Official Report of the Grand Committee on the Pensions Bill
(Sixth Day) Tuesday, 7 September 2004.
The Committee met at half past three of the clock.
[The Deputy Chairman of Committees (Baroness Gould of Potternewton) in the Chair.]
The Deputy Chairman of Committees (Baroness Gould of Potternewton): I welcome you all back after—I hope—a very happy and restful break, ready for day six on the Pensions Bill.
Clause 126 [Directions]:
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham) moved Amendment No. 194D:
Page 87, line 8, at end insert "rules"
On Question, amendment agreed to.
On Question, Whether Clause 126 shall stand part of the Bill?
Lord Higgins: I was going to begin by saying, "Here we are again". Unfortunately, that is not true, strictly speaking. Instead of being in the rather congenial atmosphere upstairs, with fresh air and so on, we find ourselves back in the Moses Room. I find the arrangement for sitting in the middle of the Recess signally inconvenient. It is one thing if World War III is about to break out or something—we would come back and understand the problems—but it is another to come back on a planned basis when the Library is cut off from many sections. The Government really ought to decide whether, in the summer, this place is a building site or a legislative chamber. It is not helpful at all.
A number of current developments are not without interest. There is, of course, a very large rumour going around that the Bill is to be dropped in favour of a Bill on fox hunting. It should be clear that we are not wasting our time. I hope that the Minister can give us a clear assurance that there is absolutely no question whatever of that happening.
A large number of government amendments have also been tabled. As often in the past, I pay tribute to the Minister for the very helpful way in which she has provided notes on the different amendments. There are hundreds and hundreds on which debate could have taken place in the Commons. We are also short of a Secretary of State. As all the legislative process seems to be moving to this end of the building rather than taking place in the other, perhaps the sensible thing to do is to make the noble Baroness Secretary of
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State. She knows infinitely more about the subject than any other possible candidate and that would enable us to proceed smoothly in scrutinising the Bill.
I ought to mention a couple of other developments. I suggested to the noble Baroness during the Recess that it would be helpful if we had some sort of matrix showing which groups of pensioners whose company schemes are in difficulty are likely to qualify for no help at all, help under the financial assistance scheme or help under the PPF. As always, she courteously replied. The difficulty is that many of us are receiving letters from companies that ask, "What's happening so far as we are concerned?". I find it difficult to give any authoritative answer lest I have misunderstood the situation. In addition to the very helpful note sent by the noble Baroness, it would be of great value to the public outside—who obviously have considerable expectations about the Bill—if she could give a more specific answer on that.
Worryingly, the noble Baroness's note referred to the financial assistance scheme. We are still in a situation where only one clause in the Bill effectively says that everything will be done by statutory instrument. We have no idea what the content is. It is clear from her note that the Government do not seem to have very much idea at the moment either. The idea was introduced in something of a panic in the other place at a late stage of the Bill, but we really need to know the Government's intentions so far as that is concerned. When we come to the clause, I hope that we have amendments so that, instead of leaving the whole thing to unamendable regulations, we know exactly what the Government have in mind. It would be unacceptable for the clause to go on the statute book in its present form.
The noble Baroness—this is a rather retrospective comment—has sent many of us a note on the progress of consultation on the moral hazard problems that we raised earlier. We are very grateful to her for that. We must hope that more progress on those crucial issues can be made. All of us are concerned with improving the Bill as it stands, particularly in regard to the dangers that the earlier clauses present on a wide range of issues.
I turn briefly to Clause 126. I am a little puzzled by it in that it enables directions to be given during an assessment period in relation to an "eligible" scheme. I am slightly puzzled by that expression because I am not clear in my own mind when a scheme becomes an "eligible" scheme. I should have thought it would not become an eligible scheme during a period of assessment because, presumably, the assessment may be such that it is decided that it is not an eligible scheme. Perhaps the noble Baroness will clarify that point.
I am not clear why the assessment period should take place when the assets appear to exceed the scheme's protected liabilities. I should have thought that only if it was increasingly apparent that that was not the case would it become an assessment period. But the whole issue of assessment periods and what happens in them is something to which we shall come a little later and I shall raise it then.
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I should be grateful if the noble Baroness could clarify those points. Once again I express our appreciation. We are all trying to get the Bill right and we are grateful to her.
Lord Oakeshott of Seagrove Bay: We on these Benches associate ourselves with the thanks given to the noble Baroness and her hard-working team for the information we have received since we last met. But clearly the clock is ticking very fast—even faster than the clock which, people will notice, is slow by five minutes. We have all had many letters and communications from people whose pensions are at risk and we are very keen to have further details of the financial assistance scheme. Frankly, it is long overdue.
Lord Hunt of Wirral: Before the noble Baroness responds to these opening remarks, I join in the tributes for the way in which she has approached this legislation, with particular reference to consultation on the so-called "moral hazard" clauses. I recall that the Minister said that she was,
"genuinely open-minded as to whether this is the right way forward",
and,
"perfectly willing to be persuaded".—[Official Report, 8/7/04; col. GC213.]
I believe that all Members of the Committee went into the Recess with the sense that while we had undoubtedly discussed the problems of moral hazard at some length, we had certainly not resolved them.
Since then, the Minister has worked exceedingly hard with her officials, issuing a discussion paper on the topic which went to a number of interested parties. Yesterday we received a fascinating letter from the noble Baroness to colleagues setting out an immensely helpful summary of what the key players in the worlds of business, venture capital, accountancy and pensions have been saying in response to the consultation paper.
At some stage, I hope to make the Minister aware of the consultations that I have been able to have with the professionals in this area. I mentioned to her the need to consult with the Society of Turnaround Professionals, which I instanced before we rose. It is not mentioned in the Minister's letter but its voice is both authoritative and indispensable. Right across the board the message is the same, particularly as a consequence of what the Minister refers to in one word—namely, "retrospection". Because of the approach to retrospection, everyone to whom I have talked has been able to give instances of companies that have been saved but which would not have been saved had the new regime proposed in the Bill been in force.
I do not want to take up the Committee's time now, but I ask the Minister to respond to the letter I have put on the board for her, which sets out the concerns of this sector.
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Finally, the appointment of a new Secretary of State provides the Government with a timely opportunity dispassionately to reassess this Pensions Bill from top to bottom.
Baroness Hollis of Heigham: Like other noble Lords, I am delighted to be back and to see everyone—I was going to say "fighting fit", but I am not sure I want "fighting fit"—fit and happy, bronzed, sun-tanned and rearing to go.
I also should like to express my appreciation—already expressed by your Lordships—for the work done by the officials over the summer while many of us were able to take a vacation. I know that many of them have postponed holiday breaks until the Bill has achieved—we hope—consent in both Houses. They have been working both on this and on the regulations. I endorse the remarks made by your Lordships this afternoon about the work that has gone on during the summer.
I agree entirely with the noble Lord, Lord Hunt, that the officials have tried, with the support of Ministers, to enter into those discussions with as constructive an attitude as possible. It is obviously true that not all expertise resides within the department. It is unusual for the DWP to work with experts outside the department because—unlike, say, education and health—it tends to work mostly with lobbies such as the poverty or children's lobbies and so on. So it is valuable for all sides concerned.
I shall address a couple of the more specific points before turning very quickly to Clause 126. The noble Lord, Lord Higgins, invited me to say where we are and whether we could do a matrix on PPF and the financial assistance scheme. When we can, we will. The trouble is that we are not there yet. I think that Members of the Committee are aware of the situation with the Pension Protection Fund. It will cover schemes required to pay the levy from April 2005 which begin winding up from April 2005 and where the sponsoring employer experiences a qualifying insolvency event from April 2005 onwards. Those three conditions have to be in place for a scheme to enter the PPF.
The noble Lord was particularly concerned about the financial assistance scheme. I have to say that the detail of who will qualify has yet to be finalised. We are still having extensive consultations with the bodies involved. I would be delighted to be able to bring more information to the Committee than I currently can. However, it is difficult and complex. The act of trying to collect robust data of those affected is a much more extensive and elongated process than certainly I had expected when we went into this. Even the apportionment of deferred members and active members to existing pensioners on some of the schemes that may be at risk is not always available.
One issue we need to consider is whether we have an initial cut-off date for support and the financial assistance scheme. We are likely to need a cut-off point, both to make it administratively feasible and to have some certainty about the funding arrangements. One option we are considering, which obviously is the
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front-runner at the moment but which is not necessarily going to be the last word, is April 1997, since that was the starting point for the Pensions Act 1995 coming into force. However, we shall take into account the position of schemes which started to wind up shortly before April 1997 before reaching a final conclusion.
3.45 p.m.
Schemes that start to wind up after 10 April 2004, when the Secretary of State made his announcement in the other place, benefit from the change in priority order. That change means that non-pensioned members will be less likely to suffer the scale of losses to their pensions as were experienced under the old priority order. We hope that that may reduce the problem for them and for deferred members.
However, I repeat that we do not yet have details of the financial assistance scheme that I can bring before the Committee. We have not yet ruled out help in respect of schemes that start to wind up between May 2004 and the introduction of the PPF—what I call the sandwich year. We are still making final decisions on requirements for the financial assistance scheme once further research and consultation have been concluded. We need better data; we need to make a decision on the start date; we need to make a decision on the transitional, interim year between May 2004 and, we hope, the effective running of the PPF from April 2005; and we need further decisions relating to the sponsoring employer not being insolvent. I understand that all those schemes will be eligible for assistance. Solvent employers should support their schemes and provide the benefits that members expect. Nevertheless, issues of employer solvency remain under consideration.
There are obvious issues about patterns of payment and to whom, about the degree of concentration that there may be and so on. We still have to resolve many issues through consultation. More data need to be collected on this matter. I hope that, by the end of the year, I shall have conveyed adequate information to the House, with appropriate regulations and so on in the spring, so that this can take effect shortly thereafter. I can assure the Committee that as soon as I have more precise information I shall certainly put it before the House. At the moment I regret that I cannot go beyond that.
On another point mentioned by the noble Lord, a number of government amendments will come through in Committee stage and in all cases I shall do my best to ensure that Members have adequate information in good time so that they can seek external advice if they wish. To the best of my knowledge, only one substantive bundle of amendments, or possibly one amendment—I do not know how many there will be—will come forward de novo on Report. We had hoped to do that at Committee stage. That concerns the survivors' benefit or the widows' benefit and what the rate would be in the PPF.
The reason for withdrawing it for reconsideration is because of the read across to the Civil Partnership Bill. Civil partners must be treated in the same way as
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spouses. When we started work on this Bill, we did not consider that. That is one item that I shall have to bring forward on Report and which I am sure will be good news to everyone. Apart from that, my best advice is that all the substantive items will have been explored in Committee with your Lordships' help.
The noble Lord, Lord Higgins, has been pressing me about the state of the regulations associated with this matter. Again, I am not able, as I had hoped to be, to bring any or a few to your Lordships' House before the Bill completes its passage through the House. My latest information is that there are likely to be at least 100 sets of statutory instruments on which officials have been working over the summer. As and when I can bring your Lordships information about that, I shall be happy to do so.
Finally, on the moral hazard point, I shall check on the position of the turnaround professionals. If they have been overlooked I shall ensure that discussions include them. I shall seek to bring details to the Committee, certainly on issues such as whether the current scheme is a constructed one, as opposed to an informal telephone call. I think we are making very good headway on that and it seems to be moving in the right direction. I thank your Lordships for your contributions on that. I believe that we have made more progress on that issue. All parties, including the officials, are to be congratulated on that.
Those were the broad remarks made by the noble Lord, Lord Higgins. He then turned to Clause 126 and asked why we needed directions during the assessment period. Perhaps I can explain. Clause 126 enables the Bill to issue directions to scheme trustees or managers or other relevant persons during the assessment period. The assessment period is designed precisely to find out and to obtain the valuation of the balance between protected liabilities and assets, and so on, on matters relating to the investment of the scheme's assets, the incurring of expenditure, the instigation or conduct of legal proceedings and any other matters prescribed in the regulations.
It is important that the board is able to monitor the activities of scheme trustees and managers at that critical stage and to ensure that they are consistent with the overall aim of achieving the best possible outcome for scheme members.
Moreover, in order to protect the funding position of the PPF, and thus the burden on levy payers, the board must aim to ensure that, where a scheme's assets exceed its liabilities, that position is maintained—in other words, that manipulation, whether in good faith or in less than good faith, does not occur—or if the liabilities exceed the assets, that any excess is kept to a minimum.