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Plumbers’ Pensions

Volume 616: debated on Tuesday 25 October 2016

I beg to move,

That this House has considered the future of plumbers’ pensions.

It is a pleasure to serve under your chairmanship, Mr Bailey, for what will be a short but hopefully considered debate about the future of plumbers’ pensions. I want to bring the issue to the attention of the House to ensure that we acknowledge the complicated concerns that plumbers have right across the country. I plead with the Government and everybody involved that we all work together to try to resolve the difficult and technical issues that are having a quite grievous impact on plumbers not just in my constituency but throughout the whole of the United Kingdom.

I first became aware of the difficulties with plumbers’ pensions when I was invited to attend a meeting of Perthshire plumbers by a Conservative councillor colleague who was associated with the trade, so that I could listen to some of the concerns that were starting to emerge from plumbers right across Scotland. I was totally shocked when I heard the scale of the difficulties, the sheer numbers involved and the concerns and anxieties presented to me by plumbers that evening. Theirs are businesses that have been serving communities such as mine, the Minister’s and yours, Mr Bailey, for decades. They are family businesses, run by people we all know and are familiar with, that do a fantastic service on behalf of the people they look after.

Plumbers have been blissfully unaware of the ticking time bomb that has been waiting for them at the end of their careers and working lives, because they have been busy getting on with their work, developing their businesses and ensuring that our pipes are fixed and our washing machines are repaired. Now they find, at the end of their careers, that life savings and family homes are at risk. These people have done absolutely nothing wrong. They have conscientiously contributed to their pension pot and ensured they have done the right thing for all the people they have employed throughout the years.

This is a technical issue, so if Members will bear with me, I will try to explain and define it as simply as I can. It seems that many plumbers are caught up in a living nightmare of huge liabilities and potential debts upon retirement because of unintended consequences associated with section 75 of the Pensions Act 1995. I have had a good look at the Pensions Act and the provisions associated with section 75. It seems to me, on paper, a perfectly legitimate and reasonable inclusion in the Act, to ensure that pension scheme integrity is retained and pension benefits are protected. It is, though, that measure that has had unintended consequences for plumbers’ pension schemes.

The simple fact is that pension schemes for small, non-associated multi-employer businesses such as those designed by plumbers are a potential disaster, with huge consequences for plumbers simply wanting to retire or wind up their businesses. That is because under section 75, employers can become liable for what is known as a section 75 employer debt, which is triggered when plumbers seek to retire or wind up their business or if their business becomes insolvent. Section 75 employer debt is calculated on the departing employer’s share of the shortfall in the scheme on a buy-out basis, based on the hypothetical situation that the whole scheme is wound up and annuities are to be paid to all existing members.

That debt is also calculated on securing the scheme’s benefits with an insurance company, which will inevitably lead to a greater figure than if the scheme deficit was determined on the ongoing basis that would normally apply in such situations. The calculation produces a significantly higher scheme deficit than if it was calculated on an ongoing or technical provisions basis. It also ignores the fact that a scheme had no deficit on a technical provisions basis at its last actuarial valuation. That has led to some plumbers facing potential liabilities of millions of pounds.

The scheme that most Scottish plumbers buy into is run and administered by the Scottish and Northern Ireland Plumbing Employers Federation—SNIPEF. It is a fantastic scheme that plumbers have enjoyed, and it is actually more than fully funded. The last actuarial valuation was carried out in 2014, and the actuary found that the assets were enough to cover 101% of the scheme’s liability. That calculation was assumed on the ongoing basis, which assumes that the scheme would continue to pay out to members.

Probably the most invidious part of the calculation is the inclusion of what is called orphan liabilities—liabilities that cannot be identified from people who have already left the scheme. Those account for something like 60% of the liabilities included in the whole scheme, and a shortfall of £453 million. It is totally unfair and almost absurd that plumbers who have conscientiously paid into the scheme are exposed to such huge liabilities.

Eric Cuthill, who runs Hugh Stirling Ltd in my constituency, has raised concerns about this issue. He has been paying in for his employees for 34 years, meaning that his employer debt liability could run into the tens of thousands. Does my hon. Friend agree that that kind of liability is quite unfair when small businesses such as my constituent’s have done so much to support their employees through occupational schemes?

Absolutely. These people are not city spivs. They have not malevolently tried to get out of paying their contributions. They are people like my hon. Friend’s constituent, who have conscientiously paid into schemes and never knew they would face a potential issue at the end of their working careers. It is so unfair that they are being exposed to issues such as this. These are the people who fix our central heating, get the washing machine working again, fix our broken pipes and repair the boiler.

Is it not strange that last year in the Budget, the Government found £6 billion to make cuts in inheritance tax and capital gains tax? This issue is actually about inheritance. I have a constituent who is unwilling or unable to pass on his business to his son, because of its liabilities. My hon. Friend has touched on a very simple solution, which is a change in the method of valuation of the pension liabilities.

I want to come up with a few suggestions for the Government about how they can resolve some of these real and difficult situations. My hon. Friend is right; it is incumbent upon the Government to work with us. This is not about having a go at the Government. We were all unaware of these unintended consequences. My plea today is that the Government do two things: first, acknowledge that there is a serious difficulty here, and secondly, work with us and the sector to resolve it.

I want to give a couple of examples that show how invidious the situation is for many of our constituents right across the country. One is a guy called Mike. Mike’s business was established in 1985 by his father. He joined the business a few years later as an apprentice plumber. Mike and his dad built a business like so many family plumber businesses that we are familiar with, which provided a professional service to customers and tried to ensure that its employees were looked after. Their business grew, and by 1990 they had a pension scheme for their employees and were paying sick pay and holiday pay through a scheme operated by SNIPEF. Over the years they have had many apprentices, and they currently employ 14 staff. Their employees have all been trained to the highest possible standard.

Over the past 26 years, Mike has paid something approaching £400,000 in employer pension contributions to the scheme. Mike’s father is now retired and seriously ill, and Mike cannot bear to share his worries about the business with him, despite the fact that they have worked so closely together over the years. Mike, like so many employers including the plumbers I met in my constituency, has only just been able fully to understand the magnitude and significance of section 75 and cannot believe its implications for responsible employers. Mike’s business is unincorporated and he now realises that by triggering the debt he will lose his home, his life savings and other assets that he has spent all his working life securing. In his words, he is faced with continuing to work and accruing a section 75 debt until he dies, because he fears the effect of triggering the debt.

I have loads of example, which I might send to the Minister for his reflection and views, but I will give one more. Kyle’s business—another family business—was started by his father in 1982. Until recently he was a 50% shareholder, but in 2015 he bought out his partner for more than £100,000 and, at 52, he now owns 100% of the business. He currently has one plumber in the scheme and has contributed £242,000 to it over the past 37 years. Kyle has a young family and is worried sick about his potential liability. He has made all but one of his employees redundant and is now working for another company. He would like to close his business completely and sell off his business property, but he knows that doing so would trigger a huge debt. His time is now split between running his own company and working as an employee for another.

Kyle has contacted SNIPEF and has been told that his liability is an incredible £1.7 million. He is worried beyond belief, he cannot sleep at night and he feels totally destroyed and depressed. He says he just wants to curl up in a ball and die. Plumbers in our constituencies have done nothing wrong, but they are left in that condition. I have given real-life examples that we must address. I have many other examples, and I will pass them on to the Minister.

I want the Government to do a couple of things. I know the matter is difficult and technical—I have looked at it and understand the Minister’s difficulty in resolving it, but resolve it he must. First, let us agree today that the issue is huge and acknowledge that something must be done to resolve it. The Minister could make a start by considering the problem of the debt being triggered by the departure of the last active scheme member working in a business. The Pension and Lifetime Savings Association has said that employers are artificially retaining a single active member so as not to trigger the scheme.

The Government could also look at how the debt is calculated. It is based on an insurance assessment of the scheme’s value, which will obviously inflate its value. Surely it could be calculated by technical measures looking at the way the scheme operates and the actual membership. The phantom liabilities, or orphan liabilities, must be dealt with, because they inflate the scheme’s value. No one knows where the people to whom those liabilities relate are, and they no longer participate in the scheme, yet the valuation is kept artificially high. To enable us to move forward, there should be exceptions for small and micro non-associated family businesses. The Minister has an army of civil servants available to try to resolve the matter, and a pensions Bill is going to be introduced, which will allow him to look at it. I hope very much that he will do that.

I want to allow my hon. Friend the Member for Edinburgh North and Leith (Deidre Brock) a few minutes to speak, as she has been looking at the matter and SNIPEF is based in her constituency, but I have a plea for the Minister. We know that something is going on, and he has acknowledged that—I have seen some of his helpful responses to hon. Members who have raised these concerns. Will he please work with us? These people have done absolutely nothing wrong. They are the cornerstone of our community and provide a service to it. My appeal is that MPs, the Government and the sector work together to resolve some of these issues.

It is a pleasure to serve under your chairship, Mr Bailey. I congratulate my hon. Friend the Member for Perth and North Perthshire (Pete Wishart) on securing this extremely important debate. I should say at the outset that both the plumbing employers federation, SNIPEF, and the pension scheme for plumbers are headquartered in my constituency, and that both have made representations to me.

The essence of this debate is the treatment of small companies: the person round the corner who runs a business out of the back of a van and employs one or two people. Carrying the orphan liabilities of the pension scheme is utterly debilitating for such small businesses. It can leave them with unsustainable debts and therefore make their businesses unsustainable too.

As my hon. Friend outlined, orphan liabilities include liabilities incurred by companies that left the scheme before the legislation changed, so current employers who get to the end of their time in the scheme can be picking up the tab for employers who ceased to be scheme members years ago. Those former employers may have retired and have no interest in the industry now, but their business life continues to have an impact on people still working in the industry, and especially on people who are approaching retirement. If the current circumstances continue, those people will face the loss of their savings, their houses and their retirement. Having spent their working life in hard physical labour, they now face spending their retirement in penury. That simply cannot be right, especially when the cause of it is their desire to do right by their employees by ensuring a decent retirement for them.

I will be interested to hear what the Minister says on another point that we should have regard to: the effect on younger plumbers who may be sole traders at the moment, but who are thinking about taking on another member of staff. If they are discouraged from providing a workplace pension by seeing what it has done to previous generations of plumbing employers, will that not run counter to the current efforts to have everyone signed up to a pension? We must find a way to amend the section 75 regulations—my hon. Friend gave a couple of good examples of how that might be possible—and give employers a break. Certainly the pension scheme must be sure that it can meet its liabilities, but that must not be at the cost of people’s savings and investments being destroyed through no fault of their own.

It is a huge pleasure to serve under your chairmanship, Mr Bailey. I thank and commend the hon. Member for Perth and North Perthshire (Pete Wishart) for securing this debate. I am delighted that I can pronounce his constituency name without assistance. I also thank other hon. Members for their contributions.

This is a serious matter and not one the Government take lightly. I am quite new to this job, but it seems to me that the real lobbying from constituents through their Members of Parliament to the Government is an example of how things should work instead of teams of lobbyists coming to formal meetings. I commend hon. Members who are representing their constituents. They are not facing a heartless Government who treat the matter as a minor detail. The examples the hon. Gentleman gave of Mike and Kyle are typical and I would be pleased if he would send me details because I have seen similar examples and the question is how we deal with them.

I have listened carefully to what has been said about this worrying situation faced by small employers. As the hon. Gentleman said, they are fantastic people who have been going about their business for many years. The Government have received and listened to representations asserting that there is a simple solution. There is not. The issue is complex and, unfortunately because of the way government works, we cannot react quickly because the unintended consequences that have happened can lead to others. I hope hon. Members will not think this is just Government waffle.

Before I came into the Government I thought things were much simpler than they are and that is part of our democratic system, but it does not mean that we treat them lightly. I am well aware of the difficulties facing small employers in these schemes when managing their own pension commitments in the current economic climate and their responsibility for other people in the scheme.

I appreciate what the Minister is saying about the matter being complicated for technical reasons and that the Government are sympathetic, but we need to know about the timescale. Some of these plumbers have already triggered section 75, so there is debt coming at them at a rate of knots. Timescales and assurances are required.

The hon. Gentleman has made a very reasonable point, which I hope to come to. By the way, my door is open to hon. Members and, if they feel it necessary, their constituents or representatives. This is not something that we are avoiding. I had better make progress now if the hon. Member for Kilmarnock and Loudoun will excuse me.

We have been talking to a lot of stakeholders about aspects of the operation of employer debt for some time. I have read the files. The hon. Gentleman asked for urgency, and he is right, but the matter is in hand. Last year, there was a call for evidence, which is an official mechanism for seeking views, on the operation of the current regime, the effectiveness of the current easements and the impacts of proposed changes. My officials are reviewing the responses that we received and exploring what further flexibility we could introduce to help employers to manage precisely the kind of debt that has been referred to, but as many respondents to the call for evidence highlighted, there is no easy or quick solution. Quite a few different ones have been mentioned.

My original thought was, as I said, that the issue was much simpler and that a change to the system of valuation could deal with it—the hon. Member for Perth and North Perthshire made a point about that in his opening speech. However, all of this has consequences. The reason why these laws were in existence in the first place was to protect the very people who otherwise could have found themselves retiring with no pension because of all the surrounding circumstances, but we are not saying that this is something that will just go on for years and years; we hope to do a formal consultation very soon.

I should like to state again on the record that the current employer debt legislation is there for a very good reason: to protect members of occupational pension schemes and ensure that, when they retire, they receive the pension that they have been promised. We cannot let that aim disappear. We have to find a way to ensure that the injustices mentioned by hon. Members contributing to the debate are dealt with, but at the same time we must not do anything to threaten the pensions of the other people.

The Government have made a significant number of changes to the legislation in response to representations made by employers. A number of mechanisms are in place whereby only part of the debt, or no debt at all, may be payable. The hon. Member for Perth and North Perthshire may be aware that there are currently eight such mechanisms in legislation, which reflects the wide variety of circumstances that can arise with diverse scheme structures and the equally diverse range of employer types. For example, the existing scheme and flexible apportionment arrangements permit an employer debt attributable to the departing employer to be shared among the remaining employers or taken over by them, so reducing the debt to nil or a nominal amount. Those can be useful provisions in cases in which an employer ceases to employ members or undertakes corporate restructuring.

For small employers, which we are talking about today, that are participating in a large non-associated multi-employer scheme such as the plumbers scheme, a period-of-grace arrangement provides for the situation in which an employer temporarily ceases to employ active members but intends to do so again in the future. The regulations provide for a period of grace of up to 36 months when no debt triggers, giving time for new employees to be recruited.

The high proportion of orphan members has been mentioned. The scheme would like the liabilities that relate to such members, whose employers no longer participate in the scheme, to be passed elsewhere rather than be shared among remaining employers. The requirement to meet a share of orphan liabilities is common to all schemes and an important part of member protection. Although it would be very difficult to make a special case for a particular scheme, we are looking more widely at the challenges faced by defined-benefit schemes and want to encourage a wide debate about the challenges facing those schemes and what the solutions might be, including that one. We are well aware that some parts of the pension sector are stressed, but the situation is very mixed and the problems are far from universal. We are trying to build a better understanding of those, using the call for evidence and all the meetings with stakeholders, to form an opinion on what the Government intervention should be.

I thank the Minister for giving way again. The topics that he is covering involve wider pension issues. Does that not underline yet again the fact that there should be an independent pensions regulator to help to address these matters?

That is a whole different argument, as the hon. Gentleman knows. I would be very happy if we could have another debate on that and I am happy to check with him informally about it because it is something that has been proposed, particularly by his party. Respectfully, however, as far as this issue is concerned, that is irrelevant. I am not saying that the argument has merits or does not, but as far as this issue is concerned, we do not have a standing commission. The Government are here to try to deal with the issue and it is our intention to do so. We will produce a Green Paper very soon. We have said that that will be in the winter, which will certainly be before the leaves reappear, even in Scotland. We will do it as quickly as we possibly can.

The Minister is very reassuring today, and I am grateful for the very generous responses given to the concerns. I get the sense that we are trying to resolve this, and the Green Paper is a great opportunity to do that. May I just make this plea to the Minister and seek clarity from him? Will there be retrospection to ensure that any plumber or anyone who is caught up in this situation before the change is enacted is not left out and left high and dry with the huge debts that may have accrued?

I cannot give the hon. Gentleman that undertaking, precisely because it is exactly the sort of thing that we will be discussing in the Green Paper, but I would like to state that there is not a plan to ensure that these people do not get what is very logical and right. I am very conscious of the fact that we are not dealing with some offshore hedge fund, but with people who did not really want to be in the pensions business and did not want the liability—they just wanted themselves or their employees to have an ordinary pension. There is a difference, and it is right that Members of Parliament represent their constituents in this way, although I will just say that as far as the pensions industry is concerned, some of the bodies, such as the Pensions and Lifetime Savings Association and others, are also very knowledgeable on these subjects.

My door is open. We want to get this right. I ask the hon. Member for Perth and North Perthshire and his colleagues, who have made such passionate and decent contributions, to be a little more patient, but I would be very happy to be summoned back here or to the Floor of the House if they feel progress is too slow.

Question put and agreed to.

Sitting suspended.