The sittings recommenced on 7th September '04. For full reports, click the following:
Hansard 7 Sept
Hansard 9 Sept
Hansard 14 Sept
Hansard 13 Oct
Hansard 18 Oct
(The amendment suggested by the OPA to keep indexation of PPF compensation prior to 1997 was lost.)
Some extracts
- On annuities
- General comment on the drafting of the bill
- Amendment to increase the proportion of MNTs from 33 to 50%
- Amendment on the inclusion of pensioner members in the election of MNTs
- Contact details of pensioners' associations
- The training of trustees
- The question of ownership of surpluses
From 7 Sept: On annuities: Lord Oakeshott of Seagrove Bay: I suggest, from my personal experience, that what is probably needed is for the stock market to go up so that there is more money to buy the annuities and for the gilt market to go down so that annuities are cheaper. One could be lucky, but that is what one is hoping for.
Baroness Hollis of Heigham: I think that it is the first time in history in which both the gilt and stock markets have gone down simultaneously.
Back to top General comment on the drafting of the bill:
Baroness Hollis of Heigham: I have never been involved in a Bill with so many linguistic difficulties concerning the rules of a scheme and scheme rules and closed schemes. I shall check the language.
Back to top From 14 September:
Amendment to increase the proportion of MNTs from 33 to 50%:
Baroness Dean of Thornton-le-Fylde: I would like to speak to the amendment and the others in the group. We feel that it is only fair that we increase the number of member trustees to 50 per cent. That is the case in quite a number of current schemes. We also have to bear it in mind that in most pension funds the trustees do not have the authority either to increase benefits or to reduce contributions without the support of the employer. My noble friend Lord Lea of Crondall mentioned that it was seen as deferred pay; whether that point is accepted or not, the blunt fact is that it is an enormous investment by the individual employees. Therefore, they should have, through their representative group, a fair say.
Baroness Hollis of Heigham: .. I refer to the speech made by the Secretary of State, the right honourable Alan Johnson, to the TUC conference. I shall quote his words, so that there can be no error: "Everyone agrees"- as everyone has done today- "that Member Nominated Trustees are a good idea. They add a different perspective to the trustee board and they allow trustee boards to have a wider range of skills and experiences to draw upon. If members are involved in the running of their scheme it can make them feel that they have a real stake in their pension provision. I can announce today that we have decided to take a power in the Pensions Bill to enable us to move to ensure that 50% of pension scheme trustees are member-nominated".
Back to top Amendment on the inclusion of pensioner members in the election of MNTs: Baroness Hollis of Heigham: When our provisions for simplified procedures were debated in the other place, opposition Members were concerned that they might give preference to active members, to the disadvantage of pensioner members. It was a perfectly honourable concern. Of course this was not the intention; we simply aimed to keep the procedures as simple and non-prescriptive as possible. None the less, we agreed to think further about the position of pensioners. My noble friend Lady Dean-and the noble Baroness, Lady Turner, were she here-will remember that we pressed the issue of pensioner representation on scheme trustee boards when we debated the 1995 legislation through those long nights back in 1994.
We seek to introduce as much simplicity and flexibility as possible in individual schemes so that they determine their own procedures. Unfortunately, the amendments will none the less introduce some complexity. We are giving schemes a choice. As I suggested in response to my noble friend's amendments in the previous group, the schemes will be able to invite all the active members and all the pensioner members to make nominations, or they will be able to invite nominations from an organisation that represents the interests of active members-the presumption is that it would be a staff association or trade union-or pensioner members. Some of thebigger companies have very well established pensioner member schemes. There is nothing to stop them doing that. As Members of the Committee will see, exactly the same requirement applies to both active members and pensioner members.
The amendments include the term, "an organisation which adequately represents", and I hope that I have addressed that. The regulator will produce a code of practice on member nomination trustees. What counts as an adequately representative organisation will be one of the issues that he will cover in the code of practice so that we do not get a handful of self-nominated people claiming special status.
We have also taken the opportunity to make a minor amendment to subsections dealing with selecting member-nominated trustees and directors-Amendment Nos. 297C and 299C. The amendments provide slightly more flexibility by requiring that the selection process must always involve scheme members but not exclusively so.
I hope that the Committee will recognise that the amendments are an attempt to make clear that pensioner members may be invited to nominate to the trustees, and that they may be included as part of the scheme trustees. The amendments seek to respond to a concern raised nearly a decade ago. The time is now right to honour it. I beg to move.
Back to top Contact details: Although our amendment 300BA on the Information sent to membersof occupational pension schemes was withdrawn, the Government has agreed to introduce secondary legislation addressing this issue. The amendment was as follows:
"INFORMATION SENT TO MEMBERS OF OCCUPATIONAL PENSION SCHEMES
(1) Section 113 of the Pension Schemes Act 1993 (c. 48) (disclosure of
information about schemes) is amended as follows.
(2) After subsection (4), insert-
"(5) The annual report of the Trustee of an occupational pension scheme
which is sent to members shall contain contact details of any organisation
which adequately represents the pensioner members of the scheme.""
Lord Higgins: .. The amendment reflects the views put to us by
the Occupational Pensioners Alliance. It suggests that in addition to the
annual reports of the scheme being made available to all members, active and
pensioners, they should also be made available to those who represent their
interests. Presumably that means trade unions as well.
At present, there is no definition in pension legislation of what is meant
by a pensioners' association. The view is that it would, none the less, be
appropriate for the annual report to be sent to such bodies so that they can
be aware of the situation in any given scheme when they are advising
pensioners. I beg to move.
Baroness Hollis of Heigham: The amendment seeks to amend primary
legislation, but, of course, schemes already have the power to do that under
amendment, but we do not need to take powers into primary legislation when
that power already exists.
We do not think that copying the annual report to members is the right way
to do this; we think that this information is probably more at home in the
basic scheme information that schemes must provide to members and
beneficiaries. That already contains details of the scheme, the OPA, the
pension ombudsman and the regulatory authority. We propose to amend
secondary legislation on disclosure of information to ensure that members
and beneficiaries receive contact details of these organisations. We are
doing what the noble Lord is proposing but through secondary legislation
rather than in the Bill.
Lord Higgins: Will it be done in the basic information provided by the
scheme rather than annually?
Baroness Hollis of Heigham: I do not have very strong views about this, but
we felt that a better home for it was in the basic scheme information which
lists all the various regimes, rights of appeal, and so on. It is an aide
memoire, which we thought people were more likely to keep than annual
reports. Annual reports can be used if one wishes, but my advice is the
scheme information is a more comfortable home. The point is which
documentation scheme members are most likely to refer to, and I suspect that
it would be the basic scheme details in the original pack rather than the
annual report. The form in which such information is sent out will be a
matter for the scheme trustees, but we will be taking powers to ensure that
that happens.
Lord Higgins: Yes, but I suppose that a member of a scheme may look at the
basic information when he first joins and does not look at it thereafter.
There may be some case for repeating the information in the annual report,
but no doubt we will in due course see the regulations. Can the noble
Baroness give us any idea about timing?
Baroness Hollis of Heigham: I wish I could. All I can say is, as I said to
the noble Lord earlier, that the latest check has shown more than 100
different sets of regulations. The drafting of some-not all-is well under
way. Almost all of them require quite extensive consultation with the
industry. I was checking on something this morning and asked where we were
but was told that we could not get a response from the industry to our draft
regulations. Our dilemma is not simply the length and complexity of the
regulations but the fact that, quite rightly, they need extensive
consultation. I shall ensure that I give the noble Lord an update before we
reach Report. I shall give him what information I can.
The amendment was withdrawn.
Back to top The training of trustees:
Baroness Hollis of Heigham: There have been several pieces of research, including the PricewaterhouseCoopers survey of pension scheme governance. That survey found that 20 per cent of the schemes that replied to the survey had made no assessment of trustees' knowledge and skills. Only 30 per cent were taking steps to close the perceived skills gap. In our DWP/HMT research, we found that, although most schemes provided some initial training for new trustees-one or two days-only a minority, even among larger schemes, provided refresher training. It is clear what is necessary. I have examined some of the training courses organised by the NAPF, OPRA and the trade unions, and it would seem reasonable that, when the Act is in place, people should receive four or five days' initial training and a day every year thereafter. Most schemes-even the best-fall well short of that.
Back to top The question of ownership of surpluses: Lord Higgins: This clause is concerned with payment of surplus to an employer. There has been an enormous amount of controversy recently in the light of changed circumstances as to whether it was appropriate for trustees to grant to employers contributions holidays and so on. The circumstances have changed very radically indeed. However, as I understand it, there has always been a huge debate about who owns the pension surplus. I believe that there is a whole string of decided cases on that point.
The purpose of the contributions, whether from an employer or an employee, and the purpose of building up the fund, is to ensure that the liabilities can be met following actuarial advice and so on. In some cases where very large surpluses were accumulated it was clearly inappropriate-indeed, I think I am right in saying that there was a limit on the extent of surpluses-for them to remain the size that they were, which is why they tended to be disbursed in a combination of a pensions holiday and, generally speaking, increased provision for the beneficiaries.
However, suddenly, we come to a clause on payment of surplus to the employer, which seems to run right over the situation that I have just described. I am not clear why that should be. Under Clause 239, New Section 37 is to be substituted for Section 37 of the Pensions Act 1995. I must confess that I have not checked what that provision states. However, I would be surprised if it introduced a measure of the kind that is in the new section. Rather than simply pay a surplus to an employer it is better that there should be some quid pro quo in exchange for a pensions holiday, if, indeed, as I hope might happen at some point, we ever get back to the stage where large surpluses accumulate. That is certainly not the case at present as a result of the events of the past seven years. Perhaps the noble Baroness can tell us why this clause is necessary.
Baroness Hollis of Heigham: The noble Lord is right; the context of this matter is to be found in the rules introduced, I think, by Nigel Lawson in 1988. I seek help on that point. In order to prevent employers using pension funds to build up tax privileges through surpluses the figure was capped at 105 per cent. There has been some controversy about the matter since then. I read a recent Bank of England article on the matter which suggested that in some cases there was manipulation of the 105 per cent rule to enable employers to extract funds from pension funds which they did not need to do and in the process calling it a contributions holiday. The trade union movement was concerned about the substantial sums of money that came out of funds as a result of that. None the less I am not suggesting that that was done always or necessarily in bad faith as it was done within a context of the regulations laid down by the Chancellor of the Exchequer.
The current tax rules about requiring the run-down of a surplus to a 105 per cent cap will disappear. Trustees will have the freedom to decide whether to retain a surplus within the scheme in the event that there is a surplus in it. Payment could be made only from a surplus above and beyond the amount needed to secure the full buy-out rights of every member and beneficiary. The valuation certificate needed for such payments would be of limited duration. What is being said here is, should we return to a situation of soaring stock markets that resulted in pension schemes being not only not underfunded but having substantial funding over and beyond that necessary to meet full buy-out-which is a very high hurdle and much higher than exists under the 1995 Act-the trustees can decide, if they believe it is in the members' interests, to return that surplus to the employer. It is quite hard to conceive of circumstances in which it might be in the members' interests; the obvious one is if there is some question about the solvency of the company and the employer needing access to the fund. That would immediately raise a question mark as to how safe the pension fund might be.
Any such surplus would exist only when all the need to meet full wind-up liabilities could be met. In that case, the trustees could-although I am not saying that they would-make a decision that it could be returned to the employer. There is a very high hurdle that fully protects the employee. The provisions say that under the circumstances-who knows when they might occur, but should we return to that position-there is a route that trustees, the employer and scheme members can follow should they so choose. That is the point of the clause. It is necessary partly because there are no longer Inland Revenue rules, given the tax simplification with which we are now proceeding.
Lord Higgins: As I said, there is still a great deal of controversy legally about who does or does not own the surplus, and one would have thought that there might be a corresponding clause for repaying the surplus to the employees. We seem so far from that situation at the moment that we must only hope that this clause is necessary as soon as possible. But it seems strange to legislate for it now, when it has not been a situation that has persisted in the past.
The clause was agreed to.
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