House again in Committee on Schedule 4.
130DL: Schedule 4, page 72, line 38, after “payment),” insert—
“paragraph 11D (terminal illness lump sum),”
The noble Lord said: I shall speak also to the other amendments in this group. I am pleased to be speaking to a group of amendments that will allow the Pension Protection Fund to give a greater level of financial support to those members who have a terminal illness.
In June last year, during the passage of what is now the Pensions Act 2007, my noble friend Lord Whitty tabled an amendment that sought to allow members who were suffering from severe ill-health to access PPF compensation early. Since then, in the other place, my honourable friends the Members for Preston and for South Ribble have raised the issue of access to pension compensation for people with terminal illness who may never reach their normal retirement age. The Government are grateful for their efforts.
These amendments will allow those who have a progressive disease—which means that their death may reasonably be expected in six months—to apply for a lump sum. This lump sum will be equal to twice the annual rate of compensation that they would be entitled to had they reached normal pension age, in lieu of their future entitlement. Taken together, these amendments will ensure that a member with a terminal illness will be able to access a significant lump sum, averaging in the region of £10,000, using the same rules to define “terminally ill” as those that are used in the financial assistance scheme and in DWP benefits. The amendments draw the right balance between what members may have been entitled to from their scheme and ensuring that the costs of this proposal do not adversely affect levy payers. Most importantly, they will mean that the money worries of terminally ill members will be eased at a most difficult time for them and their families. I beg to move.
I have a very quick question for the noble Lord about the prognosis for terminal illness, which I assume to be six months. Which amendment refers to “six months”?
If the noble Lord will give me a moment, I shall try to identify which one it is.
Perhaps while the Minister is looking, he will accept our support for the amendments.
I can deal with that point: I am most grateful to the noble Lord for his support. Any minute now, I shall be able to identify which amendment refers to six months. It is Amendment No. 130DR, which begins:
“Page 75, line 13, at end insert—
“Terminal illness lump sum: eligibility”,
and inserts a new paragraph 11A to Schedule 4. Sub-paragraph (3) of that paragraph reads:
“For the purposes of this Chapter a person is ‘terminally ill’ at any time if … the person suffers from a progressive disease and the person’s death in consequence of that disease can reasonably be expected within 6 months”.
I think that this test is used not infrequently in relation to DWP benefits.
Indeed it is, and I am extremely grateful.
On Question, amendment agreed to.
moved Amendments Nos. 130DM to 130DR:
130DM: Schedule 4, page 73, line 9, leave out “or widower” and insert “, widower or surviving civil partner (“the surviving partner”)”
130DN: Schedule 4, page 73, line 10, leave out “widow or widower” and insert “surviving partner”
130DP: Schedule 4, page 73, line 27, at end insert—
“( ) For the purposes of this paragraph, a person’s entitlement under paragraph 6 is to be determined disregarding paragraph 11D(1)(b) (successful applicant for terminal illness lump sum loses entitlement to periodic compensation).”
130DQ: Schedule 4, page 73, line 28, leave out “widow or widower” and insert “surviving partner”
130DR: Schedule 4, page 75, line 13, at end insert—
“Terminal illness lump sum: eligibility11A (1) This paragraph applies where all of the following conditions are met—
(a) the transferee is terminally ill;(b) if the transferee lived to the relevant age, he or she would become entitled on attaining that age to compensation under paragraph 6 in respect of the pension compensation credit;(c) the transferee has not yet become entitled to any compensation under this Chapter in respect of the pension compensation credit;(d) the whole or any part of the transferee’s lifetime allowance is available.(2) The transferee may make an application to the Board to commute the future entitlement mentioned in sub-paragraph (1)(b) for a lump sum (“a terminal illness lump sum”) payable on the granting of the application.
(3) For the purposes of this Chapter a person is “terminally ill” at any time if at that time the person suffers from a progressive disease and the person’s death in consequence of that disease can reasonably be expected within 6 months.
(4) In this paragraph—
“lifetime allowance”, in relation to a person, has the same meaning as in Part 4 of the Finance Act 2004 (c. 12) (pension schemes etc) (see section 218 of that Act);
“relevant age”, in relation to a person, means—
(a) in relation to compensation entitlement to which has been accelerated or deferred under regulations under paragraph 10 or (as the case may be) 11, the age at which the person becomes entitled to the compensation in accordance with the regulations;(b) in relation to compensation entitlement to which has not been so accelerated or deferred, pension compensation age.Terminal illness lump sum: application and evidence11B An application for a terminal illness lump sum—
(a) must be made in writing, either on a form approved by the Board for the purposes of this paragraph or in such other manner as the Board may accept as sufficient in the circumstances of the case;(b) must be accompanied by such information as the Board may require for the purpose of determining the application.Terminal illness lump sum: determination of application11C (1) The Board must determine an application for a terminal illness lump sum in accordance with this paragraph.
(2) The Board must—
(a) if satisfied that the conditions in paragraph 11A(1) are met, grant the application;(b) in any other case (subject to sub-paragraph (3)), reject the application.(3) The Board may hold over the application for determination at a later date if it is satisfied that—
(a) although the condition in paragraph 11A(1)(a) is not met, the transferee suffers from a progressive disease and may become terminally ill within six months, and(b) the conditions in paragraph 11A(1)(b) to (d) are met.Terminal illness lump sum: effect of successful application11D (1) If the Board grants an application for a terminal illness lump sum, the transferee—
(a) becomes entitled to a terminal illness lump sum calculated in accordance with this paragraph, and(b) loses the entitlement he or she otherwise would have had on attaining the relevant age to compensation under paragraph 6 in respect of the pension compensation credit.(2) The amount of the terminal illness lump sum is 2 times the amount to which the transferee would have been entitled under paragraph 6 in respect of the pension compensation credit in the year following the granting of the application, if he or she had attained the relevant age on the granting of the application.
(3) In this paragraph “the relevant age” has the same meaning as in paragraph 11A.
Terminal illness lump sum: information11E (1) Relevant information held by the Secretary of State about an individual may be disclosed to the Board for use for a purpose relating to its functions under paragraphs 11A to 11D.
(2) In sub-paragraph (1) “relevant information” means information held for the purposes of any function of the Secretary of State relating to—
(a) social security, or(b) any scheme made under section 286 of the Pensions Act 2004 (c. 35) (financial assistance scheme).”
On Question, amendments agreed to.
Schedule 4, as amended, agreed to.
Clause 100 [Charges in respect of pension compensation sharing costs]:
moved Amendment No. 130DS:
130DS: Clause 100, page 48, line 38, at end insert—
“( ) provision enabling the Board to set off against any PPF compensation payable to a party to pension compensation sharing any charges owed to it by that party under the regulations;”
The noble Lord said: I shall speak also to government Amendments Nos. 130EL and 130EM.
A principle that underpins pension sharing on divorce and dissolution of civil partnership is that the parties involved should meet the costs of that undertaking. I am sure we would all agree that that is only right and fair. Following that principle, Clause 100 sets out how the board of the PPF may recover its costs of implementing compensation shares. The PPF expects that the costs will be similar to those of pension schemes, and so divorcing couples will be charged roughly the same to share pension compensation as they would have been had they been sharing a pension. The parties to divorce or dissolution of a civil partnership will normally agree the apportionment of the costs which will be set out in the order. The clause also provides a regulation-making power, which we intend to use so that the implementation of compensation sharing can be delayed where the costs have not been paid.
The three government amendments I have tabled are intended to ensure that the PPF does not bear the cost of implementing a divorce settlement. As far as practicable, these provisions on recovering costs apply in the same way as those which apply to the costs of pension sharing. Amendment No. 130DS simply ensures that regulations can allow the PPF to recover its costs by adjusting future compensation. That is consistent with the approach followed in pension sharing. It ensures that the PPF can recover the costs; ensures that expensive legal action to recover costs is avoided should the parties responsible fail to pay the charges; and thereby helps to ensure that the PPF levy payers do not end up footing the bill.
Amendment No. 130EL is purely technical. It simply ensures that the clause containing consequential amendments ends up in the right place.
Finally, Amendment No. 130EM inserts a new clause. This is required because the PPF is also responsible for implementing any pension sharing orders that the trustees of a scheme have failed to implement at the point of transfer of the scheme to the PPF. Currently, there is no provision allowing the PPF in this situation to recover its costs from the parties to the divorce or dissolution. This new clause corrects that by making similar provision to Clause 100.
To reiterate, these three amendments ensure that the PPF and those that fund it do not bear the costs of implementing a divorce settlement. As a matter of principle, those costs should be borne by the parties to the undertaking; these amendments will ensure that is the case. I therefore beg to move.
It seems to me that Amendment No. 130EM is the substantive amendment in the group. It is a new clause allowing the PPF to recover charges in respect of pension sharing. The whole point of the PPF is to administer failed direct benefit pension schemes in as close a way as possible to those schemes it has taken over. For several years it has made two charges on existing schemes—in other words, before the takeover: one charge is for its annual running costs and the other, usually a much high cost, is based on the likelihood of it taking over a particular scheme and is on a rising scale depending on the scheme’s deficit level. A high deficit incurs the maximum and a scheme which is 140 per cent funded incurs none at all. In other words, if the PPF is running properly, there should be enough money for the PPF not to need any extra money in regard to pension sharing, which one hopes will be a pretty rare event anyway.
When does the Minister believe that the provision in Amendment No. 130EM will be needed? I note that the original concept is to be introduced by regulations requiring parliamentary approval. In other words, the new clause is an enabling power. Does the Minister expect to lay regulations early after Royal Assent or will he wait until the burden on the PPF is such that this money-raising power is needed because the annual running charge is no longer sufficient? Is it really necessary to have this extra provision? Why cannot the annual running charge be increased without this new provision?
I am sorry that I cannot give a blow-by-blow retort to that. It seems to me entirely reasonable that all pensions, be they compensations or orders in transit, should be handled in the same way. In pension sharing, both parties contribute to the cost. In the situation that we are trying to create here, both parties contribute to the cost. In the transition to which government Amendment No. 130EM refers, both parties contribute to the cost. That has nothing to do with the general funding of the PPF but has everything to do with handling things as consistently as possible, basically because we want parties to divorce, not levy payers in general, to pay. That is roughly what I was trying to say.
We have had this before—not on the previous day in Committee but, I think, the day before—when the noble Lord, Lord McKenzie, insisted on an amendment, which I queried, on the basis that it did not really matter if we got it wrong now because it could all be changed by regulation. I do not have the chapter and verse of it, but when the noble Lord reviews Hansard over the summer, he will see exactly what I am talking about.
We are in the same situation again. Although I was not particularly annoyed then, I am becoming extremely annoyed now, and unless the noble Lord, Lord Tunnicliffe, can give a better answer, I shall have to ask the opinion of the Committee.
I am sorry, but the amendment allows the PPF to recover the costs of pension sharing that have been vested on it because of a transition. That is exactly the same as pension-sharing costs that are now covered in any other divorce. It is exactly what the generality of the clause proposes for compensation sharing when the party concerned is in the PPF. The clause enables the scheme to make sensible charges in a transition. The fundamental concept of all sensible regulations is that parties who create a cost should properly compensate for it. It should not be pushed off into the general revenue of the scheme.
The amendment matters, as I have tried to make clear. It simply enables the PPF to recover costs from the parties involved. It is so simple and straightforward that I find it difficult to see how I can say anything more persuasive than that this is how all pension sharing works. It is how the PPF will work, and it is entirely reasonable that charges incurred by someone who is caught in transition will work in the same way.
While the noble Lord, Lord Skelmersdale, considers his position, the Minister might like to know that his answer is good enough for us on these Benches.
I have allowed one Minister to get off the hook on this occasion, and I am now going to let another Minister get off the hook. However, this is no way to legislate, and if it happens again I will have not the slightest hesitation in asking for the Committee’s opinion.
On Question, amendment agreed to.
Clause 100, as amended, agreed to.
Clauses 101 to 103 agreed to.
Schedule 5 [Pension compensation on divorce etc: England and Wales]:
moved Amendments Nos. 130DT to 130DZ:
130DT: Schedule 5, page 78, line 2, after first “compensation” insert “that derive from rights under a specified pension scheme are to”
130DU: Schedule 5, page 78, line 10, at end insert—
“(c) “specified” means specified in the order.”
130DV: Schedule 5, page 78, line 39, leave out from beginning to “the” and insert “are”
130DW: Schedule 5, page 79, leave out lines 1 to 7 and insert—
“( ) For the purposes of subsection (3)(a), rights to PPF compensation “are the subject of pension attachment” if any of the following three conditions is met.
( ) The first condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under section 23 imposing a requirement by virtue of section 25B(4), and(b) that order, as modified under section 25E(3), remains in force.( ) The second condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under section 23 imposing a requirement by virtue of section 25B(7), and(b) that order—(i) has been complied with, or(ii) has not been complied with and, as modified under section 25E(5), remains in force.( ) The third condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under section 23 imposing a requirement by virtue of section 25C, and(b) that order remains in force.”
130DX: Schedule 5, page 84, line 2, after first “compensation” insert “that derive from rights under a specified pension scheme are to”
130DY: Schedule 5, page 84, line 8, at end insert—
“(3) In sub-paragraph (1) “specified” means specified in the order.”
130DZ: Schedule 5, page 84, line 19, leave out from beginning to “the” and insert “are”
On Question, amendments agreed to.
moved Amendment No. 130E:
130E: Schedule 5, page 84 leave out lines 26 to 32 and insert—
“( ) For the purposes of sub-paragraph (1)(a), rights to PPF compensation “are the subject of pension attachment” if any of the following three conditions is met.
( ) The first condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under Part 1 imposing a requirement by virtue of paragraph 25(2), and(b) that order, as modified under paragraph 31, remains in force.( ) The second condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under Part 1 imposing a requirement by virtue of paragraph 25(5), and(b) that order— (i) has been complied with, or(ii) has not been complied with and, as modified under paragraph 32, remains in force.( ) The third condition is that—
(a) the rights derive from rights under a pension scheme in relation to which an order was made under Part 1 imposing a requirement by virtue of paragraph 26, and(b) that order remains in force.”
On Question, amendment agreed to.
Schedule 5, as amended, agreed to.
Schedule 6 [Pension compensation on divorce etc: Scotland]:
moved Amendments Nos. 130EA to 130EG:
130EA: Schedule 6, page 89, line 38, leave out from “which” to “subject” in line 40 and insert “is”
130EB: Schedule 6, page 90, line 9, leave out “or have been”
130EC: Schedule 6, page 90, line 25, leave out “93(2)” and insert “(Activation of pension compensation sharing: supplementary (Scotland))(1)”
130ED: Schedule 6, page 91, line 31, leave out from “which” to “subject” in line 33 and insert “is”
130EE: Schedule 6, page 91, line 45, leave out “or have been”
130EF: Schedule 6, page 92, line 25, after “compensation” insert “that derive from rights under a specified compensation scheme (that is, specified in the order) are to”
130EG: Schedule 6, page 92, line 28, after “value” insert “or amount”
On Question, amendments agreed to.
Schedule 6, as amended, agreed to.
Clause 104 [Consequential amendment]:
moved Amendment No. 130EH:
130EH: Clause 104, page 50, line 9, leave out from beginning to “after” in line 10 and insert—
“( ) The Pensions Act 2004 (c. 35) is amended as follows.
( ) In section 173 (Pension Protection Fund)—
(a) in subsection (3)(b)”
On Question, amendment agreed to.
moved Amendments Nos. 130EJ and 130EK:
130EJ: Clause 104, page 50, line 11, at end insert—
“(b) in subsection (5) omit “of this Act”.”
130EK: Clause 104, page 50, line 11, at end insert—
“( ) After paragraph 18(2)(d) of Schedule 5 (Board of the Pension Protection Fund) insert—
“(da) section 168A (charges in respect of pension sharing etc);”.( ) After paragraph 18(2)(g) of that Schedule insert—
“(ga) section 99 of, and Schedule 4 to, the Pensions Act 2008 (discharge of liability in respect of pension compensation credit);(gb) section 100 of that Act (charges in respect of pension compensation sharing costs);(gc) section 101 of that Act (supply of information about pension compensation in relation to divorce etc); (gd) section 102 of that Act (supply of information about pension compensation sharing);”( ) In paragraph 18(2)(h) of that Schedule—
(a) after “section 111” insert “of this Act”;(b) for “(g)” substitute “(gd)”.”
On Question, amendments agreed to.
Clause 104, as amended, agreed to.
moved Amendment No. 130EL:
130EL: Transpose Clause 104 to after Clause 105
On Question, amendment agreed to.
moved Amendment No. 130EM:
130EM: Before Clause 105, insert the following new Clause—
“Charges in respect of pension sharing etc
After section 168 of the Pensions Act 2004 (c. 35) (administration of compensation) insert—
“Charges in respect of pension sharing etc168A Charges in respect of pension sharing etc
(1) Regulations may make provision for the purpose of enabling the Board to recover prescribed charges in respect of complying with a relevant order or provision.
(2) In subsection (1) “a relevant order or provision” means any of the following—
(a) an order under section 23 of the Matrimonial Causes Act 1973 (financial provision in connection with divorce etc: England and Wales) so far as the order—(i) includes provision made by virtue of section 25B or 25C of that Act (powers to include provision about pensions), and(ii) applies in relation to the Board by virtue of section 25E of that Act;(b) an order under section 23 of that Act so far as the order includes provision made by virtue of section 25F of that Act (attachment of pension compensation on divorce etc: England and Wales);(c) an order under Part 1 of Schedule 5 to the Civil Partnership Act 2004 (financial provision orders in connection with dissolution of civil partnerships etc: England and Wales) so far as the order—(i) includes provision made by virtue of Part 6 of that Schedule (powers to include provision about pensions), and(ii) applies in relation to the Board by virtue of Part 7 of that Schedule;(d) an order under Part 1 of that Schedule so far as the order includes provision made by virtue of paragraph 34A of that Schedule (attachment of pension compensation on dissolution of civil partnership etc: England and Wales);(e) an order made under any provision corresponding to a provision mentioned in paragraphs (a) to (d) in force in Northern Ireland;(f) an order under section 8(1)(baa) to (bb) of the Family Law (Scotland) Act 1985 (orders for financial provision) so far as the order applies in relation to the Board;(g) any provision corresponding to provision which may be made by such an order and which is contained in a qualifying agreement (to which section 28(3) of the Welfare Reform and Pensions Act 1999, or section (Activation of pension compensation sharing: supplementary (Scotland))(1) of the Pensions Act 2008 relates) so far as the agreement applies in relation to the Board; (h) an order or provision of a kind mentioned in section 28(1) of the Welfare Reform and Pensions Act 1999 (pension sharing) so far as the order or provision applies in relation to the Board by virtue of section 220 of this Act.(3) Regulations under subsection (1) may include provision enabling the Board to set off against any PPF compensation payable to a person any charges owed to it by that person under the regulations.
(4) In this section “PPF compensation” means compensation payable—
(a) under or by virtue of this Chapter, or(b) under or by virtue of Chapter 1 of Part 3 of the Pensions Act 2008 (pension compensation on divorce etc).””
On Question, amendment agreed to.
Clause 105 agreed to.
Schedule 7 [Amendments of Schedule 7 to the Pensions Act 2004]:
moved Amendment No. 130EN:
130EN: Schedule 7, page 93, line 6, at end insert—
“ In paragraph 11(8) after “paragraph 24 (commutation),” insert—
“paragraph 25E (terminal illness lump sum),”.In paragraph 13, after sub-paragraph (3) insert—
“(3A) For the purposes of this paragraph, a person’s entitlement under paragraph 11 is to be determined disregarding paragraph 25E(1)(b) (successful applicant for terminal illness lump sum loses entitlement to periodic compensation).”
In paragraph 14(9) after “paragraph 20 (compensation in respect of scheme right to transfer payment or contribution refund),” insert—
“paragraph 25E (terminal illness lump sum),”.In paragraph 15(6) after “paragraph 24 (commutation),” insert—
“paragraph 25E (terminal illness lump sum),”.In paragraph 18, after sub-paragraph (3) insert—
“(3A) For the purposes of this paragraph, a person’s entitlement under paragraph 15 is to be determined disregarding paragraph 25E(1)(b) (successful applicant for terminal illness lump sum loses entitlement to periodic compensation).”
In paragraph 19(8) after “This paragraph is subject to—” insert—
“paragraph 25E (terminal illness lump sum),”.”
On Question, amendment agreed to.
moved Amendment No. 130EP:
130EP: Schedule 7, page 94, line 12, at end insert—
“ After paragraph 25A (inserted by paragraph 7 above) insert—
“Terminal illness lump sum: eligibility25B (1) This paragraph applies to a person in relation to whom all of the following conditions are met—
(a) the person is terminally ill;(b) if the person lived to the relevant age, the person would become entitled on attaining that age to relevant compensation in relation to the scheme;(c) the person has not yet become entitled to any compensation under the pension compensation provisions in relation to the scheme;(d) the whole or any part of the person’s lifetime allowance is available. (2) A person to whom this paragraph applies may make an application to the Board to commute the future entitlement mentioned in sub-paragraph (1)(b) for a lump sum (“a terminal illness lump sum”) payable on the granting of the application.
(3) For the purposes of this Chapter a person is “terminally ill” at any time if at that time the person suffers from a progressive disease and the person’s death in consequence of that disease can reasonably be expected within 6 months.
(4) In this paragraph—
“lifetime allowance”, in relation to a person, has the same meaning as in Part 4 of the Finance Act 2004 (c. 12) (pension schemes etc) (see section 218 of that Act);
“relevant age”, in relation to a person, means—
(a) in relation to compensation entitlement to which has been accelerated or deferred under regulations under paragraph 25 or (as the case may be) 25A, the age at which the person becomes entitled to the compensation in accordance with the regulations;(b) in relation to compensation entitlement to which has not been so accelerated or deferred, normal pension age (or, in a case to which paragraph 21 applies, normal benefit age).“relevant compensation” means—
(a) periodic compensation under paragraph 11 or 15, or(b) lump sum compensation under paragraph 14 or 19;Terminal illness lump sum: application25C An application for a terminal illness lump sum—
(a) must be made in writing, either on a form approved by the Board for the purposes of this paragraph or in such other manner as the Board may accept as sufficient in the circumstances of the case;(b) must be accompanied by such information as the Board may require for the purpose of determining the application.Terminal illness lump sum: determination of application25D (1) The Board must determine an application for a terminal illness lump sum in accordance with this paragraph.
(2) The Board must—
(a) if satisfied that the conditions in paragraph 25B(1) are met in relation to the applicant, grant the application;(b) in any other case (subject to sub-paragraph (3)), reject the application.(3) The Board may hold over the application for determination at a later date if it is satisfied that—
(a) although the condition in paragraph 25B(1)(a) is not met in relation to the applicant, the applicant suffers from a progressive disease and may become terminally ill within six months, and(b) the conditions in paragraph 25B(1)(b) to (d) are met in relation to the applicant.Terminal illness lump sum: effect of successful application25E (1) If the Board grants an application for a terminal illness lump sum, the applicant—
(a) becomes entitled to a terminal illness lump sum calculated in accordance with this paragraph, and(b) loses the entitlement the applicant otherwise would have had on attaining the relevant age to relevant compensation in relation to the scheme.(2) The amount of the terminal illness lump sum is 2 times the sum of—
(a) the periodic compensation annual amount, and(b) the lump sum compensation annual amount.(3) In sub-paragraph (2) “the periodic compensation annual amount” means the annual amount to which the applicant would have been entitled under paragraph 11 or 15 in relation to the scheme in the year following the granting of the application, if the applicant had attained the relevant age on the granting of the application.
(4) In sub-paragraph (2) “the lump sum compensation annual amount” means the annualised value of the lump sum to which the applicant would have been entitled under paragraph 14 or 19 in relation to the scheme on the granting of the application, if the applicant had attained the relevant age on the granting of the application.
(5) In sub-paragraph (4) “the annualised value” of a lump sum means the annualised actuarially equivalent amount of that sum, determined in accordance with actuarial factors published by the Board.
(6) In this paragraph “relevant compensation” and “the relevant age” have the same meanings as in paragraph 25B.
Terminal illness lump sum: information25F (1) Relevant information held by the Secretary of State about an individual may be disclosed to the Board for use for a purpose relating to—
(a) the Board’s functions under paragraphs 25B to 25E;(b) the compliance of the trustees or managers of a pension scheme with section 138 (limit on amount of scheme benefits payable during an assessment period).(2) In sub-paragraph (1) “relevant information” means information held for the purposes of any function of the Secretary of State relating to—
(a) social security, or(b) any scheme made under section 286 (financial assistance scheme).”
On Question, amendment agreed to.
Schedule 7, as amended, agreed to.
Clause 106 [Financial assistance scheme]:
moved Amendment No. 130EQ:
130EQ: Clause 106, page 50, line 25, after “scheme”” insert “, in paragraph (b), after “began” insert “, subject to any prescribed exception,”.
(3A) In that definition,”
The noble Lord said: I shall speak also to government Amendments Nos. 130ER to 130ET, and 141A, 141B and 142C, as well as to Amendment No. 130EU, tabled by the noble Lord, Lord Skelmersdale. The first set of amendments seeks to bring schemes which currently fall outside the financial assistance scheme and Pension Protection Fund into the financial assistance scheme. As Members of the Committee may recall, the financial assistance scheme assists schemes that commenced winding-up between 1 January 1997 and 5 April 2005. Entry conditions for the Pension Protection Fund require the employer to have experienced an insolvency event on or after 6 April 2005 at the PPF’s start date.
A small number of schemes have been caught between the FAS and the PPF because the employer went insolvent before the PPF’s start date, but the pension scheme delayed winding up until after that date. Government Amendments Nos. 130EQ, 130ES and 141A will enable us to bring forward regulations to allow these schemes into the FAS by making exceptions to the current requirement that pension schemes must have started to wind up before 6 April 2005 to qualify for the FAS. Members of these schemes are in a similar position to those already helped by the FAS, and through no fault of their own. We therefore intend to bring these schemes into the FAS. In order to bring schemes such as Desmond and Sons into the FAS as quickly as possible, these amendments ensure that the regulation-making power will commence on Royal Assent, and the regulations are subject to the negative procedure. I should like to thank the noble Lord, Lord Skelmersdale, for his amendment, which also seeks to achieve this end. I hope that he is content with our amendments, which will indeed help those schemes caught between the FAS and the PPF and so will feel able to withdraw his amendment.
The next group of amendments, Amendments Nos. 130ET, 141B and 142C, relate to an extension of the current restriction on annuitisation. The Young scheme assets review recommended continuing to restrict the purchase of annuities to protect scheme assets pending the Government taking them in. This amendment seeks to extend the restriction on annuitisation introduced by regulations following the Pensions Act 2007 that has recently expired. This extension will have a retrospective effect back to 26 June 2008 so that there is no gap between the regulations which expired on 25 June and the new powers. This amendment will also introduce a new sanction where annuity contracts entered into contrary to the restriction can be made void by the FAS scheme manager. The new sanction under which annuity contracts entered into contrary to the extended restriction can be made void is also retrospective, covering the period from 26 June onwards. The new clause comes into effect on Royal Assent and applies to the whole of the United Kingdom.
Finally, Amendment No. 130ER relates to solvent schemes becoming eligible for the FAS. Noble Lords will be aware that we laid the Financial Assistance Scheme (Miscellaneous Amendments) Regulations 2008 before Parliament on 18 June and, indeed, debated them in the Chamber just last Monday. Further to the existing employer insolvency-related conditions, these regulations include an alternative qualifying condition such that if the employer has paid the debt to the pension scheme he was legally obliged to pay, the scheme could join the FAS. This brings many schemes with solvent employers into the FAS. While we expect the regulations to cover those schemes with solvent employers of which we are already aware, the history of the FAS shows that new schemes can come forward with circumstances that no one had realised existed. By removing the requirement to have any condition on the employer in primary legislation, this technical amendment will provide us with the latitude to include more pension schemes within the FAS. I hope that these amendments will receive the support of the Committee. I beg to move.
As the Minister said, my Amendment No. 130EU has been put very naturally into this group, as indeed has Amendment No. 130ET. Having been an occasional film goer for many years, I am amused that part of this group is indeed labelled “ET”. I do not think there is anything to say about “fingertip touching” on these amendments, but I should explain why I tabled Amendment No. 130EU, which, as the noble Lord said, is principally about Desmond and Sons, although there are other schemes involved. I did it, as I do from time to time in your Lordships’ House, to keep the Government up to the mark on what they have promised, whether here or in another place. I am delighted that they have delivered and I have no intention of moving Amendment No. 130EU.
I thank the Government on behalf of the Desmond and Sons pension scheme for what they have done. Sean O’Dwyer from the pensioners’ committee has written me very moving letters through my noble friend Lord Alderdice pointing out that pensioners have had their pensions cut on average by almost a half, from £470 a month to £250. Many of them are in their 70s and 80s. What is proposed is excellent and shows that Parliament and Government can respond to hard cases of this sort. I thank the noble Lord for that.
I thank the noble Lords, Lord Skelmersdale and Lord Oakeshott, for their kind support for the amendments. For the record, we referred to Desmond and Sons, which has the most members—346—but there are two other schemes of which we are aware that will be helped by these provisions. One is Stanley’s Press with 37 members and the other is Pinneys of Luton with 19 members.
On Question, amendment agreed to.
moved Amendments Nos. 130ER and 130ES:
130ER: Clause 106, page 50, line 28, at end insert—
“(3B) In paragraph (c) of that definition, after “conditions” insert “, if any,”.”
130ES: Clause 106, page 50, line 30, at end insert—
“(5) Section 316 of that Act (parliamentary control of subordinate legislation) is amended as follows.
(6) In subsection (1), after “(2)” insert “, (2A)”.
(7) In subsection (2)(n), at the end add “, except regulations prescribing an exception for the purposes of paragraph (b) of the definition of “qualifying pension scheme” in subsection (2) of that section;”.
(8) After subsection (2) insert—
“(2A) Subsection (1) does not apply to regulations under section 286 prescribing an exception for the purposes of paragraph (b) of the definition of “qualifying pension scheme” in subsection (2) of that section, if a draft of the instrument containing them has been laid before and approved by a resolution of each House of Parliament.””
On Question, amendments agreed to.
Clause 106, as amended, agreed to.
moved Amendment No. 130ET:
130ET: After Clause 106, insert the following new Clause—
“Restriction on purchase of annuities
(1) After section 286 of the Pensions Act 2004 (c. 35) insert—
“286A Restriction on purchase of annuities
(1) This section applies to any qualifying pension scheme which has not been fully wound up.
(2) The trustees of the scheme must not purchase or agree to purchase annuities on behalf of qualifying members unless—
(a) before 26th September 2007 the trustees entered into a binding commitment to purchase the annuities, or(b) the purchase of the annuities is approved by the scheme manager on the application of the trustees and any condition imposed under subsection (4)(b) is satisfied. (3) An application under subsection (2)(b) must be in writing and must set out the trustees’ reasons for applying.
(4) An approval under subsection (2)(b)—
(a) may be given if the scheme manager thinks it appropriate to do so, and(b) may be made subject to such conditions (if any) as the scheme manager thinks appropriate.(5) If the trustees fail to comply with subsection (2), the purchase or agreement to purchase is void if the scheme manager so determines.
(6) A determination under subsection (5) may be made if the scheme manager thinks it appropriate to do so.
(7) When making a decision under this section as to whether something is appropriate, the scheme manager may take into account such factors as are in the scheme manager’s opinion relevant.
(8) An application under the Financial Assistance Scheme (Halting Annuitisation) Regulations 2007 (S.I. 2007/2533) that has not been determined before 26th June 2008 has effect as if made under subsection (2)(b).
(9) An approval given under those regulations has effect for the purposes of subsection (2)(b) as if given under this section.
(10) In this section “qualifying pension scheme”, “qualifying member” and “scheme manager” have the same meaning as in section 286.
(11) Regulations may provide that references in this section to the scheme manager have effect as references to such person as may be prescribed.”
(2) The amendment made by subsection (1) must be taken to have had effect from 26th June 2008.
(3) In section 316(2) of the Pensions Act 2004 (c. 35) (statutory instruments subject to affirmative resolution procedure), after paragraph (n) insert—
“(na) regulations under section 286A(11) (power to provide that references in section 286A to the scheme manager are to have effect as references to a prescribed person);””
On Question, amendment agreed to.
[Amendment No. 130EU not moved.]
moved Amendment No. 130EVA:
130EVA: After Clause 106, insert the following new Clause—
“Tax payable on payments in arrears
(1) The Pensions Act 2004 (c. 35) is amended as follows.
(2) After section 286 (financial assistance scheme for members of certain pension schemes) insert—
“286A Tax payable on payments in arrears
(1) This section applies in any case in which payments due to be made under section 286 are received by the qualifying members in a tax year other than that during which payments were due to be made (“payments in arrears”).
(2) The Treasury may make regulations concerning the treatment for income tax purposes of payments in arrears.
(3) Regulations under subsection (2) may make provision for—
(a) the attribution of payments in arrears to a tax year other than that in which the payments were received, and(b) claims for the repayment of income tax which is, or may have been, overpaid in respect of payments in arrears.””
The noble Lord said: During the Pensions Bill last year, we fought long and hard for the financial assistance scheme to pay pensioners 90 per cent of their expected pension accrual, and it was only at the end of last year that the Government finally conceded. A smaller point that was often overlooked in those debates was the enormous delays that pensioners were suffering to receive even the lesser amount that was owed to them before that point. At the time, the Government assured us that the delays were only teething problems and that everything would soon be running smoothly with the proper amounts of money finally being made over to those who had been waiting so long for their entitlement. It appears that this is not so: the financial assistance scheme is still in arrears on their payments. Can the Minister confirm how much the scheme is still in arrears and what proportion of funding has been spent on administration rather than on payments?
To add insult to injury, it also appears that not only are the potential recipients not receiving any interest when their arrears finally arrive but they are expected to pay tax on these non-existent sums payments. Can the Minister confirm that HMRC does not intend to repay any overpayment of tax until as late as mid-2009? Can he explain why that is? Additionally, can he confirm whether HMRC is taxing the arrears at 20 per cent, even though, if the payments had been made on time, they would have been subject to only 10 per cent? Why is the pensioner once again being expected to pay for the failure of the Government to keep their promises promptly? I beg to move.
The amendment would introduce a power to make regulations so that any financial assistance scheme payments in arrears could be attributed to a tax year other than the one in which the payments were received. It would also allow a claim to be made for repayment of any income tax overpaid in respect of any arrears. The amendment is not necessary, but it may be helpful if I outline how existing tax law works in respect of FAS payments
For income tax purposes, FAS payments are treated as pension income and, as such, are subject to existing income tax rules. The rules state that payments for a past period require income tax to be deducted initially through the PAYE system in the year in which they are received. However, the payments can subsequently be allocated to the years to which they relate and the tax adjusted accordingly, depending on the individual’s personal circumstances in those years. In other words, people can already obtain repayments from HMRC under existing rules. In practice, that means that, when FAS payments are made for a past period, the FAS operational unit will operate the existing tax code issued by HMRC. For the majority of members, this will be the basic rate tax of 20 per cent. For FAS recipients who think that they have paid too much tax, HMRC will, at their request, attribute their payment to the relevant tax years and reassess their tax. I hope that the Committee will see that this means that overall no one need pay more tax than they would have if the payments had been made in the years to which they relate.
The Government have responded promptly and positively to concerns raised by Dr Ros Altmann of the Pensions Action Group in relation to the tax position of members who receive payments for a past period. We appreciate that tax matters can be complex, and, in liaison with HMRC and the Pensions Action Group, we have produced supporting information for FAS members who receive payments for a past period. In addition, we have arranged for a dedicated telephone helpline to be provided by the Pensions Advisory Service that will support members in understanding the position, given their other income and personal circumstances. I hope that it is clear that we understand the intention behind the amendment and that I have reassured the noble Lord that the clause is unnecessary.
With regard to where we are on recalculating FAS assistance, since regulations came into force in early June the FAS operational unit has been recalculating assessments, now that assistance is payable at the 90 per cent level from normal retirement age. One thousand, two hundred and fifty-seven payments at the new rate were made in the June payroll, and we expect to have completed the reassessments by the end of August 2008. I hope that that is of assistance to the noble Lord.
I am grateful to the Minister, and I am sure that the Pensions Action Group will be partially grateful. As the Minister has explained, if the recipients should have been paid at the time when the 10 per cent tax rate was operating, they will have to claim—that claim, under the normal government rules, will have to be validated—before they get a tax rebate. It is a rather strange way of operating, but I am afraid that from the Government’s point of view I must agree with the Minister that this is a proper administrative method to achieve the objective that he and I have sought to accomplish, so I am not going to press the amendment in any way.
It might be helpful if I explained that the individuals who wish to relate back part of the money that they have been paid can get a letter from the FAS operational unit that will set out the years to which it relates. That system is in place to facilitate that. I also stress that it is not necessarily in everyone’s interests to relate back the payment that they receive to an earlier year.
That must be true, but in his additional remarks the Minister has just said that the individuals “can” receive a letter from the FAS. “Will they?” is the question that I would like to ask before I decide what to do with the amendment.
The answer is yes, they will. I see nods from the Box in confirmation of what I have said. The system has been set up to facilitate that.
I am relieved by that last answer, and I am sure that the Pensions Action Group will be too. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 130EV:
130EV: After Clause 106, insert the following new Clause—
“Calculation of annuity rates
(1) The Pensions Act 2004 (c. 35) is amended as follows.
(2) In section 286 (financial assistance scheme for members of certain pension schemes), after subsection (3)(d) insert—
“( ) prescribing the annuity rates at which payments to, or in respect of, qualifying members of qualifying schemes are calculated;”.”
The noble Lord said: This is an extremely complicated area, and I hope to goodness I have got my question right. In moving this amendment, which is about the bulk annuitisation rules within the financial assistance scheme, I shall start by saying that it is very, very, very, very, very much a probing one.
Ha!
I cannot be more emphatic than that—even me, with my extensive use of the English language. It is a probing amendment, not least because I do not believe that the point I am hoping to raise is actually decided by primary legislation. The amendment is also highly technical. However, I should be interested to know why the Government have decided to proceed as they have. My concern is that they are not considering post-1997 escalation in the factors used to calculate the annuity derived from tax-free commutations or transfers. Pensioners who took the cash are therefore receiving less than 90 per cent of expected pension and are disadvantaged compared with those who did not commute. Surely this is an arbitrary penalty for a decision made at a time when the pensioner could have no way of knowing the effect. Why are the Government not using calculations that are of general use in the marketplace and would rule out this particular anomaly? I beg to move.
The financial assistance scheme has to use annuity rates in a number of different circumstances where the amount of annuity which the trustees could have purchased for an individual at the end of wind-up is not known. For instance, where a member has taken part of their pension as a lump sum while the scheme is still winding up, annuity factors are used to produce a notional annuity which can then be used to calculate the amount of top-up payable to that member by the FAS.
The annuity factors used by the FAS can affect the amount of assistance paid. Because of this, we recognise that it is important that those factors are generally in line with market conditions. While the amendment would not create a definite obligation on the Government to put these annuity factors into regulations, it would perhaps give an indication that Parliament expected the annuity factors to be set out in regulations rather than elsewhere. If we did so, Parliament would then have to debate any future changes to those factors. I never underestimate the knowledge and intelligence of Members of this House in particular, and of those in the other place, but I question whether our time is best spent considering pages and pages of annuity factors.
Members of the Committee will remember that the Government have recently completed a review of the annuity factors which have been in use since 2005. The Government Actuary’s Department produced draft factors based on work by PricewaterhouseCoopers in relation to the financial model for the FAS that we commissioned from the Government Actuary’s Department in 2007. These draft factors generally increased the amount of assistance paid. We consulted on them, and the factors were put into place only once we had considered the responses to that consultation. Furthermore, laying regulations each time the factors need changing would slow down the process of reflecting these changes in FAS member payments. It is partly for this reason that, generally, such technical information is not put into legislation. For example, the various actuarial factors used by the Pension Protection Fund for similar purposes are also not in regulations. I do not think that this amendment would help people in any way, but nor would it really hinder, apart from perhaps delaying future changes which may be beneficial to members.
The noble Lord touched on indexation in relation to annuity factors. The factors produce a notional annuity that takes no account of indexation. It is acknowledged that this produces a higher notional amount, and so lower top-up assistance, than if indexation were built in. A deliberate decision was made that this was the most appropriate approach, since annuities that are bought for deferred members of FAS qualifying schemes during wind-up would not generally contain indexation. However, we will continue to consider this point in the context of delivering the complete package of FAS reforms, when FAS payments will be indexed in respect of assistance derived from post-April 1997 service.
I hope that that deals with the noble Lord’s queries and that he will feel able to withdraw the amendment.
There will come a time when I will have to read the Minister’s words with great care and with a cold, wet towel wrapped around my tiny brain. However, I am glad to hear that the Government are continuing to look at indexation within the FAS. It is clear that it is right that they should do so and that they should not yet have come to a final decision. On that basis, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
moved Amendment No. 130EW:
130EW: Before Clause 107, insert the following new Clause—
“Power to amend provisions of Pensions Act 2004 relating to contribution notices etc.
(1) The Secretary of State may by regulations make provision amending Part 1 of the Pensions Act 2004 (c. 35) so far as that Part relates to—
(a) contribution notices;(b) financial support directions; or(c) restoration orders.(2) But provision may be contained in regulations made under this section only if the Secretary of State considers that without the provision there would be—
(a) a material risk of adverse effects on the benefits under relevant pension schemes of, or in respect of, members of such schemes, or(b) a material risk of compensation from the Pension Protection Fund becoming payable in accordance with Part 2 of the Pensions Act 2004 (c. 35).(3) Regulations under this section may make provision having retrospective effect (but may not make provision having effect in relation to any time before 14th April 2008).
(4) In this section—
“contribution notice” has the meaning given by section 38 of the Pensions Act 2004 (c. 35);
“financial support direction” has the meaning given by section 43 of that Act;
“relevant pension scheme” means any occupational pension scheme (within the meaning of that Act) in relation to which section 38, 43 or 52 of that Act applies;
“restoration order” has the meaning given by section 52 of that Act.
(5) Before making any regulations under this section the Secretary of State must consult—
(a) the Pensions Regulator, and(b) such other persons as the Secretary of State considers appropriate.”
The noble Lord said: I shall speak to the Government’s Amendments Nos. 130EW and 141C, and at the same time respond to Amendment No. 134ZA, tabled by the noble Lord, Lord Lucas.
The regulatory regime that protects occupational pensions was established under the Pensions Act 2004. It is based on the employer’s covenant to the pension scheme, which means that the employer stands behind the pension scheme risk. It is designed to strike a balance, giving employers flexibility in how they manage their funding risk without requiring them to inject capital up front. However, it also gives trustees a legitimate interest in corporate activity that might reduce the employer’s ability to support the scheme.
In general, the regime is working well. However, several new business models have emerged that seek to take advantage of the flexibility of the occupational pensions regulatory regime. They wish to split the pension scheme from the support of the employer and run the scheme without the security of a sponsoring employer or an adequate capital buffer dedicated to the scheme. They could pose significant risks to the security of scheme members’ benefits, the Pension Protection Fund and those employers who pay the Pension Protection Fund’s levy.
There is general agreement that the Government are right to give the regulator enhanced powers to intervene in such circumstances, but we are acutely aware that the changes must be targeted and ensure that there is as much certainty as possible in the operation of the regulatory framework. In introducing these changes, the Government aim to strike a balance which ensures that regulation remains effective without stifling new innovation or inhibiting legitimate business activity. We do not wish to burden employers or pension providers with unnecessary regulation but it is critically important that pension promises are kept, both for the security of scheme members and to ensure that liabilities are not passed on to the PPF and, ultimately, to other responsible employers.
We laid out the broad proposals in our consultation, which started on 14 April and ran to 20 June. Most consultees, including the CBI and the NAPF, agreed that the Government were right to act and that we must protect members’ benefits and the Pension Protection Fund from new risks. However, we recognise that it is important to get the details right to ensure that the changes are appropriately targeted. Our policy objective remains that the overwhelming majority of pension schemes and their sponsors should not be affected by the proposed changes.
It is difficult, if not impossible, to build into legislation a comprehensive definition of all the different models that look to take on pension liabilities. Doing so may appear to be simple in legislative terms, but it would simply create a regulation that could easily be sidestepped. The proposed changes are therefore designed to be sufficiently broad-based to tackle the wide-ranging risks resulting from market changes. At the same time, we are determined that they should be sufficiently targeted to ensure that the everyday business activity of responsible employers is not affected. The changes would make it easier for the regulator to ensure that pension schemes are supported properly, but only where taking action is a proportionate step and it is reasonable to expect the support to be put in place.
I should like to set out our intentions. The material risk prompting these changes is those actions that singularly or collectively weaken the employer covenant standing behind the pension scheme. Our consultation set out six features or situations where that may occur, including moving the employer or the pension scheme to another jurisdiction. In these and similar circumstances, the regulator should not have to prove intent but could look at the effect of the action and whether it was detrimental to the scheme or the PPF.
The amendment provides a regulation-making power to amend Part 1 of the Pensions Act 2004, but has important constraints on the use of this power. These safeguards link the power to material risks to either the security of members’ benefits or the protection of the PPF and require the Secretary of State to consult with the Pensions Regulator and others. Regulations would also be subject to the affirmative procedure, ensuring that both Houses of Parliament would debate any regulations before they came into force.
We are grateful to the respondents who have put forward helpful suggestions, to which we need to give proper consideration in formulating the draft regulations. The responses received during the consultation will help in this process. We will consult formally on these regulations, which will provide stakeholders with an opportunity to comment on the precise detail of the secondary legislation. The regulator will issue revised guidance which will set out how they will be implemented at the same time. This is a complex area which demands thorough consultation, and I am pleased that many organisations are keen to engage on the detail of the regulations.
What we are proposing strikes the right balance between partially constrained powers that are granted in primary legislation, but subject to further constraint, the detail of which will be in secondary legislation, and guidance. Such constraints as are proposed here will ensure that these powers are sufficiently targeted to deal with the issue in question. It is important that they can be refined to deal with future market conditions and currently unforeseen threats to pension promises.
I turn now to Amendment No. 134ZA, tabled by the noble Lord, Lord Lucas. We welcome the recognition in Amendment No. 134ZA that the Government need to act in this area, but Amendment No. 134ZA is not constrained in any way and is not linked to the material risks to the security of members’ benefits or to the protection of the PPF. Unlike the Government’s amendment, it does not require consultation with the Pensions Regulator and others. The effect of this amendment would be to give the Secretary of State the power to make an order where it was necessary to prevent the avoidance of the intent of the Pensions Regulator’s anti-avoidance powers in Sections 38 to 56 of the Pensions Act 2004. The amendment is very broad-based and contains none of the safeguards that the Government consider important in the Bill. I hope that in light of my explanation the noble Lord will not press this amendment.
Finally, on the issue of retrospection, the Government’s consultation included a proposal to make it clear that contribution notices can be issued in relation to acts or failures to act. This change would be effective to 27 April 2004, as it is a clarification of an existing provision, whose effect dates back to this date. The Government are carefully examining the responses to the consultation in respect of this proposal and expect to lay a further amendment to this Bill in due course. Our shared responsibility should be to ensure that pension promises are kept, with confidence in UK pensions secured for the long term. I believe that our proposals will provide that confidence. I beg to move.
moved, as an amendment to Amendment No. 130EW, Amendment No. 130EX:
130EX: Before Clause 107, line 8, at end insert—
“collectively referred to in this section as “relevant notices”)”
The noble Baroness said: The amendment is in the name of my noble friend Lord Lucas. It is a simple amendment defining relevant notices. I have Amendment No. 130FK in this group. Before speaking to it, I shall say a few words about the overall issues addressed by Amendment No. 130EW. This is a far-reaching amendment which has been introduced late in the day and hence was not included in our Second Reading debate. Therefore it is important that we examine the broad issues as well as the detail of the amendment.
In addition to Amendment No. 130FK, which amends Amendment No. 130EW, I have added my name to the majority of the amendments in the name of my noble friend Lord Lucas, which seek to amend the Government’s amendments. Most of my noble friend’s amendments are amendments to Amendment No. 130EW, but I fully support my noble friend in degrouping them from this group. While that may make our proceedings a trifle more complex, it is important that we have an opportunity to debate the particular issues that my noble friend’s amendment addresses.
The Minister has spoken to his Amendment No. 130EW. He will have an opportunity to press it in due course, although I suspect not today. I hope that we will be able to persuade him by these debates on the amendment and the series of amendments tabled by my noble friend, that it would be better if he did not press his amendment in the Committee. That would allow the Department for Work and Pensions to pursue serious discussion about the form and content of alterations to the regulator’s powers during the summer and early autumn, and I hope that the Government could return on Report with an amendment which had more support in the commercial world than this one does.
We have received briefing on Amendment No. 130EW from a large number of organisations, such as the CBI, the British Venture Capital Association and the Society of Turnaround Professionals, as well as professional firms which are active in providing advice in respect of pension issues, such as PricewaterhouseCoopers. These organisations fully accept that, as we do on these Benches, the interests of members of pension schemes need effective protection in law. However, the united opinion from those organisations is that Amendment No. 130EW goes beyond protection of members and is in fact capable of inflicting real harm.
Noble Lords may have seen a letter in the Financial Times on 9 July, signed by the British Venture Capital Association, the Association of Chartered Certified Accountants, the Society of Turnaround Professionals and the Association of Consulting Actuaries. I will quote a couple of bits from that letter. They express concern that these measures will damage Britain’s competitiveness and further undermine its reputation as an attractive place to do business. They report that these moves have already caused many deals to be aborted and stopped further ones from happening, and say that lawyers are giving explicit legal advice against investment because of these changes.
My Amendment No. 130FK says that regulations must not be made under the new clause introduced by Amendment No. 130EW until a regulatory impact assessment has been laid before Parliament and approved. As I said earlier, Amendment No. 130EW has been introduced at a late stage in the passage of the Bill and it has not been considered in another place. The amendment has no regulatory impact assessment attached to it, and of course it was not included within the original regulatory impact assessment. Hence the Government have not laid out the evidence of need for this amendment, they have not set out alternative courses of action and have given no estimate of cost for the private sector or for government.
The Government’s consultation suggested that an RIA was not necessary because there would be a negligible impact on the private sector, but the respondents to the consultation challenged that and called for an RIA. They believe that the costs will be great at a macro level in discouraging corporate transactions, wherever a defined benefits scheme is involved. Also, they believe that if transactions proceed they will be driven into the necessity of clearance procedures, which are costly and time-consuming.
The Government issued a consultation paper on new powers for the regulator on 25 April. That consultation ran for eight weeks instead of the usual three months, notwithstanding that the Government acknowledged that the issues are complex. There is a sense that this is being rushed through without proper consideration. Indeed, the Government produced this amendment only a few days after the end of the consultation. The Government have not published the responses to the consultation. Instead, they said that there is,
“an emerging consensus that legislative change is necessary”.
I believe that if the Government publish the responses, it would be plain to all that there is no such consensus, and certainly no consensus as to the content of Amendment No.130EW. There is a clear view from submissions to the Government that I have seen that, if some further powers are required—and there is doubt about that—the answer does not lie in the sweeping powers that the Government are seeking, but in more targeted ones.
Those who read and responded to the consultation document thought that they were considering some fairly well defined proposals for an extension of the regulator’s powers. There was no suggestion at the time that the Government were consulting on taking some wide and unconstrained powers to rewrite the legislation in perpetuity. If any consensus can be detected, it might be about the elements of the specific proposals put forward in the consultation document. There is no consensus about these wide powers because they simply were not exposed to consultation.
I know that the Minister will seek to assure us, as he has partly in his opening remarks, that the regulations will be targeted. The fact remains that the powers are extraordinarily broad and should be more narrowly drawn. We do not have an amendment in this group that redrafts the powers by reference to the specific situations set out in the consultation document. This is the basis of one solution that, for example, the CBI would like to see—although the list in the consultation is not without controversy and goes way beyond the non-insured buy-out model that initially led to concerns. Nevertheless, I know that the various organisations to which I have referred would be happy to work with the Government to achieve a more tightly drawn power if the Government were prepared to go down that route.
For now, I shall leave my noble friend Lord Lucas to speak to his detailed amendments in the group. However, I may contribute to the Committee later, depending upon how our debates progress. I beg to move.
As my noble friend has said, Amendment No. 130EW is immensely wide. It does not have within it any great restrictions on how these powers may be used. That is why I am so concerned about whether we are legislating in the right way. It is not that the Government say that they will use these powers unacceptably, but that the Bill will allow them to do so.
We took a good deal of trouble in the 2004 Act to get the relationship between the pension fund and the company funding it right. That is in danger of being substantially disturbed. It is not what the Minister is saying, but how the Bill can be read and used. The Minister knows that affirmative resolution is all very well but, at the end of the day, it is not an effective check on the Executive. The occasions when we, let alone the Commons, will throw an order back at the Government are extremely rare.
The Government have made no attempt today to set out the necessity for having these powers now. I have heard nothing from them to say that some impending crisis can be dealt with in no other way. I have heard nothing from them to say that the regulator’s powers have been tested and found wanting. I believe that I have not heard these things because neither of them true; this is just the Government looking ahead and anticipating developments. In that case, surely we have plenty of time to talk. We certainly do not need to rush at this before coming to Report. We can use the Summer Recess to talk these things through carefully and get them right.
If we pass legislation like this, we have to ensure that we allow commercial life to keep running. The scope of the Bill is undefined and it is retroactive. It seems reasonable to me—I do not argue with the idea—that the provisions apply back to April this year, when they were announced. However, under the new clause, changes could be made in 10 years’ time which will still work back to April this year. It would introduce enormous uncertainty into commercial transactions if the rules on which those transactions are based could be rewritten at any time from now on. The clearance statement for a transaction done in a month’s time could be torn up because the rules on which it is based can be changed. Anything could be done if it is in the interests of the relevant pension fund.
We need to focus on the status—we faced this dilemma in 2004—of the pension fund liabilities. Are we really saying that the full buy-out liability should be on a company’s balance sheet; in other words, that it must recognise the full pension fund creditor and treat that as the fixed amount which it owes and the amount which belongs to the pension fund? That seems the way we are going with all this legislation. Or are we still attached to the idea that there is a genuine working relationship between a pension fund and its company, and that the pension fund is in effect saying, “We are trusting you with some of our money. There is a commercial relationship there because we hope to do much better by letting you have the money than we could by pitching the company into receivership and just getting what we could under those circumstances”? If the second scenario is the case, we have to allow for that relationship to be solid and well based. We cannot look to rewrite the consequences of properly advised actions taken in good faith, given the circumstances that prevailed at the time.
Over the weekend I looked at the accounts of one of our larger building companies, which has more than £1 billion worth of unfunded pension liabilities. The stock market was very optimistic in assigning it a net worth of a few hundred million pounds. Under those circumstances, the pension fund is clearly a key player in the refinancing of that company. You cannot not look at a liability of that size. Under the 2004 Act it was quite simple: you went along to the Pensions Regulator with the trustees, cut a deal and came out with something undoubtedly more favourable to the pension fund than it would have been before we had a Pensions Regulator, but which was none the less reasonable and sane and could be relied upon because it would then form the basis of a clearance statement. However, if you do not have that certainty, if you are looking at putting half a billion pounds into the company to keep it going, and the pension fund says, “That is fine. We would like £100 million of that to up our security, but in the circumstances that is enough”, and then three months later the Government can say, “Oh no, we will tear up those rules. We will write our regulations differently, and, actually the pension fund now wants another £400 million”, it makes it impossible to do the deal.
Faced with the lack of definition in this amendment, I fully understand why people are extremely reluctant to rescue companies in such a state. We have seen in the financial news how slowly rescues are proceeding for some companies that are in the first wave of those to get into difficulties. At the moment we are seeing only the major contractors being hit, but this will run down to the sub-contractors and then it will run out to other industries. Many companies will find themselves in this position and people will want—for, I should have thought, sensible reasons—to find ways to maintain them as going concerns and to save them.
If we are to do that, we have to be certain of the pension fund’s position. The government amendment destroys that, particularly because it allows retroactivity but also because it destroys the concept of good faith. Look at a building company that has frankly felt pretty prosperous till this year, has presumably paid good dividends, and might even have paid money back to shareholders at one stage or another. All those things will be revisited. Unless you have the good-faith defence, they will all be taken apart. All the directors will become personally liable. People who have bought businesses from those companies for fair value will find that they are suddenly landed with contribution notices; at least, that is the way the amendment can be read. Matters have been run far too widely. If we want to preserve the companies as anything other than moribund, unfundable entities, we have to allow scope for a proper commercial compromise to be reached between the pension fund and those who are interested in putting money into a company that can be stood by.
That seems the essence of what I am asking for, although my later amendments go into rather more detail. However, as I said, we have time to go through this. There is no need to rush. The long Summer Recess allows us some scope to think through these things carefully, and for them to be discussed and got right, particularly with those who are involved in rescuing companies in difficulties. We ought to take advantage of that and not rush into the government amendment now.
It may help the Committee if, like the noble Baroness, Lady Noakes, I set out briefly our general attitude on these Benches to the amendments and issues. First, I thank my former colleague the noble Lord, Lord Lucas, for the thoughtful way he spoke to the amendment. It reminded me of how much I used to enjoy working with him at Warburg’s 30 years ago, looking at balance sheets and making investments. Like the noble Baroness, I have had representations from industry, particularly the CBI and the private equity industry; it calls itself the BVCA, but private equity is what basically matters in this context. I also had a helpful meeting with the Pensions Regulator and discussed the issues.
We on these Benches agree very much with the statement of principle that the Minister made on behalf of the Government just now about not weakening the employer covenant and standing behind pension schemes. In general, we support his approach of looking at the effect and not necessarily the intent of what has been done. Having said that, as the noble Lord, Lord Lucas, said, serious work needs to be done over the summer so that we are much more specific, much clearer and much firmer than where we are today.
I have a strong feeling of déjà vu here. I had a little trip down memory lane with the noble Baroness, Lady Hollis, over supper; I well remember that we had an exactly similar situation in 2004 when serious worries were expressed. Then good work was done over the summer and, as a result, we ended up with a settlement between industry and the Pensions Regulator that has worked well so far. I very much encourage the DWP to look again at the model and take it seriously.
The CBI accepts the logic for action that the Government have set out—that uninsured pensions providers did not exist in 2004 when the regulator’s powers were set out. I worry a great deal. The potential risk from the large buyouts is great and we are in uncharted territory. Further powers are needed. Equally, we do not want to leave everything to secondary legislation. The Government must do more work in thinking that through.
The BVCA’s statement contains some echoes of the grave concerns—to say scare stories would be putting it too strongly—expressed by people in that industry in 2004. The impression was given that it would be almost the end of private equity transactions as we knew them. Since then, of course, there has been the most enormous private equity boom that there has ever been in this country. Therefore, I take the warnings with a pinch of salt, but it is perfectly reasonable that those people want to know more clearly where they stand. In particular, it is absolutely right that there should be a full regulatory impact assessment in good time. It is all very well for the Government to say that the costs will be negligible, but they are assuming what they have to prove by having a regulatory impact assessment. If they are right, the whole point of doing that is to show that people have nothing to worry about.
I have provided a general flavour of where we stand. As in 2004, we thought that some of the warnings from the private equity industry were overdone, but it is perfectly reasonable that there should be more clarity and that we should not effectively be giving a blank cheque through secondary legislation. We would be very happy to be involved in discussions over the summer as I have some experience of these matters. We have good will to what the Government are trying to achieve, but they must try a lot harder.
I am grateful to all noble Lords who have spoken. It has been a useful opportunity to discuss genuine issues and concerns. I wish to speak specifically in response to the three further amendments tabled by the noble Baroness and the noble Lord, Lord Lucas.
The purpose of the first of these amendments, Amendment No. 130EX, is to group together contribution notices, financial support directions and restoration orders under a single heading. I appreciate the intention as regards drafting efficiencies. However, the amendment is not necessary for the intended operation of the legislation.
Regarding Amendment No. 130EY, one of the Pensions Regulator’s objectives when it was set up in 2005 was to protect the benefits of members of work-based pension schemes and to protect the PPF. As part of this objective the regulator needs to ensure that employers do not sidestep their pension obligations and it has a number of powers available to enable it to do so. In considering whether, without regulations, there is a material risk to the security of members’ benefits or to the PPF, the Secretary of State will have to form a judgment after getting the views of the Pensions Regulator and of other stakeholders. It would clearly not be appropriate to exercise the power if it did not reduce the existing material risks or, indeed, if it created serious new risks. I should like to reassure noble Lords that it is not our intention that by introducing provisions we materially increase such risks.
The Government’s new clause proposed in Amendment No. 130EW includes safeguards to the power to amend provisions, including the requirement to consult the regulator and other key stakeholders. This will ensure scrutiny by relevant parties who will be alert to, and will actively seek to prevent, material increases in such risks. The consultation process should identify any unintended consequences that could increase such risks.
The noble Lord’s amendment touches on the wider issue of ensuring an appropriate level of regulation. I agree that it is essential that we strive to achieve the difficult balance required to put in place regulations to enable the regulator to meet its statutory objectives but avoid undue burdens on sponsors of defined benefit schemes. It has been a fundamental principle that the regulator should act reasonably and on a risk-based approach. We now have a number of years’ operational experience that demonstrate the efficacy of that approach. I reassure the noble Lord that it is not the Government’s intention to use the new power to change this fundamental approach, but simply to ensure flexibility in the face of an increasingly sophisticated and fast-moving market.
My view is that the safeguards that we have put into our amendment, together with the history of practice so far, offer reassurances of the intent of the Government and demonstrate the efficacy of the fundamental approach of the regulator. I hope that he will not press the amendment.
The third of this series of amendments, Amendment No. 130FK, in the name of the noble Baroness, Lady Noakes, would do two things: it would require the Secretary of State to lay a regulatory impact assessment before Parliament in respect of these powers and, secondly, it would require its approval by both Houses. In the consultation document, we said that the overwhelming majority of pension schemes would not be affected by these changes and that they would have a negligible impact on the private and voluntary sectors. However, the consultation document confirmed that a full impact assessment would be produced if the assumption in the document of a negligible effect on business was incorrect.
Some of the responses to the consultation indicated that they do not agree with this government assumption but we have had no specific examples or data to support this argument. We would expect stakeholders to provide specific examples of what does not need to be referred for regulator clearance now but what they consider would need clearance under the new regime. This would allow us fully to assess the impacts.
Many of the organisations and pensions professionals that responded have offered to discuss their thoughts further with the department. I expect us to take up the offers in a number of cases as we work on the detail of the regulations throughout the summer. It will also provide an opportunity to discuss with them their concerns about an impact assessment—those concerns were expressed by noble Lords this evening—and I am sure that we will receive valuable input.
I turn to the second point in the amendment. Normally, impact assessments do not need parliamentary approval. The regulations made under this power will be affirmative, providing Parliament with an opportunity to consider and debate further. As I have said, we intend to have further discussion with stakeholders on the detail of the regulations. To be clear, I include as stakeholders noble Lords who participated in these exchanges. If the case for an impact assessment is made out, we will attach one to the Explanatory Memorandum to the regulations. However, I do not think that it is necessary for there to be an express commitment in this Bill for parliamentary approval. I hope that noble Lords agree that it would tie up parliamentary time unnecessarily, delay enactment of legislation and go well beyond the proportionate levels of scrutiny that usually apply. I therefore hope that the noble Baroness will not press the amendment.
I want to pick up on some of the specific points that have been raised. The noble Baroness said that there was no proposal for a wide power in the consultation. With respect, I disagree; it is pretty explicit in paragraph 1.38 of the consultation document. She also said that it was not targeted on buyout. We do not think that a simple prohibition on new buyout models will work. The BVCA and lawyers have offered to attempt draft legislation but, frankly, nothing has yet been received. The noble Baroness also said that there was no consultation consensus. In consultation discussions, parties had varied views. The BVCA did not want any action but the CBI and NAPF share the Government’s concerns about new business models.
The noble Baroness asked whether we would withdraw the amendment. Given the rate that we are moving at, I do not think that we will move it tonight. However, that is not the way in which we want to go. We want to engage on the draft regulations. That is the appropriate way forward.
The noble Baroness also suggested that the amendments are stopping deals. I am bound to say that we have no evidence of increased clearance applications to the regulator, which could provide certainty to parties if they want that. That is a well tried and tested route.
The noble Lord, Lord Lucas, said that we would have to deal with the effects of this 10 years after the event. Clearly, that is not the case; there is a six-year time limit on contribution notices in any event. There is no intention to extend this—
That is, with respect, not the time limit that I was referring to. The fact is that the amendment contains the power to make regulations retrospectively. That retrospection is limited only to April this year, so in 10 years’ time, regulations could be made changing that six years to 10—or, indeed, 20—years. The problems are with the amendment, not the regulations.
I apologise to the noble Lord. I think that I understand the point he is making, but there is no intention of this enabling us in 10 years’ time to make a change which would be retrospective to April of this year. As the noble Lord acknowledged, retrospection to April was intended to stop people pre-empting what might come forward in changes to the legislation.
I am sorry but in their amendment the Government are trying to take a power that would allow them to rewrite the rules without any time limit and to relate them back to April 2008. That is a very serious power and it would create huge uncertainty for the business community where a defined benefits scheme was involved. The Minister cannot just stand there and say that they want the power only for this first set of amendments. They are taking the power and that is what is so problematic about Amendment No. 130EW.
Perhaps I did not make my position clear. I do not think that going away over the summer and working out some regulations will really meet the scale of what we are asking for. We are asking for serious amendments and changes to the draft primary legislation.
I understand the noble Lord’s position and realise where he was coming from. Perhaps I may deal with the point concerning retrospection. The Government’s statement on 14 April meant that the principal amendments to regulator powers would be introduced with effect from 14 April 2008. It was crucial that the Government’s announcement of their proposals did not prompt the kind of market behaviour that they were attempting to address before legislation came into effect. A Government, or future Governments, could make retrospective provision only if they had already announced their plans in the way that we did in April this year. The April announcements were in respect of the regulations that we are discussing now. The power is therefore not as wide as might first—
Would the Minister accept an amendment to Amendment No. 130EW to reflect what he has just said? At present, that is not what the amendment says.
I shall certainly take that comment away and consider whether I need to speak to officials about the impact of our drafting. However, we believe that the power is not as wide as might first appear. It does provide retrospection but only in relation to novel situations of material risk, and it would require consultation before it could be used to introduce changes. However, I shall take away that point and reflect on it. We shall not get to vote on the amendment tonight in any event; we have at least a day to do that.
The noble Lord, Lord Lucas, asked whether the powers had been found wanting. The DWP and the regulator have seen many proposals for managing pensions liability and many are likely to be robust. However, the 2004 Act was not drafted with such innovation in view, and we need to keep on top of the innovations that are in the market at the moment.
The noble Lord said that clearance could be torn up. The regulator has made it plain that if clearance has been given, it will not reopen that clearance as it must have been based on proper facts. That applies to any clearance. It is likely to be against the ECHR to legislate that existing clearance has become valueless but, in any event, that is not the intent.
The noble Lord also touched on the issue of good faith. The legal principle of good faith sets a very high evidential burden and can easily be circumvented by those whose intent is avoidance. It therefore safeguards not only those who should be protected but those whose activities are, rightly, the target of the regulator. Good faith currently applies only to one of the two limbs in relation to issuing a contribution notice—namely, where the main purpose of an act is to prevent a debt becoming due or otherwise to settle or compromise it. It does not apply where the main purpose is to prevent recovery of a debt. The Government consulted on additional grounds to act on the basis of outcome rather than intent. They are exploring the safeguards that would be appropriate, such as additional reasonableness factors and test of material detriment, but those are still under consideration.
The proposal to remove good faith is something that generated a considerable number of comments in the consultation exercise. We need to give full and proper consideration to the responses we have received, including alternatives that have been suggested, before formulating detailed regulations for further consultation.
On the fair value point touched on by the noble Lord, it is not the Government’s intention that a transaction, whereby a person purchases assets or securities at fair value, would normally trigger the regulator’s use of its anti-avoidance powers, provided that, as part of the transaction, the pension scheme was properly considered and adequately addressed. However, the fact that a person had purchased assets or securities at fair value would not necessarily provide the reassurances needed. That would be only the first step in ensuring that capital was available to mitigate the risks to the scheme; it does not of itself get the capital to the scheme.
I have tried to deal with the points that have been raised. Given the time, we will perhaps have an opportunity to consider the Government’s amendment at greater length on Wednesday, but I hope that the amendment to the amendment will be withdrawn.
I thank the Minister very much for that explanation. As the noble Lord, Lord Oakeshott, said, it is not the regulations which give us cause for concern—they are proceeding along a quite reasonable process and are being consulted on and I have no reason to think from anything that the Government have said that that will cause problems—it is this amendment and the width of it. The noble Lord says that clearance statements will be sacrosanct, but that is not what the amendment says. The noble Lord says that retro-activity will apply only to the date of announcement of each new set of regulations, but that is not what the amendment says. Our problems are very much focused on the amendment. Those two elements—retro-activity and the sanctity of clearance statements—lie at the heart of people’s concerns. If they were dealt with, it would be much easier to get on with.
I have listened carefully to what the noble Lord says. I am not in a position to withdraw the government amendment this evening, but as we will not vote on it this evening, I shall discuss those two points with officials to see whether greater clarity can be introduced into the amendment. I do not make a commitment that we shall do so, but at least we shall have a breathing space. I understand the points made by the noble Lord and the noble Baroness.
In view of the time, I shall not make such extensive remarks as I had intended, for example, in relation to Amendment No. 130EW, which the Minister dismissed rather quickly. He does not wish to have a reference to increasing the risks to the matters referred to in the amendment. Much of that is arguable and not simply to be dismissed.
The most important point that has come out from the noble Lord, Lord Oakeshott, and from my noble friend Lord Lucas is that it is not a matter of consulting on regulations. We believe that Amendment No. 130EW is unacceptable in its current form. Precisely how it needs to be changed is open for discussion. When we resume our consideration in Committee, I believe we should go through those remaining issues which have been identified by my noble friend’s amendments because each in its own way raises some of the concerns that go to the heart of why people are unhappy with the Government’s proposals. I hope that by the time we return to Committee, the Minister will be able to respond.
It would be a gesture of good faith on the part of the Government not to move this amendment. They would lose nothing by so doing and it would demonstrate that the Government were prepared to listen and to engage fully with the community which has real, genuine concerns about the potential impact on the way in which business operates in this country. With that, I beg leave to withdraw Amendment No. 130EX.
Amendment, by leave, withdrawn.
I beg to move that the House do now resume.
Moved accordingly, and, on Question, Motion agreed to.
House resumed.