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Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020

Volume 806: debated on Wednesday 21 October 2020

Motion to Approve

Moved by

My Lords, I am pleased to introduce the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020 that were laid before the House on 15 September. I am satisfied that the provisions in the regulations are compatible with the European Convention on Human Rights and therefore ask the House to consider these regulations.

The Corporate Insolvency and Governance Act 2020 introduces some important measures, such as a moratorium on creditor action and restructuring tools to give specified corporate entities in financial difficulty the best chance of survival. This is part of a suite of measures to help business weather periods of economic uncertainty. The regulations debated on 14 September ensured that when certain corporate entities obtain a moratorium on creditor action, and the pension scheme trustees or managers are a creditor, the board of the Pension Protection Fund can exercise those creditors’ rights in relation to the moratorium as set out in the regulations, in specified circumstances. The regulations also ensure that when a restructuring is proposed under new measures, in respect of certain corporate entities, and the trustees or managers are a creditor to whom the restructuring is proposed, the board of the Pension Protection Fund can exercise the trustees’ creditors’ rights under the new restructuring measures, that way ensuring that pension schemes are not left without the appropriate protections in the legislation.

The regulations being debated today simply extend the Pension Protection Fund’s creditors’ rights to certain other corporate entities: relevant co-operative and community benefit schemes in the case of the moratorium, and relevant societies in the case of the restructuring provisions. The regulations also revoke a previous set of regulations because of a legal defect caused by an omission in a related statutory instrument. We have expedited the making and laying of these regulations in order to rectify the situation. The “made affirmative” procedure has enabled these regulations to come into force soon after they were laid.

These regulations form part of the corporate insolvency and governance legislative regime. If a relevant co-operative and community benefit society obtains a moratorium from its creditors, or a restructuring is proposed in respect of a relevant society as applicable, the Pension Protection Fund is able to intervene as a creditor to protect its interest in the relevant specified circumstances.

Moratoriums give companies and other relevant corporate entities respite from action that could otherwise cause them to close. During a moratorium, businesses will be more able to plan a beneficial restructure; this will reduce unnecessary business failures, thereby preserving jobs and value in the economy. Restructuring plans enable companies with viable businesses but significant debts to restructure with limited disruption. This will facilitate corporate rescue and reduce formal, value-destructive insolvencies, thereby preserving businesses and saving jobs.

Given the importance of the Pension Protection Fund as the statutory compensation scheme, it is crucial for the Pension Protection Fund to have access to and influence over certain decisions relating to moratoriums and recovery plans in the relevant circumstances. Should a rescue attempt fail, it is the Pension Protection Fund that steps in to pay compensation to eligible pension scheme members. Protecting the fund’s interest should help maintain confidence that the Pension Protection Fund will be able to continue to make compensation payments for as long as they are needed.

I would like to put on record something about the previous PPF regulations that we debated on 14 September: they have no impact, or no effect, on the regulations we are debating today. I am aware that there has been some concern about the legal status of the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020, which were debated on 14 September, in so far as they relate to charitable incorporated organisations. The current legal position in respect of charitable incorporated organisations has been complicated by the making of a separate statutory instrument, the Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No. 2) Regulations 2020, by the Department for Digital, Culture, Media and Sport. Those regulations disapplied some of the new provisions of the Insolvency Act 1986 in relation to charitable incorporated organisations. One of these provisions, Section A51 of the Corporate Insolvency and Governance Act 2020, was used to make my department’s regulations, the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020, in so far as they applied to charitable incorporated organisations. As a result, the provisions in my department’s regulations have not applied to charitable incorporated organisations since 13 August 2020, that being the date the Department for Digital, Culture, Media and Sport regulations came into force.

The legal position, which is clear from reading both sets of regulations together, is that the Department for Digital, Culture, Media and Sport regulations repeal impliedly those aspects of my department’s regulations, in so far as they apply to charitable incorporated organisations. The Department for Digital, Culture, Media and Sport will restore the position as set out in my department’s regulations at the next available opportunity. The Department for Digital, Culture, Media and Sport regulations do not otherwise affect the validity of my department’s regulations, or the powers that we use to make those regulations. I commend these regulations to the House.

My Lords, I welcome these regulations, because they give the PPF the ability to exercise creditor rights across the full range of employers in moratoriums and restructuring plans where there is a PPF-eligible DB pension scheme.

There have not yet been any cases where a moratorium has been implemented for a business with an eligible scheme, so we have no case studies to judge how these measures are working in practice, including the potential for gaming that the new system introduced under the Corporate Insolvency and Governance Act. The Government did amend the Act to give the Secretary of State powers to amend the regulations in response to the emergence of perverse behaviours, but I want to pursue an issue which I raised at the time and which was never really answered.

The Corporate Insolvency and Governance Act and these regulations sit alongside the Pension Schemes Bill, which is currently in the Commons. Clause 107 of that Bill introduces new criminal offences if the conduct of employers and other persons, and entities such as banks, trustees and advisers, has a detrimental effect on the schemes such as the avoidance of the recovery of the whole or any part of the employer’s debt. That opens up the possibility that what may be considered lawful actions under the Corporate Insolvency and Governance Act could subsequently be considered offences under the Pension Schemes Bill. If a moratorium takes place and a restructuring plan or insolvency follows, the pension scheme’s positions will be weakened relative to some other creditors because the scheme’s full Section 75 debt is not triggered, and unsecured finance debt has super-priority status, outranking the pension fund debt and outranking pension liabilities in subsequent insolvency. That finance debt includes shareholder loans, inter-company loans—including from a director or parent company—as well as arm’s-length regulated activities and bank debts. During a moratorium, those financial debts continue to be payable, but pension deficit contributions do not. Therefore there remains a real risk of novel forms of moral hazard including, as the noble Baroness, Lady Bowles of Berkhamsted, observed in this House on 23 June, when commenting on the poor behaviours that could occur,

“behaviour that is reprehensible but not, in the end, prohibited or even limited to reasonable amounts.”—[Official Report, 23/6/20; col. 138.]

A moratorium will become the point at which discussions about a restructuring deal begin, and will involve trade-offs. If the PPF or the Pensions Regulator considers either at the time or subsequently that an aim of an employer, parent company or other parties in seeking a moratorium and subsequent insolvency or restructuring plan was the avoidance of the employer’s debt, which legislation takes precedence, the Corporate Insolvency and Governance Act or the new Pension Schemes Bill? Would the regulator be able to use its enhanced powers to acquire information over and above that sent out to creditors during a moratorium? What would be the implications for any super-priority status granted or restructuring plan agreed or proposed where such a challenge by the regulator was made? Any clarity the Minister can provide will be helpful.

My Lords, I welcome the new regulations to ensure that the Pension Protection Fund can better protect its interests and those of pension scheme members whose supporting employers unfortunately need to enter a moratorium period or restructuring due to the current crisis. These cover the entities, including charitable organisations, friendly societies, credit unions and so on, which may be particularly vulnerable in the current circumstances.

The Pension Protection Fund is one of our flagship organisations, which has done marvellous work to protect the pensions of millions in this country and has compensated those who would otherwise have faced the potential of losing their pension rights if the employer failed, and possibly of losing their jobs too. It is vital that employers and corporate directors are not allowed to game the PPF or take advantage of financial turmoil to walk away from liabilities on which so many ordinary workers rely, as the noble Baroness, Lady Drake, just said. I congratulate the PPF and put on record that I believe its staff have done brilliant work. I am sure that they will continue to do so with efficient administration and careful stewardship.

These regulations result from new measures passed in the Corporate Insolvency and Governance Act, which potentially weaken the rights of DB scheme members, trustees and managers to funds and assets belonging to the sponsoring employer during a moratorium or restructuring. I thank my noble friend and congratulate her on the way in which she introduced the regulations.

To allow the Pension Protection Fund to represent the trustees and managers in negotiations is an important measure, since it has to safeguard the interests not only of each pension scheme but of all other schemes too, and a moratorium does not trigger a PPF assessment period. If pension sponsors can more easily find ways to walk away from their liabilities without putting extra funds into the schemes in the current crisis, because it ranks only as an ordinary unsecured creditor without super-priority, and financial firms have leap-frogged up the priority order, the Pension Protection Fund could be forced to take on extra liabilities, which will ultimately fall on other sponsors via higher levy payments. As I expressed during the passage of the Act, I am particularly concerned at the ability of the sponsor or its other creditors to ask the courts to release assets that were supposed to have been pledged to the pension scheme as part of previous scheme-specific funding arrangements, leaving the scheme far more underfunded than was ever intended. I understand that the legislation ensures that any restructuring plan must not put creditors in a worse position than on insolvency, but can my noble friend confirm that this also definitely applies to the Pension Protection Fund? If she would like to write to me on my point, that will be fine. In addition, which parts of the previous regulations that she mentioned in her introduction have been revoked by this instrument?

Finally, I will ask a few other questions of which I have given my noble friend prior notice. I note that the Pension Protection Fund will produce guidance for monitors and directors on what information it will need to receive and its general approach to a moratorium or restructuring. When will that happen? Can she confirm the assessment of the noble Baroness, Lady Drake, that no companies have yet gone into moratorium since this legislation was passed, and if any have, how many have done so and how many have a DB scheme attached?

The noble Baroness, Lady Greengross, and the noble Lord, Lord McColl, have withdrawn, so I call the noble Lord, Lord Hain.

My Lords, it is a real pleasure to follow my noble friend Lady Drake and the noble Baroness, Lady Altmann, who speak with tremendous authority on these pensions-related questions.

The Government’s insolvency reforms initially applied only to companies. They have now been extended to cover co-operative societies and community benefit societies such as credit unions, following lobbying, in particular by Co-operatives UK. So far, so good. Co-op retail societies have been doing well, with sales booming and market share rising, but some other smaller co-operatives have had to close for a few months or furlough staff.

In its efforts to modify measures originally designed for companies, Co-operatives UK gave priority to preserving co-operative and community purpose and to retaining democratic member control. I strongly applaud those efforts. I acknowledge too its September 2020 guidance to co-op societies facing financial strife, a 10-page brief on insolvency and financial liquidity that offers advice on how to respond to a crisis and how, in the worst case, to face up to a possible insolvency. However, I fear that those 10 pages of well-intended advice to co-op societies facing financial distress illustrate the shocking way in which workers’ rights are overlooked when businesses in Britain face going bust.

The opening paragraphs on page 1 of the guidance acknowledge that directors of co-op societies facing insolvency have a duty of care to the society’s creditors. When businesses face insolvency, the interests of creditors, especially those with secured debts, often and maybe always override those of employees. Witness what happens when companies in financial distress stay in business but use a “compromise agreement” to avoid meeting their obligations to the firm’s pension scheme. Only later does the Co-operatives UK brief say that only if there is no imminent threat of insolvency should directors

“Put employees and volunteers first”.

Sadly, even then the brief does not suggest consulting employees about the choice between furlough or redundancy. It recommends talking to workers about other options such as reducing pay and working hours only after big decisions have been taken.

The very last point at the foot of the final page of the brief covers good practice with employees. It says that

“looking after employees at a time of crisis is crucial”,

and refers to four pages of further advice, none of which covers possible insolvency. So there is no discussion of the possible threat to employees’ pension rights when businesses face insolvency, no mention of underfunded pension schemes, nothing about redundancy rights or unpaid wages, and nothing about unmet tax and national insurance obligations. That is a perfect illustration, sadly, of where workers stand when businesses face going bust: little more than an afterthought. But I do not blame Co-operatives UK: its brief simply reflects the sad reality of workers’ rights and the unfairnesses of Britain’s insolvency law.

Millions of jobs are in jeopardy today, in every sector of the economy, and it remains all too easy for directors of businesses facing financial distress to sacrifice the interests of the workforce by sidestepping their responsibilities for pay, redundancy, tax, national insurance and pensions. Despite the warm words we had during the passage of the insolvency Bill in the summer, the Government’s reforms have yet to address that fundamental flaw. Can the Minister give me any assurances about that, please?

My Lords, I thank my noble friend for introducing this debate on this corrected statutory instrument, which puts right a defect in its predecessor. It is important that there should be no risk that the Pension Protection Fund might be unable to intervene and protect its rights as a creditor in the event of a co-operative and community benefit society obtaining a moratorium under the Corporate Insolvency and Governance Act.

Since we started to debate the new measures introduced by the CIGA, my noble friend Lady Altmann and others have been assiduous in arguing for the strengthening of the powers and rights of the PPF. I agree that this is highly desirable, so I welcome the Government’s action in closing this loophole. Since entering into a moratorium under the Act is not in itself an insolvency event, without these regulations the PPF would be unable to exercise its rights as a creditor of a defined benefit pension scheme. The trustees might be placed under pressure to agree to the sale of an asset pledged to the pension fund in the knowledge that the PPF would be required to step in without taking account of the wider interests of the members of the scheme or, indeed, the payers of the levy which funds the PPF.

These regulations have been introduced without consultation in the context of the Covid-19 pandemic, so it is welcome that we have the opportunity to discuss them today. While it is not directly the subject of today’s debate, I think it would be appropriate to hear a little more from the Minister on how the new provisions of CIGA are bedding down. My noble friend Lord Leigh of Hurley and others were concerned that a moratorium under the Act could not be applied for in order to rescue a company’s business, rather than the company itself. Further, I think it was unduly restrictive to exclude companies that have issued bonds in the amount of £10 million or more. As of 29 July, my noble friend Lord Callanan told your Lordships’ House that only one company had successfully entered into a moratorium. How many companies and other entities have now used the new moratorium process? I look forward to the contributions of other noble Lords and to the Minister’s reply to the debate.

My Lords, these regulations are necessary to ensure that the Payment Protection Fund can engage fully in a proactive and meaningful way in the conversations and decision-making processes when a company finds itself in difficulty. It is paramount that the PPF has this ability so that hard-earned pensions are safeguarded for their future security, and I fully endorse these regulations.

Turning to the PPF itself, I wish to raise two points. First, concerns were recently raised in the other place about the robustness of the fund at present, given the sadly expected rise in companies needing help and unable to support their pension funds. The fund had a healthy ratio of 118.6% as of March 2019, with 18.6% more in its funds than its obligations to pay out and an actuarial surplus of £6.1 billion. This year, while it is less than in 2019, March 2020 saw a healthy 113.4% ratio, with 13.4% more in its funds than its obligation to pay out. The PPF says:

“Market volatility forces us to remain vigilant and responsive to changes in our external environment which may also require changes in our strategy.”

We are now in uncharted waters as we head into winter, with the daily death toll from the virus rising. More and more restrictions are being placed around the country, and this will inevitably mean more and more businesses struggling to survive. In the current climate, what assurances can the Minister give us that everything is being done to ensure that the PPF is fit for purpose and able to sustain itself in order to support people and their pensions?

My second point concerns the actual amount of pension received. This is set to rise in line with the consumer prices index and capped at either 2.5% or 5%, whichever is the greater. Is this something that needs to be looked into in the light of the pandemic, in the same way that the Government have just done with the state pension uprating Bill?

My Lords, it is a pleasure to follow the noble Lord, Lord Loomba, and I thank him very much for his analytical review, which I found very helpful. I thank my noble friend for setting out the background to these regulations so clearly. I welcome the regulations, which I understand are needed because of an oversight.

My noble friend Lord Trenchard is quite right that a moratorium or restructuring against creditor enforcement is not an insolvency proceeding, which is the reason we need these regulations to facilitate pension protection, and I strongly support that. I have several questions for my noble friend the Minister, of which I have given her some notice, but I understand that she may want to correspond in writing on some of the points and will copy answers to the Library if that is necessary.

First, what is comprehended by “co-operative and community benefit societies”? I strongly agree about the protection for them, and I understand that the term includes credit unions. Do we also need to take special measures to protect the pension schemes of friendly societies, building societies and other mutual societies—and, indeed, trade unions? Are they also covered? Perhaps my noble friend can answer that point.

Paragraph 3.9 of the Explanatory Memorandum talks of an ongoing risk that, during any break in the application of the provisions, a relevant co-operative and community benefit society could obtain a moratorium from its creditors, or a relevant society could propose a plan to restructure its business, without the Pension Protection Fund being able to intervene as a creditor to protect its interests. How real is that break and how much of a danger is there of that eventuality?

How healthy is the position of the Pension Protection Fund? I know that the Minister for Pensions spoke to the chair and chief executive of the fund over the summer and was reassured about its resilience. Indeed, my noble friend also gave us reassurance in September. However, when did a Minister from the department last speak to the chair and chief executive about the standing and resilience of the fund? It would be good to hear about that.

More generally, can my noble friend give an update on the institution of the moratorium, a point that several noble Lords have raised? I believe that it has not been used much since its inception, although there is clearly a difference of opinion between the noble Lord, Lord Callanan, and the noble Baroness, Lady Drake, on whether it has been used at all. Is the Minister in a position to shed some light on this and whether the moratorium is likely to be used much, if it has not yet been used?

Finally, has there been any contact with the Insolvency Practitioners Association to obtain its views on the regulations, regarding the need for more protection for bodies other than those covered? Is there an ongoing dialogue with the association, which would be desirable because it is expert in these areas and steeped in insolvency and related restructuring proceedings? Subject to those considerations, I strongly support the regulations.

My Lords, I welcome the regulations and thank the noble Baroness for introducing them. It is right that they are now extended to cover co-operatives, friendly societies and other community purpose efforts. There will be many more occasions on which we need these regulations. I share the concerns of the noble Lord, Lord Loomba, that the PPF, which is doing a brilliant job so far, will come under increasing strain. As others have said, I would appreciate a reassurance that the PPF has not only the funds but the staffing to cope with the increased demands that are bound to be made on it as more and more companies, community organisations and co-operatives are hit by the difficulties and effects caused by Covid.

More broadly, when companies and organisations start to negotiate a moratorium and then a restructuring, there is always a need for trade-offs, as the noble Baroness, Lady Drake, suggested. My concern is that the trustees in many of those organisations are not sufficiently of a calibre to properly negotiate holding the line against owners and directors of businesses, who tend to drive for a solution that will benefit them and not the pension fund. I should therefore be grateful if the Minister reassured me on what we were doing to enhance the calibre of such trustees. Their responsibilities are great but their training is not.

My Lords, I welcome and support this legislation. I should first refer to my declarations in the register. The speeches so far have been really useful and picked up elements that need attention.

This matter is indirectly about how many SMEs fail to survive the Covid crisis. That will drive the volume of financial support required from the PPF when pension schemes are inadequately financed. I anticipate that there will be sufficient funds to cover the first wave of SME pension deficits. A major wave could require government financial support via the PPF. There is also the issue referred to by others, of levy payers being required to contribute more than they see as fit and fair. The regulations extend the scope of the PPF’s rights as a creditor when moratoriums are in place for relevant community benefit organisations.

The Treasury has widened the cover of the PPF, adding charities, LLPs and virtually all community benefit schemes. The questions here relate to the volume and financial adequacy of their accompanying pension funds and whether these new institutions’ pension schemes are adequately funded long term. We have already had a detailed set of regulations from PPF boards with creditor rights, which have been widened and extended. The PPF is now able to intervene and help with restructuring plans.

The second Covid wave of SME failures could be larger than the first and is likely to be accompanied by high volumes of inadequately financed pension schemes needing to be restructured. I am interested to know the total value of pension fund assets covered by the PPF. The pension situation may require the Government to bring in further support for SMEs to save many from failing.

Down the road, there is the risk of excess investment in gilts, with large losses when inflation and interest rates rise. I am aware of private sector pre-packs that provide speedy and successful reorganisation of SMEs that have failed. The PPF might usefully have its pre-pack investment formula ready to be rolled out for different situations. The question that this raises is on whether the PPF has the necessary skills to organise and manage restructuring of pension assets and schemes, and to help with company restructuring. The reason for the PPF being established in 2005 was to be able to pay compensation to members of defined benefits schemes where the employer had failed and the pension scheme had insufficient assets to cover its liabilities.

It is noteworthy that Karen Buck MP and the previous Minister for Social Security pointed out that the measures in the regulations do not entirely restore the PPF’s powers re corporate insolvency and the Corporate Insolvency and Governance Act; and the position occupied in restoring situations before the Act.

My Lords, I thank the Minister for the explanation of the regulations. My understanding is that they extend the Pension Protection Fund’s rights as a creditor when co-operative and community benefit societies have a moratorium in place to protect them from creditor action.

My first question for the Minister relates to community benefit societies. The Pension Protection Fund is UK-wide and therefore applies to Northern Ireland, credit unions being a type of community benefit society operating there. There are two types of credit unions but the one that is widespread and of which I am most aware is the Irish League of Credit Unions, which operates in two jurisdictions. Given that it is headquartered in Dublin, would it benefit from the rights outlined in the regulations? Maybe the Minister could write to me if she did not have the answer to hand.

I take note of the remarks of the noble Baroness, Lady Altmann, when she said that the Pension Protection Fund, set up by statute in 2004, exist to protect people and provide compensation when required. As a former Minister for Benefits and Welfare in Northern Ireland, I am fully aware that we have a system there of parity with London, particularly on social security and pension issues.

The Northern Ireland Assembly and the Executive bring forward their own legislation which is exactly the same as that which exists in London. In fact, these regulations were enacted back in August. Can the Minister say what discussions have taken place with the Northern Ireland Executive on the potential impact of these regulations, taking into consideration that the pandemic will perhaps result in some insolvencies? Many people have already lost their jobs, so this is really about the ability of the Pension Protection Fund to discharge its responsibilities, particularly in a place such as Northern Ireland which does not have the inbuilt financial capacity and resilience to do that. That is particularly the case when confronted with an issue such as the pandemic, which brings its own financial pressures.

The issue of financial resilience was raised in the other place, so on a more general basis, I will ask the Minister this: is the Pension Protection Fund resilient enough? Other noble Lords who have already spoken have referred to that. Does it have the necessary resources to address the extraordinary potential problems that could ensue around insolvencies as a result of the pandemic? What measures will be taken to ensure that the fund is ready and capable of absorbing what could be potentially thousands more pension scheme members who will require security over the coming year? Perhaps the Minister could advise me in writing about what meetings have taken place between the Department for Work and Pensions and the Pension Protection Fund to review its performance.

My Lords, I thank my noble friend for bringing forward this statutory instrument. I also congratulate her and the Secretary of State on the quiet way in which they have handled the Covid virus fallout, in particular by adding thousands of those who have lost their jobs on to universal credit. I pay tribute to her and her team in that regard.

I join with my noble friend Lady Altmann in recognising the work and the contribution of the Pension Protection Fund, particularly at this very difficult time. I want very much to lend my support to the regulations before us, extending as they do the provisions to co-operative societies and benefit societies. Perhaps I may put a couple of questions to my noble friend.

I notice that it has not been deemed necessary to prepare an impact assessment when bringing forward these regulations, but as was noted in the House of Commons and as others have mentioned today, there is increasing concern about the resources that will be at the disposal of the PPF. Can my noble friend say what the take-up has been, to date, since these regulations came into effect?

I turn now to the Explanatory Memorandum, in particular Paragraph 7.5. It states:

“Whilst a moratorium is not in itself a procedure for a business to shed its liabilities, it will become the point at which discussions about a restructuring deal begin.”

In my noble friend’s view, who will be best placed to advise co-operative and community benefit societies if they wish to exercise their right to restructure under the provisions of the regulations? Does she share my concern, as well as the increasing unhappiness in the country, about something that perhaps might not occur in this instance but would do so in other cases where restructuring has taken place to try, as she put it, to prevent the unnecessary closure of firms in these circumstances? The big accountancy firms—I shall call them the “Group of Four”—while no doubt playing a great role, are charging huge fees for the privilege of advising these firms, and that very process may actually tip some firms over the edge into administration and closure.

Those are my two questions, but I broadly welcome the chance to debate and support these regulations. I echo how much we owe the Pension Protection Fund for the work that it is doing at this very difficult time. I also pay tribute to my noble friend, her team and the department.

My Lords, these regulations are connected to powers recently introduced by the Corporate Insolvency and Governance Act 2020 to aid certain co-operative entities that are in financial difficulty. They will enable them to obtain a moratorium and thus give them respite from their creditors, or to be able to propose restructuring plans, including compromise arrangements to facilitate the rescue of their businesses. The regulations have been welcomed by the Labour shadow Minister for social security, who stressed the importance of the PPF.

As we know, the country is facing a dire economic outlook, with severe shocks being inflicted on many employers and on many pension schemes. The department responsible for social security must ensure that the PPF is ready and capable when it comes to absorbing the potentially thousands more pension scheme members who will require security over the coming year. It is imperative that the fund is in a good position to continue to provide compensation to those who need it.

The country is currently living with the health issues caused by the coronavirus. Under the three-tier scheme, thousands of businesses are going bankrupt, causing unprecedented levels of redundancies. Families are suffering due to a lack of income and are becoming increasingly dependent on food banks and charities. It is therefore vital that their pensions are protected.

It is pleasing to know that the Opposition has not objected to these regulations, but at the same time they have rightly raised questions in order to get the right levels of protection for employees.

My Lords, I declare my interest as a trustee, for more than a decade now, of the Parliamentary Contributory Pension Fund, and as having previously been the chairman of the Tunbridge Wells Equitable Friendly Society, again for about 10 years.

Like my noble friend Lord Bourne, I notice that no mention is made of friendly societies or mutual building societies. Indeed, I am slightly confused about the terminology of “community benefit society” being used, other than in relation only to Northern Ireland. Is that phrase now in common use for all mutuals? Bearing in mind that in today’s world, with the blessing of our Government, the number of mutuals is increasing across a whole spectrum of activities, I wonder whether they are being treated any differently from plcs as far as the PPF is concerned.

My second point arises from the High Court ruling on 22 June of this year about the compensation cap amazingly being unlawful. From a note I have received, I understand that the court is comfortable with the PPF’s approach to making a one-off calculation, saying that it is permissible

“provided it made sure that each individual, and separately each survivor, over the course of their lifetime received at least 50% on a cumulative basis of the actual value of the benefits that their scheme would have provided.”

I ask my noble friend on the Front Bench this: is everybody happy with that as a workable solution for the rather strange ruling that it is unlawful on the grounds of age discrimination?

Several of my colleagues have rightly raised the impending problems that are likely to arise from the pandemic. The PPF’s budget this year is based on raising £620 million. Can I assume that that figure is still the current levy? Will the PPF review its requirements against the target of being self-sufficient by 2030, because of the anticipated corporate failures arising from the pandemic?

I will raise one final point. I accept it is tangential to the SI, but my noble friend will probably be aware that the Local Authority Pension Fund Forum, commonly known as LAPFF, which is an association of 87 local authority pension funds, has accused the Financial Reporting Council of supporting the revised international accounting standards, claiming that they are less than those required by UK law. Will this have an impact on the Pension Protection Fund? I quite understand that, while I informed my noble friend of some of my earlier questions, I did not inform her of that one, so I am more than happy to have an answer in writing.

My Lords, I thank the Minister for her clear presentation of complex material and her willingness to provide us with information about these regulations. We support this important measure, which gives powers to the Pension Protection Fund in the event of certain community companies being in financial difficulty under the new provisions brought in under the Corporate Insolvency and Governance Act 2020. As other noble Lords have said, it would be helpful to know just how far this extends and what other types of community companies might be included.

As the Minister explained, these regulations give the board of the Pension Protection Fund rights normally exercised by pension schemes’ trustees and managers. Under the new provisions, the Pension Protection Fund can end up picking up liabilities—for example, if the pension is underfunded. It is therefore reasonable that it should have a seat at the table, as it does for insolvencies. Given that these regulations will give the board of the PPF rights normally exercised by pension schemes’ trustees or managers, it is good to know that the PPF is required to consult with the trustees and managers who will lose their rights as a result.

The regulations give the PPF new rights relating to other community businesses, in addition to the limited liability partnerships and charitable incorporated organisations dealt with in the original measure. The new arrangements are welcome and timely, particularly in the light of the predicted economic impact of the pandemic and the further economic impact of Brexit on UK companies. However, there are still some outstanding questions that I hope the Minister will be able to answer. I apologise for not giving her notice of them. Obviously, if she would prefer to write that is perfectly acceptable too.

What specific powers are given to the PPF? Can these override the views of the trustees should, for example, a course of action proposed by them seem unduly risky? What arrangements are in place to monitor the implications of the moratorium restructuring arrangements? When this issue was raised before, the Minister said that as yet, there were no occasions when the new arrangements had been used. Other noble Lords asked whether this is still the case. Nevertheless, if it is not, I am sure it will be very important to monitor the impact and effectiveness of the new arrangements.

Have the Government also assessed the capacity and sustainability of the PPF, particularly in terms of its expected future workload? Other noble Lords raised this issue as well. As other noble Lords have also asked, what protection will the Government provide the PPF in the event of high additional financial demands that might suggest increased levy payments or potential reductions in pension compensation? I hope the Minister will be able to answer these questions but, as I said, I am more than happy to have a written response.

My Lords, I thank the Minister for her explanation of these regulations, and all noble Lords for their interesting contributions. I was also pleased to hear the Minister clarify the situation regarding the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020—I will call them PPF No. 1, if that is okay—which we debated on 14 September. I understood from the Minister that the problem was that DCMS made regulations in August that, in effect, meant that the PPF No. 1 regulations no longer applied to charitable incorporated organisations.

I have just gone back to the proceedings of 9 October, when we debated the Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No. 2) Regulations 2020. When she introduced them, the noble Baroness, Lady Barran, explained that her department had decided that it would simplify the moratorium regime, so it disapplied provisions that it felt were unnecessary, including Section A51 of the Insolvency Act 1986, which gives the power to make provision for regulations relating to pension schemes. Unfortunately, those were the very powers that the DWP had used to extend the PPF moratorium provisions to CIOs.

The noble Baroness, Lady Barran, went on to say that

“DCMS will bring forward legislation, when parliamentary time allows, to enable these provisions to apply to CIOs. In the meantime, we do not anticipate there being any practical impacts on stakeholders whatever.”—[Official Report, 9/10/20; col. 847.]

Were those the regulations that had the effect of excluding CIOs from some of the provisions of the PPF No. 1 regulations? If so, why did DCMS press on and let Parliament debate them 12 days ago, rather than repealing and replacing them? After all, the noble Baroness, Lady Barran, said that it already had to reissue them once, owing to a mistake in the version that was laid, so it presumably could have done so again. I realise the Minister might need to ask DCMS, but I would be grateful if she did. Could she then write to me? Also, where are we now? Is it the case that, right now, the provisions of PPF No. 1 do not apply to CIOs? How long will that last? What are the consequences of that gap?

However, we are debating the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020—or PPF No. 2 for my purposes. I understand that the PPF No. 2 regs are needed not because of that earlier difficulty, but because the Treasury has extended the remit of the Corporate Insolvency and Governance Act to apply to most co-operative and community benefit societies, and to credit unions, so the regulations ensure that the PPF covers those bodies that are now within the scope of the moratorium provisions of the Insolvency Act. This is complicated further by the fact that the original version of the PPF No. 2 regulations contained an error due to an omission in the Treasury regulations, so this is now in fact PPF No. 2, version two.

I am grateful that I got to the bottom of these complications. I will not make an issue of it, but I wanted to get it on the record because it feels important to have an audit trail of how we ended up here. However, these episodes reveal, first, three steps of drafting problems, and secondly, a failure in interdepartmental communication. What steps can be taken to ensure that DWP, or indeed other departments, find out in good time if another department is laying legislation that impacts on their own powers or provisions? Have the Government reflected on whether they are investing adequately in ensuring that departments have the resources needed for the process of drafting and cross-checking secondary legislation, or indeed primary legislation?

However, we are happy to support these regulations, since it is of course important that the PPF can step in and use its powers in the interests of the pension schemes of co-ops, community benefit societies and credit unions. But I will ask a couple of questions, including on an issue that I think other noble Lords have touched on. The moratorium provisions and, therefore, the scope of the PPF, will apply to co-op and community benefit societies, with some exceptions. Could the Minister clarify what the exceptions are? How confident is she that all the bodies to which the moratorium provisions of the Insolvency Act apply are now definitely within the PPF’s scope? If any are not, or are found later not to be, what is their legal status?

Turning to broader questions, I will be very interested to hear the answer to the question raised by my noble friend Lady Drake. This is potentially a very serious issue. We need clarity as to how the regulator could act and which legislation takes precedence in the circumstances she described. It is essential that pension funds and pensioners can always benefit from the protection that Parliament thought it had afforded them.

The PPF’s position was raised by several noble Lords, including the noble Baronesses, Lady Ritchie and Lady McIntosh. Given the state of the economy and the risks to so many employers, what assessment has the department made of the strength and stability of the PPF and its ability to deal with what is coming down the track? What mechanisms are there for keeping that under careful and constant review? How will Parliament be kept informed? Noble Lords have asked about this whenever we have had the opportunity. Can the Minister think about how best she can give Parliament the ongoing assurance needed that the PPF will be able to do its job? It is incredibly important to pension funds and pensioners across the land that this agency works, and Parliament needs some assurance on that. I look forward to her reply.

My Lords, I am grateful to noble Lords for this helpful debate and their interventions. I hope that I have been able to establish why these amending regulations are required. Extending the Pension Protection Fund rights as creditor to relevant co-operative and community benefit societies and relevant societies, as applicable, will help to ensure, if those entities are also sponsoring employers of a Pension Protection Fund eligible pension scheme, that the interests of the scheme and the Pension Protection Fund are protected during a moratorium, or where a restructure of the business is proposed under the new corporate insolvency and governance legislation, as applicable.

I will do my very best to answer all questions; where that is not possible, I will write to the noble Lords concerned and place a copy of the letter in the Library. The noble Baroness, Lady Drake, asked whether trustees agreeing to a corporate rescue will be within the scope of the new criminal sanctions in the Pension Schemes Bill, and which has precedence. We do not think that there is a conflict between the provisions in the Corporate Insolvency and Governance Act 2020 and measures in the Pension Schemes Bill. The new criminal offences proposed in the Bill make it clear that an offence is committed only if the person did not have a reasonable excuse for committing the act or engaging in a course of action. The aim of the powers in the Pension Schemes Bill is to target individuals who intentionally or knowingly mishandle pension schemes or put workers’ pensions at risk by behaviour such as chronic mismanagement of a business or avoiding pension liabilities. There is no intention to frustrate the legitimate business activities where they are conducted in good faith.

The noble Baroness, Lady Drake, also asked whether the Pension Protection Fund has the power to demand detailed information or conduct its own investigation into the financial position of the company. There are requirements in the Corporate Insolvency and Governance Act to provide information to the board of the PPF in relevant specified circumstances in respect of the moratorium and the restructuring measure. The Pension Protection Fund may also be able to use existing powers to request information from the company when it is relevant to the exercise of its functions in relation to an occupational pension scheme—in this case, the exercise of creditor rights. If the company refuses or neglects to provide the information without reasonable excuse, the company would then be guilty of an offence. However, a company could argue that the standard information provided to all creditors is enough to enable the board of the Pension Protection Fund to exercise its creditor rights, so it does not require any further information to exercise those rights above and beyond what other creditors get.

My noble friend Lady Altmann asked why these regulations revoke a previous set of regulations, and which parts were revoked. An omission in HMT’s order meant that there was no power to make provision for the Pension Protection Fund to exercise creditor rights in relation to relevant societies in my department’s regulations. As a result, certain provisions of those regulations were ultra vires. The entirety of our further set of regulations has been revoked and replaced with the regulations being debated today.

My noble friends Lord Trenchard, Lady Altmann and Lord Bourne, asked how many entities have gone into a moratorium since the legislation was passed. The Insolvency Act publishes insolvency statistics monthly, and the 14 October publication included the new moratorium for the first time. Two moratoriums have been entered into since the Act came into force on 30 September.

The noble Lord, Lord Loomba, the noble Baronesses, Lady Wheatcroft and Lady Janke, and my noble friend Lord Bourne, raised the issue of the sustainability of the PPF’s funds as a result of Covid-19. The Pension Protection Fund is confident that its long-term funding strategy and diverse investment approach position it well to weather the current market volatility and future challenges. The Pension Protection Fund’s latest modelling shows that the fund is well placed to achieve its self-sufficiency target: the ability to pay Pension Protection Fund compensation in full, with a 10% buffer.

The noble Baroness, Lady Janke, and my noble friends Lord Naseby and Lord Bourne, raised the issue of why our co-operative and community benefit societies need to be included. Mutuals are organisations owned and controlled by their members rather than by shareholders. They operate on a “one member one vote” structure, and include co-operatives, community benefit societies and financial services providers, such as building societies, credit unions and friendly societies.

The noble Baronesses, Lady Wheatcroft and Lady Ritchie, asked about the Pension Protection Fund’s resources to intervene in moratoriums and restructuring in the current economic climate. The Pension Protection Fund has an in-house restructuring and insolvency team, and the ability to call on third-party advisers to support its work. The PPF keeps its level of resourcing under review, but at present is confident that it can engage in moratoriums and restructuring plans as necessary. The noble Baroness, Lady Wheatcroft, asked what we were doing to enhance the ability of trustees. The Pensions Regulator has guidance on its website for trustees.

My noble friend Lord Flight, the noble Baroness, Lady Wheatcroft, and other noble Lords, raised the question of the skills of PPF in restructuring arrangements. The PPF has a dedicated in-house insolvency and restructuring team, and, as I have said, can also draw on a large range of third-party advisers. It is important to recognise that the PPF has been involved in restructuring arrangements since its launch in 2005. My noble friend Lord Flight also asked about the value of PPF pension schemes assets. The total assets in the October 2020 PPF 7800 Index were £1771.4 billion.

The noble Baroness, Lady Ritchie, quite rightly and understandably, asked what engagement there has been with the devolved Administrations. We have worked with Northern Ireland on some of the detail of the policy and helped Northern Ireland in the preparation of its regulations, which have now been published. There was engagement with the devolved Administrations during the development of the measures included in the Corporate Insolvency and Governance Act. Northern Ireland has introduced its own regulations to ensure parity, as relevant. The noble Baroness also raised the issue of the credit union in Northern Ireland. I will write to her about that, as I will on the question about meetings between the DWP and the PPF regarding their performance.

My noble friend Lord Naseby asked what we are doing now that the courts have declared the PPF compensation cap as unlawful. The PPF compensation cap is still a live issue before the courts, and therefore I cannot comment further on it.

My noble friend Lady McIntosh raised the issue of an impact assessment. One has not been prepared for these regulations because the measures do not impose any regulations on business or lift any regulations from it so there is no direct regulatory impact.

My noble friend also asked whether we can seek to reduce reliance on the big four accountancy firms. The Competition and Markets Authority market study on the statutory audit market was published on 18 April 2019. The report made a series of wide-reaching and ambitious recommendations, including proposals for the joint audit and an operational split between audit and non-audit services.

The noble Lord, Lord Hain, rightly mentioned workers, how they are looked after and their rights in relation to both these regulations and pension schemes. I am interested in the book that he referred to; if it is acceptable to the noble Lord, I will write to him with a more specific response to his questions.

The noble Baroness, Lady Janke, asked what happens if scheme trustees or managers and the Pension Protection Fund do not agree on a course of action. We expect PPF and scheme trustees or managers to work together in the common interest of the pension scheme. For example, when a restructuring plan is proposed, in the circumstances specified in the regulations, both the scheme trustees and managers will be able to make an application to the court and participate in meetings ordered by the court.

My noble friend Lord Naseby asked in what circumstances the Pension Protection Fund would increase its levy. The PPF entered the pandemic in a strong financial position, as I said. Its latest annual report showed that it has significant reserves and it was clear that it monitors the position regularly.

My noble friend Lady McIntosh asked who will advise community and mutual organisations. Again, I will need to write to her on that.

The noble Baroness, Lady Sherlock, asked why DCMS still brought forward its regulations when they affected ours. I will write to consult my DCMS colleagues on her questions. I can confirm that CIOs are currently not covered by our regulations; DCMS will resolve this at the next possible opportunity.

I hope that I have answered the majority of noble Lords’ questions. As I have committed before, if I have not done so, I will write to noble Lords and place a copy in the Library. I commend the regulations to the House.

Motion agreed.

Sitting suspended.