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I beg to move,
That leave be given to bring in a Bill to make provision about multi-employer pension schemes, including provision for the protection of unincorporated businesses, such as plumbing businesses, from certain multi-employer pension scheme liabilities;
and for connected purposes.
I must first declare an interest. My dad was a plumber and he currently receives a pension from the Plumbing and Mechanical Services (UK) Industry Pension Scheme, hereafter known as “the scheme”. That is a multi-employer pension scheme, which has potential debt issues that arise from Government legislation, and it is my desire to correct some wrongs via this proposed ten-minute rule Bill.
Let me be clear: my dad receiving a pension from the scheme is completely separate from my motives in advancing this Bill, and indeed when I first became aware of the issues, I did not know the source of his pension. However, that actually allows me to see the rationale behind the existing legislation and the flaws in it from both an employee’s and an employer’s perspective.
Workers like my dad, working in all kinds of weather, up roofs and under floors, and doing overtime at weekends and nights to get more money, deserve to be able to retire on a decent pension. They have worked hard for that all their lives, and some have worked too hard to be able to enjoy a long, happy retirement. That was why the existing scheme was set up in 1975.
The scheme is run by a trustee company, controlled by three organisations: the Scottish and Northern Ireland Plumbing Employers’ Federation, the Association of Plumbing and Heating Contractors and Unite the union. The nominated directors or trustees represent both employers and employees. The issue that concerns them all is legislation that stems mainly from the Pensions Act 1995, which came into being some 20 years after the scheme got up and running. That legislation was well meant, aiming to ensure that multi-employer schemes remain solvent and able to pay pensions due to former employees. Nobody can argue against that sound principle, but the legislation also incorporated the law of unintended consequences.
From 1995 until further changes in 2005, the fund was assessed on a minimum funding basis. When valued like that, the scheme was deemed to be fully funded, so any employer leaving the scheme did so without detriment to the overall scheme and employers remaining in the scheme. However, in 2005 the assessment of such schemes was altered to a buy-out basis: if the scheme were to close down, what would be the estimated cost for an insurance company to pick up the liabilities in the form of annuities? That is where the problems began.
That process can be up to three times more expensive in its valuations, and it has been applied retrospectively, so companies that previously left the scheme in good faith and did not have to pay any shortfall—because there was not one—are now deemed to have created a debt for the scheme. That debt cannot be recovered, so it is passed on to the remaining employers. The same applies to companies that become insolvent. Those accrued debts are known as orphan liabilities. Any company that now leaves the scheme triggers a section 75 debt, which attributes orphan liabilities into the mix.
Besides leaving the scheme, there are other ways of triggering a section 75 debt, such as no longer having an employee enrolled in the scheme, a change in ownership and changing from unincorporated status. In fact, some employers have inadvertently triggered the section 75 debt process through such actions, not realising what the outcome would be.
Although an accurate way of assessing a debt share under section 75 rules has yet to be formally agreed, estimates to date provide ridiculous sums of several hundred thousand pounds—and, in some cases, more than £1 million. That is completely unsustainable and, if put into practice, will bankrupt several individuals. That in turn will create a domino effect, increasing debts on remaining scheme members until the whole thing collapses. Jobs and apprenticeships will be lost, and individuals’ and families’ lives will be completely ruined.
I mentioned my dad as a hard-working employee. Employers are also hard-working, with many doing manual work while running their own companies, working hard to create an asset that they can either sell or pass on as a legacy to a family member. Yet, because of the debt issue, those companies are now effectively worthless and cannot be sold. That happened to a company in my constituency, which closed down before Christmas because a buyer could not be found. I also know an employer who works with his son. He is approaching 70, but he still has to work—he cannot retire and pass the company on, because of the debt issue. Those are responsible employers, trying to do the right thing by their employees. It is ironic that the Government have now made it compulsory for all companies to enrol their employees into a pension fund, yet the guys who did that many years ago now feel penalised for having done so.
It feels like Governments have buried their heads in the sand, but it does not have to be that way. My hon. Friend Pete Wishart raised such concerns in a Westminster Hall debate in October 2016, and the then Pensions Minister pledged to do work on the issue. Of course, Pensions Ministers come and go, and now others have to pick up the baton.
A couple of weeks ago, Kirstene Hair brought about an Adjournment debate on this issue, and she was willing to sponsor the Bill. She raised several possible solutions, which appeared to be dismissed by the Minister. I intend to return to some of those and rebut the Minister’s answers.
As I come to solutions, let us remember that, using conservative estimates, the last actuarial valuation in 2014 said the scheme was fully-funded, based on technical provisions. It therefore makes sense to move away from the buy-out assessment, which is not implemented even if an employer makes a debt contribution. If an employer pays a debt, in theory that still does not protect its own workers, because the money goes into the general pot. That said, the reality is that allowing a change to the method of evaluation will allow the scheme to continue to function and honour its payouts.
Another ask is that orphaned liabilities are taken out of debt calculations. Why should current employers pay for historic debts applied retrospectively? Additionally, the Pension Protection Fund should be the guarantor of last resort for orphaned liabilities. It is hoped that such a guarantee would not be instigated, but it is the correct measure. We are currently in the crazy position of Carillion having created a pensions black hole while paying top staff handsomely, with the PPF picking up the slack. However, the Government are unwilling to do the same for the plumbing pensions. Carillion will make more firms insolvent, putting further liabilities on to the pension scheme, yet the Government are stepping in to help the Carillion pensioners but not the plumbers.
I also suggest that if the PPF has to step in for orphaned debts, in reality the whole scheme will have failed anyway. The Minister stated that using the PPF in such a way would be unfair to payers of the PPF levy. However, the plumbing pension fund is in fact a levy payer, so that argument falls down there.
We must also put legislation in place to allow unincorporated businesses to change, to protect them from unlimited liability. They must be able to incorporate without triggering a section 75 debt. The Minister claimed that that is possible under existing legislation, but it is not as straightforward as he made out. A number of exemptions act as barriers, with the main one being the funding test from the flexible apportionment arrangement. They must be removed, and my Bill aims to do that. The Minister needs to understand that that option is available only to employers currently participating in the scheme and not those who have left or are no longer trading. That is why the other measures I have outlined are also critical.
As the Government have changed legislation to ensure that all employees are required to have some form of pension, we have a duty to remove any anomalies from existing schemes that employers have paid into in good faith. It is an act of folly to allow a fully funded scheme to collapse, risking jobs, succession planning and even family homes. That is why I will pursue the Bill, which has the support of six political parties. I will also happily take any recommendations from the Government’s White Paper in due course.
It has been argued that the plumbers’ pension scheme cannot be treated differently. I would say it is unique, and it must be treated differently if need be. I will pursue this to the bitter end.
Question put and agreed to.
That Alan Brown, Pete Wishart, Deidre Brock, Patricia Gibson, Gavin Newlands, Jim Shannon, Mr Alistair Carmichael, Mr Jim Cunningham, Sir Peter Bottomley, Peter Aldous, Stephen Kerr and Hywel Williams present the Bill.
Alan Brown accordingly presented the Bill.
Bill read the First time; to be read a Second time on Friday