I commend my hon. Friend Kirstene Hair on securing this debate on this very important subject. I assure her that I have been listening carefully to her contribution and to those of other hon. Members. I would like to try to provide some reassurance, explain some action that is being taken and answer the individual solutions that she has so sensibly set out.
Since my appointment last June, I have spoken and written to several colleagues in the House who have made representations—much as I have heard this afternoon—on behalf of their constituents. I utterly recognise that it is a worrying situation for the employers in the scheme and for the individual pensioners who are so affected. The previous Pensions Minister committed to look at this issue following previous debates, and we set out some matters in our Green Paper, which was published in 2017. As my hon. Friend outlined in her speech, we will shortly be setting out the response to that in a White Paper. Although I cannot say in advance what the White Paper will say in detail, I will address some of the issues that she has raised. I will also attempt to demonstrate the difficulties we face in what is clearly a very complex area.
Let me first address who this matter affects; there are effectively four or five parties. There are the employers, who continue to be involved with this scheme, and the trustees, who are responsible for ensuring that the pension scheme is run properly and that the members’ benefits are secure. More specifically, there are the members themselves, who have worked hard to build up a pension and deserve to have it paid in full. I should also mention the PPF, which provides vital protection to members of pension schemes whose sponsoring employer becomes insolvent. However, the PPF is funded by levy payers, which are of course other pension schemes, and their sponsoring employers. Therefore, any changes would have a wider impact on the financial levy of other pension schemes and consequences for the amounts that they would have to pay. By any interpretation, this is a complex situation, and building a consensus solution that is fair and equitable to all is extremely challenging. We have to be conscious that this scheme is one of many multi-employer schemes, and that any changes for this particular scheme—however worthy and important it may be—has consequences in some shape or form for other schemes.
It is important to remind hon. Members of the background to this issue. The original legislation was introduced to protect members’ pensions, and was then strengthened in 2005. A key principle is that employers cannot walk away from their obligations if they have promised a pension to their employees. Before they do, they must ensure that members’ pensions are paid in full. In a single employer scheme, this would be through buy-out with an insurance company. The similar arrangement in a multi-employer scheme, as we have here, is the payment of an employer debt. This helps to ensure that members receive the pensions they have worked for and been promised when their own or former employer ceases to participate in the scheme.
The current regime is also designed to protect those employers who remain in the scheme and are also a party to this problem; they would be left to pick up the shortfall left by departing employers. The Government estimate that there are about 25 other multi-employer schemes with a design similar to that of the plumbers’ pension scheme. It would be difficult to consider introducing specific legislation about one particular scheme’s problems, especially as, since 2005, many similar such schemes have paid their section 75 debts and complied with the current legislation. That includes employers who were personally liable for any debt they may have owed.
There are also nearly 1,000 “last man standing” multi-employer schemes in total. To comply with legislation, a debt should be calculated when individual employers ceased to participate in a multi-employer scheme. It is with regret that, since 2005, the trustees of the plumbers’ scheme have been unable to calculate or collect the debts, so the scheme has not been able to provide any estimates on the levels of potential debts. It is therefore absolutely important that all concerned do not create any unnecessary anxiety by speculating about the size of any potential debts before they are calculated. I am pleased that this week the scheme that we are concerned with has announced plans to consult on a methodology for calculating debts in February. That is long overdue. It is vital that that work is now done urgently so that all concerned about all aspects of the scheme, and on all sides, can work together to agree a way forward with employers affected.
I want to use this debate to try to suggest possible solutions and to answer the laudable recommendations made by my hon. Friend in her outstanding speech. Employer debt legislation applies to all schemes, not just the plumbers. The Government are fully aware of the issues that employers have faced in complying with this legislation. A significant number of changes have been made to legislation, in response to representations made by employers, whereby only part of the debt or no debt may be payable. Those arrangements are available under current legislation and are being used right now.
My hon. Friend Stephen Kerr and Hywel Williams, whom I know well, mentioned plumbers who may be personally liable and are genuinely worried that they may lose their homes. It is worth pointing out that the majority of employers in this scheme are limited companies and are protected through limited liability, but I turn to the situation affecting unincorporated and incorporated employers.
For those who may be personally liable, there is already legislation that could assist. The personal assets of an incorporated employer are protected. Employer debt valuation is not required for an employer to become incorporated. My hon. Friend the Member for Angus mentioned the flexible apportionment arrangement. This is already available in legislation and can be used to help unincorporated employers incorporate without triggering an employer debt. The arrangement has been used by employers in this scheme and is one of the arrangements that can be used to help unincorporated employers, some of whom have been mentioned in correspondence to me and in this debate, provided that the scheme is no worse off from a funding perspective.
I turn to my hon. Friend’s point about the funding test. The Government believe that it would be wrong to remove the funding test as it provides an important protection for both members and the remaining employers. The plumbing pension trustee has a streamlined flexible apportionment arrangement process in place to help small employers wishing to incorporate. Individuals who want more details on this arrangement should contact the plumbing pension scheme to discuss their situation and whether an FAA can help. I urge individuals worried about their personal liability to contact the scheme to discuss their situation in more detail.
Once the debts have been calculated, the scheme trustees can also use their discretion not to pursue a debt when they expect that doing so would represent a disproportionate cost to the scheme.
I turn now to the key issue of a deferred payment scheme. We have recently consulted on regulations, including a new deferred debt arrangement, that will enable employers in multi-employer pension schemes to defer the requirement to pay an employer debt in some circumstances. This is a further tool for those affected by this problem. We aim to introduce these regulations in April, which will provide valuable breathing space for employers, so that they can consider their options on how to meet their obligations.
The issue of orphan liabilities was raised, as well as those relating to members whose employers no longer participate in the scheme. I am aware that the scheme would like to exclude orphan liabilities from the calculation of employer debt. That requirement to meet a share of orphan liabilities is common to all multi-employer schemes and is an integral part of member protection. I understand that the scheme has substantial orphan liabilities from employers that have departed it, but it is important to note that these liabilities are dated from the period both pre and post-2005. Changing legislation to enable schemes to accept less money when they are underfunded simply passes more risk on to members as it moves schemes further away from being able to secure members’ benefits in full.
I await the White Paper, but the Government’s provisional view is that it would not be right or fair to pass this burden on to the PPF and its levy payers, which are, of course, other pension schemes, and their sponsoring employers, who have no connection with, or responsibility to, the scheme. The legislation only requires departing employers to pay an employer debt when there are insufficient funds in the scheme to secure members’ benefits in full.
Several people talked about the funding of the scheme. In 2014, as an ongoing technical provision, the scheme was funded to the tune of 101%, but on a buy-out basis, it was deficient by 25%, hence the difference in the valuation and difference of comprehension on that point. That also answers the question from Alan Brown.
It is accepted entirely that this is a very complex area in which there is no quick fix; no solution is pain free. It is only right that any changes should be carefully thought through, proportionate and justified. The Green Paper explored many of the issues facing defined benefit schemes. In particular, consolidation could provide a long-term solution for schemes currently unable to afford a full buy-out. Further work is being done on this, and it would not be right to pre-empt the outcome, but the White Paper will be delivered in the fullness of time, relatively shortly.