Skip to main content

Private Sector Pensions

Volume 635: debated on Monday 22 January 2018

(Urgent Question): To ask the Secretary of State for Work and Pensions if she will make a statement on the Government’s plans to stop private sector pension abuse.

The vast majority of employers do the right thing by their pension schemes, and members can expect to receive the pension benefits they have paid for throughout their working lives. The Pensions Regulator and the Pension Protection Fund were set up in 2004 to provide pension scheme members with a safety net to ensure pension benefits receive some protection when things go wrong—it is a fact that some businesses will fail. The PPF approach has been supported on a cross-party basis since 2004.

To prevent irresponsible employers from off-loading pension liabilities on to the PPF, the regulator was given a range of powers, including the ability to recover significant assets where employers failed to take account of the scheme. There are about 6,000 defined benefit schemes, however, and such cases are very few and far between. It is the responsibility of the regulator to strike a balance between protecting members and PPF levy payers, and minimising any adverse effects on the sustainability of employers and businesses when it comes to the regulation of defined benefit funding.

The regulator does not have the power to stop businesses paying out bonuses to executives or dividends to shareholders, but if it believes that a scheme is not being treated fairly, it will investigate to see whether the use of its powers is appropriate. The Government are clear, however, that where sponsoring employers can meet their pension promises, they should and must do so. That is why we have suggested ways of strengthening the current scheme to enable the regulator to be more proactive. In fact last February we published our Green Paper, “Security and Sustainability in Defined Benefit Pension Schemes”, which included suggested measures that could strengthen the powers of the Pensions Regulator by introducing punitive fines for actions that harm a pension scheme. We also set out powers to enhance the regulator’s ability to demand information to ensure effective governance and spot issues before damage is done.

Our manifesto in June 2017 reaffirmed this intent by proposing to give the regulator the power to impose punitive fines alongside contribution notices so that pension scheme members are fully protected. The details of the fine would be worked through with all the relevant stakeholders, but it would represent a significant strengthening of the deterrent. We also intend to make certain corporate transactions subject to mandatory clearance by the Pensions Regulator, but we must take care to ensure that these measures do not have an adverse effect on legitimate business activity and the wider economy.

I should tell colleagues that we have received 800 responses to the Green Paper, and they are being reviewed by the Department. The White Paper is in progress and will be published in the spring. Effective regulation is dependent on a prompt flow of information between the parties concerned, and on compliance with rules and processes. Following the publication of the White Paper, we will introduce new regulation to ensure that the regulator gets the information it requires to conduct investigations and casework effectively and efficiently. It remains the case that the Government support free markets, enterprise and businesses, but this has to be conducted responsibly.

Yesterday, the Prime Minister chose to announce via the media, in part in response to the collapse of Carillion, that the Government planned to introduce tough new rules to stop private sector pension abuse. Carillion had 13 defined benefit schemes in the UK, with 28,500 members and a combined pensions deficit of £587 million. Between the end of 2015 and last year’s interim results, the difference between Carillion’s assets and liabilities almost doubled, from £317 million to £587 million. We know that profit warnings started to be issued in the summer of 2017. Given the severity of the financial problems facing Carillion, why did the Government not act then, rather than attempting to close the stable door after the horse had bolted?

We have argued for years that the Government should take better action to protect people’s pensions. The Government had the opportunity to act in 2013 and again in 2015, by supporting Labour’s amendments to pensions governance in legislation. More recently, the Work and Pensions Committee warned the Government of the need for protections and for more powers for the regulator. Although we welcome the Green Paper, the urgency has just not been there. Why did the Minister choose to ignore those warnings?

The Committee made a number of recommendations, including that the Pensions Regulator should have mandatory clearance powers for corporate activities that put pension schemes at risk, and that it should have new powers to impose fines at a level that would genuinely deter such dangerous and irresponsible behaviour. Why did the Government refuse to implement those recommendations at the time? Are the Government now ready to commit to implementing them fully? If the Government had taken action, Carillion’s massive debt accrual might have been arrested.

Given the scale of the liabilities and the concerns for other defined benefit schemes, what does this mean for the adequacy of the Pension Protection Fund? The collapse of Carillion has already led to a rise in pension scammers targeting those with pension pots. What about the defined contribution schemes that are not covered by the Pension Protection Fund? Will the Secretary of State investigate the apparent conflict involved in BlackRock being responsible for those schemes while simultaneously betting against their employer? Finally, can she advise the House what measures will be proposed in the White Paper, and when, exactly, they will be brought to the House?

As Members on both sides of the House know, the regulator is an independent, arm’s length body. It was set up in 2004 after much discussion about how it should work and how it could best support pensioners when they needed its help. What it never did was to interfere with the running of a business; that was what was decided. We said that we needed to make sure that we could go further if we had to. That is why we have set about introducing a Green Paper—as I said, we have had 800 consultation responses—looking at where it is best to intervene, to make sure that we get the balance right. We do not want to tip the edge and unnecessarily cause harm to a business.

Profit warnings mean that a company will not get the profit that it expected—no more than that. We have to make sure that the Government do not precipitate anything that could be seen as negative from business. That is why we are looking at all these 800 responses, looking carefully and considering how to protect companies’ employees, protect pensions and move forward in the most conducive and careful manner. The new White Paper will be coming forward later this year.

May I draw my right hon. Friend’s attention to the way the British public are reacting to this issue? They are seriously repelled by the notion that executive directors and even ex-directors should carry on drawing large payments at the same time as there is a mounting pension deficit. If this was what capitalism was really like, people would not want it. What are the Government going to do to draw the attention of businesses and executive directors to their governance responsibilities in these situations in the future, although this is nothing like as bad as the Maxwell scandal?

I completely agree with my hon. Friend. This is about strengthening the corporate governance of organisations. This is about giving power to the boardroom. This is about giving shareholders responsibility. This is about having responsible businesses doing the right thing. Where we can ensure that that happens, and where we can look into investigating what is going wrong—should things be going wrong—it is right that we do. As I said at the beginning, most businesses—the vast majority of businesses, and there are over 6,000 defined benefit schemes—are doing the right thing, but where they are not, it is right that there is fury from the public to make sure that they do the right thing. That is why the Insolvency Service carries out investigations in this regard and gets money back where it can.

Thank you, Mr Speaker, for granting this urgent question, and I congratulate the hon. Member for Oldham East and Saddleworth (Debbie Abrahams) on securing it.

That we are talking about private sector pensions again highlights the fundamental need to address the regulation of the pensions industry—something that the SNP has been calling for for years, but that has until now fallen on deaf ears. The BHS pension scheme was in deficit by more than £500 million. Carillion is estimated to be up to £900 million in the red, and there are over 5,000 other private sector defined benefit schemes in deficit, to the tune of £900 billion—a ticking time bomb for savers.

However, the real issue is that, while top executives make bad decisions and are rewarded for it, 11 million people who rely on a final salary pension could still be at risk of having the rug pulled from under their feet and of facing reduced entitlements should cases such as BHS or Carillion continue to be repeated.

The SNP has long called for the establishment of an independent pensions commission to ensure that employees’ savings are protected and that a more progressive approach to fairer savings is considered. Alongside that, will the UK Government make sure that the Pensions Regulator is now given the appropriate authority to step in and protect the interests of savers and pensioners before cases such as those of BHS and Carillion happen again?

The Pension Protection Fund is there to do just that: to support pensioners. It does step in and support them where necessary. The hon. Gentleman is quite right: where businesses have not worked responsibly, we should be getting involved, and we did that when we saw the conditions with British Home Stores. What happened there is that anti-avoidance enforcement did take place, and £363 million was got back, so we did not have to use the PPF. Also, a prosecution did take place. All these instances have been different, but the hon. Gentleman is quite right: where there has been an abuse of the system, we will carry out an investigation and bring people to account.

What action is my right hon. Friend taking in working with the Secretary of State for Business, Energy and Industrial Strategy to look at the conduct of the directors of Carillion in this regard? Specifically, following on from the point raised by my hon. Friend the Member for Harwich and North Essex (Mr Jenkin), what can be done now to recover any of this money for the people affected?

I thank my hon. Friend. An investigation is going on. Not only is there one that has been initiated by the Business Minister, but the Insolvency Service will also be investigating what went on. If there is any evidence that untoward things have been done, a prosecution will follow. That is what we are about: we want businesses to act responsibly. They employ the majority of people in this country, so it is only right that we support them when they need our support and bring them to account when they are doing things wrong.

I welcome the right hon. Lady back to this Department. The Government, of course, are responsible for the regulatory framework for pensions. Will she respond to the point raised by my hon. Friend the Member for Oldham East and Saddleworth (Debbie Abrahams) about defined contribution schemes? Are the Government looking at possible changes to the rules for those, as well as for defined benefit schemes, which the Minister has said the Government are looking at?

We are not currently considering changing the rules on defined contribution schemes. In that instance a contribution has been made which will be protected and moved to another pension, whereas a pension in a defined benefit scheme is what someone was expecting to receive at the end, and will therefore be protected. They are very different schemes, and different protections and rules apply to them.

Can my right hon. Friend confirm that constituents with existing Carillion pensions will receive 100% recovery through the Pension Protection Fund?

I can indeed state that that is the case, but anyone who is concerned about a pension should call the free hotline. The number is 0800 756 1012. I know that my hon. Friend is a great supporter of employees and businesses in her local area.

The Secretary of State does not seem to have grasped the fact that the decision to carry on paying dividends and to boost the bonuses of the board while running up a pensions deficit was made by the board itself. What will she do to prevent that from happening again?

I do understand the gravity of what happened, but there is one thing that we never seek to do in the House. In 2004, after much discussion, we asked an independent arm’s length body to look into these matters. When there have been misdemeanours and irresponsible behaviour and things have gone wrong, we announce that investigations are under way, but we are not the investigator. What we do is legislate to ensure that people are brought to account—and if they have done something wrong, my goodness, we need to bring them to account.

A number of my constituents have been affected by the Carillion situation. What will the Pension Protection Fund do to support those who have pensions through Carillion, and what more will the Government do to ensure that people with private pensions can be confident that investing their savings in a company pension fund is the right thing to do?

I can reassure my hon. Friend that the Pension Protection Fund is there to provide a lifeboat. Those who have retired will receive 100% support, while those who have not will receive 90% support, with a cap. That is what we are here to do: to protect the people who have done the right thing in saving for their future and to look after them in a responsible way, while also ensuring that regulations and processes exist to bring to account those who have done the wrong thing.

BlackRock was responsible for Carillion workers’ pensions, while simultaneously betting against their employer on the stock market. What measures will the White Paper contain to ensure that such a conflict of interests cannot happen again?

We received 800 responses to the Green Paper. We want to learn from the people who know most about these matters what they think is the best way to tackle the problem, because obviously we do not want such things to happen again.

My constituent Michael Evans, a retired employee of Barclays, has raised serious concerns about the future of its pension fund. Given the £7 billion shortfall, is Barclays moving its liability to its investment branch in the hope that it can avoid having to cover the deficit?

People who are concerned about their pensions should take advice from the Pensions Advisory Service. That is the best thing they can do. Obviously, the regulator will look into any incidents that it thinks need to be investigated.

I welcome the Government’s commitment to do more to protect the pensions of private sector workers. Does the Secretary of State agree that it is absolutely necessary to have private sector providers of public services, and that the Government should continue to support them?

Of course it is important that we have the private sector delivering an array of services, because as the world gets more complicated and more specific, we need people with specific skills to go forward and do that. That is the best way to have a well-functioning country.

The creation of the British Steel pension scheme mark 2 created fertile territory for unscrupulous pension advisers to swoop in like vultures and exploit vulnerable people. What lessons have been learned from the British Steel experience, and what will the Secretary of State do to ensure that we do not see the whole sorry tale of Carillion leading once again to the privatisation of profit and the socialisation of risk?

What we have learned from that is that straight away, eight companies were banned from doing what they had done in any kind of pension scam. We are also going to bring together all the advice under a single body so that people are well aware of what they can and should be doing and whether they have done the right checks to ensure that they are dealing with a positive organisation for their pension.

Workers have been encouraged to take part in buying their pensions, and they need to have confidence in their scheme. My hon. Friend the Member for Harwich and North Essex (Mr Jenkin) mentioned the fact that fat cats are seen to bear no risk in this process. What more can we do to achieve greater transparency in how private pensions work within companies? What can we do to enable people to get the best possible information to ensure that they are not being sold short while other people seem to float high above all the risk?

My hon. Friend raises a key point. There does need to be transparency. A pension is something that people invest in all their lives and hope to recoup when they retire, so transparency is key. Our White Paper will seek to determine best practice and, in parallel, to set out stronger corporate governance within pensions organisations.

I should like to thank you, Mr Speaker, for granting an urgent question on this important issue. I should also like to welcome the Secretary of State back to the Front Bench. Is she aware that, under the current rules, pension obligations are unsecured, meaning that insolvent companies fund their pension schemes only when they have compensated their other, supposedly more important, secured creditors? If so, has her Department considered carrying out a review of those rules so that employees with private pensions can be given a justifiably higher priority in future?

That is key—where do they fit in the line of creditors? Are people being given the correct protection for their pensions? That is why the Pension Protection Fund was brought in. Again, this is something that needs to be brought forward under the governance rules for pensions.

The whole subject of pensions is very complex. In the context of providing advice for people who are looking for a pension, or who already have one, what action are the Government taking to ensure the better delivery of financial and debt advice?

The Financial Guidance and Claims Bill, which we will be debating straight after this urgent question, deals with the advice and support that people can get in order to understand what options are on the table. That represents a positive move by this Conservative Government to allow people to control and understand their finances, because they need to know where to put their money and be assured that it will come back to them in a good pension.

Further to the question asked by my hon. Friend the Member for Bishop Auckland (Helen Goodman) and in the light of Carillion’s board members rewarding themselves with bonuses while allowing the pension deficit to grow, does the Secretary of State agree that she needs additional powers to bring such executives to account for their corporate greed and irresponsible behaviour?

The situation is being assessed at the moment, and what happened is being investigated. The regulator already has the power to look into anti-avoidance measures and enforcement, which could be utilised to do precisely what the hon. Lady talks about. Strengthening the regulator’s hand was in our manifesto, and we will be bringing that forward in the White Paper.

Hon. Members are understandably focusing on the directors of Carillion but, having been through the BHS investigation conducted by this House, I encourage my right hon. Friend to look closely at the expertise, advice and powers available to pension trustees.

I will indeed do that. My hon. Friend knows a lot about such matters. We will take advice such as that and the 800 responses to the Green Paper into account when drawing up our solution.

Over the past 30 years, successive Governments have made promises from time to time about strengthening the rules around pension schemes, but nothing happens. The Carillion situation will have a major impact on the west midlands supply chain. When are we going to get tough on directors and get some tough legislation? The White Paper will not be worth the paper it is written on unless the Government do something positive.

The hon. Gentleman is right that we are looking for ways to bring to account those who have not acted scrupulously. The regulator has taken measures, and they have proved successful. For example, BHS was prosecuted and we recouped £363 million. We have to adapt to situations as they arise and try to pre-empt other things, because none of the cases that have been mentioned today resulted from the same action. The hon. Gentleman is right that we have to ensure that unscrupulous businesspeople are brought to account, because we need good private business and good entrepreneurs.

I applaud the Prime Minister’s call for tougher new rules for executives who put workers’ pensions at risk. My constituents want to be confident that private pensions are secure and sustainable. After all, we have encouraged them to take them out. To put my constituents’ minds at rest soon, will my right hon. Friend please give an assurance that the Government are taking matters seriously?

My hon. Friend is right to raise that point. The people watching at home who have a pension or are thinking about investing in one want to know that they are safe. They also want to know what the Government are doing to ensure that they will be safe going forward. That is exactly what we in intend to do with the White Paper by reinforcing corporate governance measures and making them tougher.

As Carillion owes millions of pounds to subcontractors such as small plumbing companies, it is inevitable that there will be other insolvencies. If a plumbing company goes under, its nominal liabilities transfer to fellow employers through a multi-employer pension scheme. That is clearly unfair, but it happens because the PPF refuses to act as guarantor of last resort for multi-employer schemes. When will the Government end that anomaly? If they will not, will they support my ten-minute rule Bill that would sort out the situation?

I am aware that that was debated with the Pensions Minister 10 days ago, and he is looking specifically at the points the hon. Gentleman raised then. The hon. Gentleman is fighting a good cause, and I am sure that we will be able to come up with a solution.

The best form of pension protection that anyone can have is a sustainable employer. While the Pensions Regulator has wide-ranging powers, they are rarely used and it is often a bit toothless. Is the Secretary of State satisfied that any new powers, welcome though they may be, will be backed by proper resources?

When we bring forward new powers, it is vital that they are workable, that they have a strong, secure footing and that they are affordable. We are looking at that as we review how to introduce stronger legislation.

As part of the Tata Steel-Thyssenkrupp merger, workers faced the slashing of their pension funds if they joined the PPF or if they joined a new scheme with reduced benefits. Others opted for personal plans, leading to a feeding frenzy of mis-selling. Does the Secretary of State think the steelworkers of Wales were treated fairly, considering that the new company’s annual sales are estimated at £15 billion?

We have to make sure that we look after people with pensions. We also have to ensure that we keep companies going as a viable concern. At the time, this was deemed to be the best option for the future. We always have to make sure it is the best solution at the time, and we have to secure future legislation to ensure that we have better regulation and better law in place.

Even this weekend I heard and saw some commentators, who really should know better, say things such as that Carillion pensioners risk losing their pensions. Can the Secretary of State confirm what percentage of their anticipated pension many Carillion pensioners can now expect to get through the PPF?

My hon. Friend raises a good point. Those who are in receipt of a pension will receive 100%, and those who receive a pension in the future will get 90%, subject to a cap. People who are concerned about their pension should rest assured, and they can always go to our free helpline.

I warmly welcome the Secretary of State to her new position and thank her for the reassurances she has given the House this afternoon. GKN employs 340 people in Telford and is currently the subject of a proposed hostile takeover. Will she confirm that the safety of pensions at GKN will be a priority for her Department if the takeover proceeds?

That is a matter for the Pensions Regulator, but obviously we have the Pension Protection Fund in place, and we will be looking to ensure that pensioners are safe and protected.

How is it that some of these private sector pension fund deficits are allowed to get so large before any action is taken?

We allow businesses to run themselves without interference from Government, and therefore we do not know the complete structure of their profit and loss, and of their assets and liabilities. Should anyone wish to raise a concern about their business, they are free to do so with the regulator. With our combined corporate governance review and new legislation, we will make sure that pensions are on as firm a footing as possible. We will make sure that such abuses do not happen.

I am sure the Secretary of State will agree that the recent prosecution of Dominic Chappell by the Pensions Regulator should put directors who take decisions that might endanger their employees’ pensions on notice of the liabilities they could face. But will she reassure me that the role and powers of the Pensions Regulator, particularly how much further we can go in attaching personal liability to those responsible for disastrous decisions, will be part of the White Paper?

I reassure my hon. Friend that that is exactly what we will be doing. We are looking at how we empower the Pensions Regulator and, if need be, how we allow it to levy fines. It has to be a balanced response, not a knee-jerk response, and we have to make sure it works for both pensioners and businesses.

When a major UK business collapses it is incredibly important that both existing and future pensioners are given reassurances about their situation. In the case of BHS, this House elected to constitute a joint Select Committee inquiry to consider aspects of both the pensions and the business. Does she agree that a joint Select Committee inquiry looking into both the pensions and business aspects of the collapse of Carillion would be welcome?

Secondly, in the worst-case scenario, existing pensioners will get 100% of what is due to them through the Pension Protection Fund, and future pensioners will get 90%. The PPF, with assets of some £29 billion, is extremely well funded and capable of looking after the worst-case scenario.

My hon. Friend, who has a lot of experience in these matters, is right in saying that the Pension Protection Fund is robust. It has a lot of resources, so people are safe and will be protected. That is what they need to know now. The Government have very clearly, from the moment this happened, set out the support for pensioners, so that they knew that their pensions were safe and they could go to work knowing that they were being looked after. He is quite right: we have to make sure that we are taking the right approach going forward.