My Lords, perhaps I should apologise for taking the Committee’s time on issues that I feel have an opportunity to be resolved in the Bill. I hope that noble Lords will understand that I am doing this because I want to see pensions work better, and I care passionately about a system which I believe works really well in general. but there are areas that are causing significant problems which we may be able to address.
The issue at hand in this amendment is directly relevant to the Bill. It is about multi-employer pension schemes, where the current legislation has unintended consequences and causes significant damage in ways that it was never designed to do. There may be a way in which we can try to address that. I am not claiming that the wording of this probing amendment will fit the bill, as it were. However, in the plumbing multi-employer pension scheme—the one I have most experience of, but by no means the only one; there are a number of charity schemes as well—the trustees seem to be trying to force good employers into personal insolvency and homelessness to pay into the scheme the cost of buying annuities for workers who never worked for them. This is in a scheme which has always been said to be fully funded, with enough money to pay all its pensions: in the December 2019 employer update it was reported to be funded to 108%. It had an 8% surplus at its last measure. The scheme will not buy the annuities that these people’s homes will be taken away to pay for, while the employers have paid every penny of the contribution ever requested by its trustees.
In this pensions Bill we are dealing, quite rightly, with new measures for the Pensions Regulator to deal with recalcitrant employers, who may have deliberately decided—or the regulator may believe have deliberately decided—not to put enough money into the pension scheme. We are introducing measures which I have tried to build upon in my amendment, which gives reasons why the regulator may not impose a contribution notice, for example, on such a recalcitrant employer. I am trying to look at the conditions we might able to introduce in multi-employer schemes, which go back some time—for example, the ones I have looked at go back to the 1970s—and used to have 4,000 employers. Many of them have been allowed to leave or have failed. Now there are around 400 left. These are responsible for all the people who worked for those thousands of other employers, as well as the very few who worked for them.
I wonder whether we can find ways that mimic the easements for recalcitrant employers to salvage the situation for these often unincorporated businesses, such as partnerships which have been in a family for decades or very small companies. If the owner or the individual retires, they crystallise the Section 75 debt. If they try to pass the business to their son, they trigger the Section 75 debt. If they incorporated from a partnership to a company, they triggered the Section 75 debt but nobody ever told them. The size of the debt they owe is immaterial to the survival of the scheme. I am trying to see whether we can use a materiality test, a solvency test or a reasonableness test to deal with this unintended consequence of Section 75 debt, which had a strong and right purpose: if an employer was to walk away from a pension scheme, it needed to make sure that it had put enough money in to meet its promises to all its staff.
I have tried to introduce conditions through this amendment which would permit trustees not to collect the Section 75 debt. They are: if failing
“to pay the debt would not materially reduce the scheme’s assets relative to the estimated debt”;
if
“the majority of the debt”
owed by the employer is for orphan assets—workers who never worked for that employer, so the main employer could not try to use this provision; if the employer has never tried to avoid the debt or to damage funding; if
“at the time of the cessation”—
the Section 75 crystallisation—the scheme was fully funded on technical provisions; if the employer is unincorporated or a small business, and we may need to add partnerships, and faces personal bankruptcy or insolvency; and if the employer has always paid all the contributions asked for, then the trustees would explicitly be permitted not to collect the debt.
The total debt for the employers which I have seen suffering particularly from this is £7.2 million. That may sound a lot of money, but this scheme is worth well over £2 billion, so whether it collects that extra few million pounds will not make a difference to its solvency and survival in the long term. We seem to have lost sight of reasonableness. I hope we might define the circumstances tightly so that other employers cannot use this provision as a precedent. I completely understand concerns that we do not want it to be used as a precedent. The size of the debt is immaterial, relative to the solvency of the scheme.
I have deliberately worded Amendment 94 so that it follows new Section 58B(2) on page 91 of the Bill. Under that provision, the Section 75 debt or contribution notice will not have to be imposed. It says:
“A person commits an offence only if (a) the person does an act or engages in a course of conduct that detrimentally affects in a material way the likelihood of accrued scheme benefits being received”.
Clearly, in the case I described, in multi-employer schemes that test would not be met for imposition of the debt. The new section continues:
“(b) the person knew or ought to have known that the act or course of conduct would have that effect”.
These employers have paid everything that they were ever asked for and were always told that the scheme was fully funded, so they would never have known that there was a problem. The trustees of the scheme did not even try to collect Section 75 debt between 2005 and the past couple of years. The new section then says:
“(c) the person did not have a reasonable excuse for doing the act or engaging in the course of conduct”.
Again, if someone is paying everything that is due, the size of the debt is not material to the solvency of the scheme and the scheme is not buying annuities anyway, can we not inject some reasonableness? There are already easements but they do not meet these circumstances.
6.15 pm
The trustees of the scheme seem to be afraid that they cannot help out these employers without a change in the legislation, which is what Amendment 94 seeks to deliver. It is a probing amendment and I would be grateful if the Minister and the department would further consider whether there are any ways in which this might be achieved. Some people have terminal cancer and less than a year to live; they face personal bankruptcy and destitution as a result of a debt that a large, recalcitrant employer would not be forced to pay as a result of the measures in this Bill. I beg to move.