is to make it clear that although Clause 19 is designed to protect the accrued rights of members, it is not intended to require the new government scheme to be set-up or run in any particular way. For example, the new government scheme will be set up under legislation, not under a trust deed. Nor is it designed to constrain the future operation of the ongoing Royal Mail plan, which is a matter for the company and RMPP trustees going forward and is already governed by existing pensions legislation.
Removing subsection (5) would constrain how the new government scheme could be set up and operated. As a result, this would limit the Government’s ability to balance their objectives of protecting the universal postal service, protecting members of the pension scheme and protecting the interests of taxpayers, for example, from the investment risk in a funded scheme. Accordingly, I ask my noble friend not to press that amendment.
Amendment 51 relates to Clause 19(6), which restricts the Secretary of State’s ability to make changes to the new public service scheme. Under the proposed amendment, this restriction would be amended and this would seriously compromise the member protection measures included in Part 2. The proposed amendment applies the provision to the RMPP rather than to the new scheme. As I covered in the last group of proposed amendments, there are already a number of restrictions on the Secretary of State’s ability to make changes to the RMPP. Amendments made to the RMPP other than under Part 2—that is, amendments made using the scheme amendment power—will continue to be subject to restrictions in the scheme rules and in pensions legislation more generally, in particular in Section 67 of the Pensions Act 1995.
In summary, subsection (6) is a critical element of the member protection set out in Clause 19 and specifically limits the powers of the Secretary of State in relation
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It might be helpful to put on the record an example of where the tax issues might impact on the considerations that we need to undertake. Under the Finance Act 2004, certain payments provided for under pension schemes became unauthorised payments and subject to tax penalties. These included, for example, the payment of more than 25 per cent of a member’s pension benefit as a cash lump sum and paying a pension to a member before age 55. However, the Finance Act 2004 contained transitional relief provisions giving trustees the discretion to continue to make such payments to or in respect of members to whom those provisions apply as at 6 April 2006. The transitional relief period continues until April 2011, at which point such payments will become unauthorised payments if made to members. Therefore, by virtue of the exercise of the power under Clause 22 of the Bill, the Finance Act 2004 will apply to the new scheme.
However, as the new scheme was not in existence on 6 April 2006, the transitional relief provisions will not apply to it. If payments such as those set out above are mirrored under the new scheme, they will be unauthorised payments and disadvantageous tax consequences will apply for members. It may therefore be necessary for the new scheme benefits to differ slightly from those under the RMPP to the extent necessary to avoid being unauthorised payments and subject to a tax penalty. This is one of the specific reasons why Clause 19(4) is considered necessary. I put that on the record as a concrete example of the kind of situation it is intended to cover.
Lord Clarke of Hampstead: My Lords, I am grateful to my noble friend for the example he has just given. The last thing I want to do is put at risk any of the benefits that might accrue to members. If there is a danger of that, then I have no hesitation in seeking leave to withdraw the amendment.
Clause 20 : Transfer of assets of the RMPP
Amendments 52 to 54 not moved.
Clause 21 : Restriction on power to transfer assets
55: Clause 21, page 11, line 7, at end insert—
“( ) For the purposes of subsection (1), the liabilities of the RMPP in respect of pensions and other benefits shall be calculated and verified by the actuary appointed by the trustee of the RMPP under section 47 of the Pensions Act 1995 (c. 26), on the assumption that they will be discharged by the purchase of annuities of the kind described in section 74(3)(c) of that Act (discharge of liabilities; annuity purchase).”
Lord Clarke of Hampstead: My Lords, Amendment 55 deals with the division of the investments of the RMPP when the new public scheme takes responsibility
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