Pensions Bill

I have tried to outline the difficulties in getting payment through the system more quickly. My noble friend Lady Hollis touched on issues of data. We have had to rely on trustees. We will still have to rely on trustees, but we are creating this extra avenue of approach to try to speed things along. I hope that the noble Lord will support that. The effective use of taxpayers’ money to revisit the operation of FAS will undo the very real efforts made by the FAS Operational Unit to improve performance since its inception and since the review of administration. We have invested in training for staff, working with a leading provider of services to the pensions industry to ensure our people are able to deal with the complexities of the schemes with which they come into contact. I will identify briefly the sort of cases that the FAS Operational Unit deals with on a daily basis. This demonstrates the difficulties of dealing with the sorts of pension scheme that qualify for FAS, which are very different challenges from those facing the PPF. It also demonstrates the commitment and determination of FAS staff to secure the best possible outcomes for members. I will not name the pension scheme in question but it began to wind up with 24 members in 2001. Only eight pensioner members received payments from the scheme at first, and these ceased in 2002. Since then no payments have been made to any scheme members. It having been accepted as a qualifying scheme for FAS, we requested the scheme records to assess FAS eligibility and payments, only to be told that most of the member records had been lost. The records that did exist were insufficient to determine payments. Since then, FAS staff have worked to trace the whereabouts of members and to piece together the data they need. This has involved contacting known members, former administrators and actuaries, the Pensions Regulator, HMRC, and other parts of DWP—not all avenues which would be readily available were FAS to be administered outwith the department. Most of the scheme members had given up hope of seeing their scheme pension. In many cases they were not even aware that their scheme had been submitted to FAS for consideration. To date, we have awarded payments ranging from around £1,000 to £4,000 per annum, with arrears of up to £8,500. This is making a real difference to people who had given up hope and it is a testament to the dedication and skills of FAS staff. There is no evidence that the PPF, which, let us remember, has no experience of dealing with schemes that have long since wound up or where recordsare hopelessly outdated or even non-existent, would prove more capable of dealing with these problems. The PPF is finding that even the task of dealing with pension schemes newly entering the assessment period is more resource-intensive than anticipated. We are working to share the lessons across FAS and the PPF. We continue to strive to improve our processes. Amendment No. 69 removes the provisions ofthe FAS regulations relating to employer insolvencyevent qualification conditions. The purpose of this amendment appears to be to ensure that schemes, and therefore their members, are not excluded from the FAS solely on the basis that their employer is solvent. In its fifth report, published on 10 May, the Public Administration Select Committee asked us to look into this issue. I shall explain how we are doing so. We have great sympathy for any member of a defined benefit scheme faced with the loss of their pension through no fault of their own. However, in developing FAS to provide help for such people, we have been careful to ensure that taxpayers’ money is not used to provide assistance for pensions that could and should be funded by relevant employers. We believe that even where employers have no further legal obligation to fund their scheme, there remainsa moral obligation that should be followed. In its report, the PASC sympathises with this aim, saying it understands, "““the Government's unease that the taxpayer is having to provide pensions which were promised by employers and should be honoured by those employers””." We aim to ensure that all members of relevant schemes receive at least 80 per cent of their expected core pension, subject to the cap, wherever employers are unable to fulfil their pension promise. That is why the definition of ““employer insolvency”” for FAS purposes is designed to be sufficiently general to capture schemes where the sponsoring employer no longer exists and where insolvency may have occurred some time after scheme wind-up had started. We continue to look closely at schemes that are excluded even under this generous definition, which is why we announced on Report in another place that we will extend the FAS to cover members of schemes that began winding up between 1 January 1997 and5 April 2005 where a compromise agreement is in place and when enforcing the debt against the employer would have forced the employer into insolvency. The noble Lord, Lord Skelmersdale, asked how quickly we would be able to come forward in that. We intend to include such schemes in regulations to bring about the extension of FAS announced in the Budget, and hope that this will come into force by the end of this year. Despite these changes—and I think this is the point touched on by the noble Lord, Lord James—we are aware that there may be some schemes not covered by this proposal in which members may face a comparable loss to their pension in similar circumstances. Therefore, we have asked the review into pension scheme assets to consider representations on behalf of members of such schemes. It would not be right to provide assurances that all schemes, irrespective of their solvency position, should be able to qualify for the FAS now before the review presents its findings. For example, some of these schemes will still be winding up and hoping to bring pressure to bear on employers to make contributions to the fund. If the Government indicate that their members are likely to be helped via FAS, there would be little incentive for trustees to rigorously pursue such cases or for employers to respond sympathetically. It would not be right to ask the taxpayer to bear the price of this amendment without careful consideration of this risk. The next amendment calls for supplementary payments at PPF levels to be made to FAS recipients. The Opposition attempted to float their lifeboat fund in another place and, if I may say so, it remains as full of holes now as it was then—a leaky vessel, in which I could not encourage scheme members to place their trust. Of course, the Government sympathise with the aim of getting more money to people who have lost their pension. We have committed £8 billion of taxpayers’ money to the financial assistance scheme and have set up a review, led and advised by experts, to investigate whether additional funding can realistically—I stress ““realistically””—be found. What we will not do is to make rash promises to members which might very easily result in yet more public money being spent on assistance. The amendment would require the Secretary of State to make loans to the lifeboat fund so that it could top up pension and FAS payments. Without a guarantee that there are sufficient funds within unclaimed assets to cover these loans, this amountsto nothing more than an open-ended spending commitment. The noble Baroness, Lady O’Cathain, was very happy with that proposition. She did not want to dip into lifeboat-fund assets, as I understand it, and was quite happy to support public expenditure funding this increase. I wonder therefore whether she will desist from voting with her colleagues who propose another solution today. Given that the loans are interest-free, there is an element of public spending even if they are eventually repaid. Even without the question of funding, the issues are complex. A commitment to a process and structure that has been cobbled together without proper consideration of the legal and administrative difficulties, however well intentioned, could very possibly simply make things worse. The amendment fails in its aim of getting money to members more quickly. As envisaged by the Opposition, the lifeboat fund will top up actual pensions and FAS. This means that members could conceivably receive income via three separate streams and from three different agencies—their scheme pension, FAS and the lifeboat top-up. That is a recipe for confusion and delay. The Government have pledged, if the assets review concludes that it is workable, to raise assistance levels towards 90 per cent. We are providing more money for more people immediately through changes to initial payment levels in Clause 18. Unlike the lifeboat fund, those are real commitments on the basis of evidence and backed up by action. I now turn to Amendment No. 71, especially its proposed new subsection (6), and AmendmentsNos. 73 and 74. These amendments make provision for yet another institution in the pensions protection arena to be funded by the taxpayer. I consider that setting up a pensions unclaimed assets recovery agency exemplifies precisely the sort of waste to which the noble Baroness, Lady O’Cathain, referred on Second Reading and again this afternoon. The functions of the agency are to obtain information about such classes of unclaimed assets as may be prescribed by the Secretary of State, to provide the Secretary of State with information on those assets and to administer a scheme for the transfer of those assets. Significant progress has already been made on those objectives, without the need for all the rigmarole and expense that would inevitably surround the launch of a new government agency. At this juncture, I make the Committee aware that a meeting has been arranged with Andy Young, who is leading the review. We heard today that we have fixed it for 20 June at 5.15 pm in Committee Room 3A. I will write to noble Lords who may want to come along to see what progress is being made. The review of pension scheme assets announced by the Secretary of State for Work and Pensions on 28 March has already started work. By the end of summer, it will provide the Secretary of State with initial findings. It will provide a full report on the availability of assets within relevant failed pension schemes and what might be done with them by the end of the year. We may reflect on what the so-called orphan assets are that seem to be floating around on which the Conservatives and Liberal Democrats base their claim to change the FAS scheme provided for in Clause 18. We have heard from the noble Lord, Lord Turnbull, about the issue of assets of long-term with-profits funds of life companies. As he rightly said, they are not free assets. I ask the noble Lord, Lord Skelmersdale, whether he sees assets of that nature as being fair game for the agency that he seeks to establish. Are those assets that he believes can be garnered to support his proposed scheme, or does he accept that those assets are not available and not free? On banking assets, is the noble Lord saying that we should revisit the proposition already advanced and consulted on that unclaimed banking assets should be made available for community use, especially youth projects? Is part of his proposition to redirect some of those funds? Is he saying that there are free assets in defined benefit occupational schemes written under trust? We are entitled to know, because that goes to the heart of whether his amendment is real or a fiction. The Government are fully engaged in exploring the potential of unclaimed assets within relevant failed pension schemes. We will, if it would make a real difference to members and not present an unacceptable risk to the taxpayer, use them to supplement FAS payments. It is not sensible to pre-empt the findings of the review, it is not desirable to set up an organisation paralleling the core business of the review, and it is not fair to further raise the expectations of members about the level of assets that might be out there. Amendment No. 75 would provide that the Secretary of State must make regulations that prevent trustees of FAS qualifying schemes from the purchase of annuities for nine months from 18 April 2007. We have some sympathy with the thinking behind this amendment, which is why we have asked the review that we announced to look specifically at the use of assets which remain in failed pension schemes. We do not think it is sensible to anticipate the findings of the review, or to compel trustees to action which might not be in the best interests of their members or the taxpayer. We believe that annuity purchase provides some flexibility over the nature of the benefits that are secured for members. For example, annuities might be secured that provide certain guarantees in the event of the member's death. It might not be appropriate to deny individual members such flexibility before we can establish that halting annuitisation would bring greater benefits across the FAS membership as a whole. Furthermore, halting annuitisation might also mean that the payment of pensions to affected members is delayed. Most qualifying schemes will contain some members who stand to receive an annuity that will cover the full pension that they were expecting. Some of those members may already have reached their normal retirement age. Would it make sense to stop annuity purchase for those members now? The amendment puts annuity purchase on hold only for nine months. It is not clear what would happen after that. If annuitisation were to restart from that point, annuity rates may well have gone down. The resulting extra cost of the annuity would be borne either by the member, in losing some of his pension, or by the taxpayer, in providing a higher amount of FAS top-up. Those are complex and delicately balanced issues that need to be carefully considered, which is why we have asked the review to look at these points. In the Statement made on 28 March, the Secretary of State said that it continues to be important to the interests of all members of affected pension schemes that schemes are wound up as quickly as possible. We encourage trustees to continue with the administrative processes of wind-up including data cleansing, pursuing employer debt, liaising with the National Insurance Services to Pensions Industry organisation and allocating asset shares to members. Trustees must of course take decisions in the best interest of their members but they should bear in mind the deliberations of the assets review. I take this opportunity to encourage trustees to co-operate with the review team in its investigations. I also assure the Committee of our aim that, should the review identify an alternative way of using assets in failed pension schemes, scheme members should not lose out because their pension scheme has completed the wind-up process. Given our commitment to look at the issueof annuitisation by way of the review, the perils of halting annuitisation without proper considerationof the risks, and our aim to ensure that members of schemes that annuitise will not lose out, I ask the noble Lord to withdraw the amendment. Amendment No. 76 deals with on-account payments. The amendments that noble Lords have proposed to the Bill on the FAS testify that there is divided opinion on the level of assistance that should be provided to affected members and, more especially, the means of funding that assistance. However, I think that we are all agreed that affected members should receive payments as soon as possible. New Clause 18(10) appears to have that intention at its root. However, I fear that the amendment will not achieve that aim and could in fact have the opposite effect of threatening the timely delivery of assistance to qualifying members. The amendment is intended to shift responsibility for the delivery of payments from the FAS operational unit to pension schemes and allows funds for those payments to be provided by FAS or the lifeboat fund, whether by loan or by retrospective repayment. The problem with the amendment is that pension scheme administrators would need to learn a new set of procedures to make such payments. That could cause significant delays. It is surely better to use the expertise that already exists in the FAS operational unit rather than to reinvent the wheel and require scheme administrators to learn new skills from scratch. The amendment would mean asking hundredsof scheme administrators to learn skills already developed elsewhere. Those administrators would expect to be paid for doing so, further depleting the value of scheme assets available to members. That in turn would eventually mean higher top-up payments, the cost of which would ultimately be borne by the taxpayer. It would not even do away with the needfor FAS, as many of the pension schemes whichfall within the remit of the scheme have already wound-up and have no trustees to administer the sort of scheme envisaged here. The amendment’s rationale for funding on-account payments by means of loans or repayments from FAS resources is also opaque. To apply for such loans, schemes would presumably have to assess whether on-account payments were affordable, given their funding position, and would presumably have to make loan applications if they were not. There might be some logic to this approach if significant numbers of a scheme’s membership did not stand to benefit from the FAS. It might then be important to ensure that assets of schemes were not being used to make payments to members that might cause younger members’ benefits to be cut; but given our commitment to guarantee that all members will receive at least 80 per cent of their expected core pension, this part of the amendment seems to be particularly unnecessary, as well as burdensome. The expertise for delivering FAS payments quickly lies with the FAS Operational Unit. Currently, where data are received from trustees, FAS payments are assessed within a month. This amendment would be likely to decelerate payments and at some cost. On Amendment No. 79, tabled by the noble Lords, Lord Oakeshott and Lord Kirkwood, I note that the consensus between the Conservatives and Liberal Democrats appears to break down here, although I believe the noble Baroness, Lady O’Cathain, is with the Liberal Democrats on this one. I assume that the lack of consensus is because this amendment puts upfront an extra public spending commitment. It calls for FAS assistance to be raised to PPF levels and to be paid for, presumably, from public funds. I have every sympathy with the intention, but the laudable aim of raising FAS benefits needs to be balanced against the considerable cost of doing so. We have made very clear our plans to raise the cap to broadly PPF levels and to abolish the current de minimis rule; so the noble Lords’ intention to modify the FAS to bring payments up to PPF levels in essence means the FAS providing a top-up to 90 per cent for non-pensioner members, along with some limited indexation. We estimate that this change would cost the taxpayer an additional £2.7 billion, or £640 million at net present value, which is a third more than the scheme that we are currently proposing. We believe that current FAS benefits, at 80 per cent, are the most that the taxpayer can reasonably be expected to bear. However, our rejection of PPF-level benefits is not simply on the grounds of cost. There are important differences between the principles of the FAS and the PPF, which should be maintained. The PPF is a compensation scheme, funded by a levy on schemes that seeks to provide protection for pensions in the future. In effect, some scheme members benefiting from PPF payments have paid an insurance premium, from which they benefit on employer insolvency. This premium increases the net cost of providing pensions, hence the employment costs of the employers of these scheme members. There is no public money in the PPF compared with the £1.9 billion of public money in the FAS. The Government do, however, agree with the noble Lords’ aim of getting more money to people who have lost their pension. We have set up a review into pension scheme assets to consider precisely whether that aim can be achieved through better use of the funds held by qualifying schemes. We have said that the review will present its initial findings in July. It appears that the amendment might not actually meet its apparent purpose. It would require the Secretary of State to make regulations to ensure that payments made to people by the FAS will equal the amount that would be payable if that person were entitled to compensation under the PPF. It does not take account of an essential difference between FAS payments and PPF payments. Given the Government’s aim to increase FAS levels of payments through the review of pension scheme assets, and the increased public spending commitment that this amendment would entail, part of which would be unintended, I will urge the noble Lords not to press their amendment. These are serious issues; we are dealing with the pensions of thousands of people. My noble friend Lord Howarth asked about caveat emptor. It is absolutely right that we are dealing here with schemes that are not government schemes, where government trustees are not involved and where the Government did not set the investment policy of the schemes. My noble friend Lady Hollis put it very well when she said that the Government have no legal responsibility. We do, however, have a responsibility to promote benevolent public policy. The noble Baroness, Lady Greengross, said that it was wrong to leave one group out but, as I have tried to explain, there is a difference between the FAS and the PPF. Before 1997, neither of these two schemes existed. If people lost out on their pensions, they simply lost out. I remind noble Lords that the High Court found that there was no causal connection between maladministration and the losses of employees. I will not range over issues of repayable tax credits; my noble friend Lord Howarth has dealt with those. The noble Lord, Lord Skelmersdale, made some points about survivors’ benefits. I should properly write to him about those. The noble Lord, Lord Oakeshott, made a point about the 80 per cent expected core pension and the differences that arise from that. These are serious matters, as I said. The Government have gone a long way to address what is a real difficulty for thousands of our fellow citizens. We believe that we have drawn the line in an entirely reasonable place and that it is as much as the taxpayer should bear. We are looking further to see if other use can be made of other assets, but we will not mislead people into thinking that there is a pot of gold out there and will not make commitments against that until we know the assets are there. On that basis, I ask the noble Lord, Lord Skelmersdale, to withdraw his amendment.