Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment)Regulations 2006

– in the House of Lords at 6:19 pm on 9th February 2006.

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Photo of Lord Evans of Temple Guiting Lord Evans of Temple Guiting Government Whip, Government Whip 6:19 pm, 9th February 2006

rose to move, That the draft regulations laid before the House on 12 January be approved [14th Report from the Joint Committee].

Photo of Lord Evans of Temple Guiting Lord Evans of Temple Guiting Government Whip, Government Whip

My Lords, the Pensions Act 2004 introduced powers to enable regulations to be made setting out a statutory requirement on employers to consult affected scheme members when a change is proposed to their scheme. It is important that employers consult on prospective changes to these pension schemes in order to involve scheme members in the future of the scheme. That will ensure that the affected scheme members fully understand the changes and, in particular, the likely impact on their future pension. We have worked closely with the CBI and TUC on these provisions and we consulted publicly on the detailed provisions over the summer of 2005.

The regulations in this statutory instrument set out the detailed consultation requirements and correct a typographical error in the Financial Assistance Scheme (Internal Review) Regulations 2005. These regulations will require larger employers to consult on specified proposed changes to their pension schemes. The regulations introduce a similar requirement for employer consultation on proposed pension scheme changes to those in the Information and Consultation of Employees Regulations 2004 for other workplace organisational issues. Those regulations came into force for organisations with 150 or more employees from April 2005.

The consultation by employers regulations will be phased in so that from April 2006 only employers with more than 150 staff will, unless exempted, be required to consult their employees on pension changes. From April 2007, employers with more than 100 employees will have to consult and, from April 2008, the requirement will be introduced for employers with more than 50 employees. As I said, we will amend these figures to ensure consistency with the Information and Consultation of Employees Regulations 2004.

The regulations will not apply to any proposal that the members were advised of before the regulations come into force on 6 April or to employers in respect of certain pension schemes. The regulations require an employer to consult when a proposal is made to make a significant change to either an occupational pension scheme or a personal pension scheme where the employer contributes under a direct payment arrangement.

The employer must consult the affected members of the pension scheme or their representatives before a decision on whether to make such a change is taken. "Affected members" are defined as active members and prospective members of the scheme. A prospective member is an employee who will become eligible to become a member of the scheme.

The regulations list the significant changes that the employer will be required to consult on. Such changes to an occupational pension scheme will include: closing the scheme to new members; stopping future accrual of benefits, or rights, in the scheme; removing the employer's contributions; and, finally, introducing member contributions.

In addition, the employer is required to consult on certain proposed changes that affect only occupational pension schemes that are not money purchase schemes—that is, defined benefit schemes. These changes affect the basis of the scheme. They include, for example, changing the scheme, in full or in part, to a money purchase scheme or changing the method for the accrual of benefits, or rights, in the scheme—for example, from final salary to career average. For personal pension schemes, the employer will be required to consult when he proposes to stop or reduce his contribution to the scheme or increase the members' contributions.

The regulations also specify whom the employer must consult and they specify that he must ensure as far as reasonably practicable that the consultation covers all affected members. The regulations allow the employer, to a certain extent, to choose from a variety of prescribed consultation arrangements how he will achieve that. An employer who is required to consult about a proposed change to a pension scheme and who has already agreed consultation arrangements with his employees, which are of the type listed in the regulations, must consult using one or more of those arrangements. The regulations allow him to choose from recognised trade union representatives, elected or appointed information and consultation representatives, any other pre-existing agreement, or pension representatives elected under these regulations.

The employer may consult directly with affected members if he has a pre-existing or negotiated agreement with his employees permitting this. The regulations also set out other requirements for the consultation. They prescribe that the consultation must take at least 60 days, that the responses to the consultation must be considered before deciding whether to make the change to the scheme, and that the employer and the person consulted work together in a spirit of co-operation.

The Pensions Regulator is permitted by the regulations to waive or relax the consultation requirements if it is in the interest of scheme members to do so. In addition, the people consulted under the regulations and other employees will receive employment rights protection against unfair dismissal or other detriment as a result of their actions under the regulations. This is achieved through the schedule to the regulations, which in part amend the Employments Rights Act 1996 and the Employment Tribunals Act 1996.

These regulations amend a typographical error that was brought to this House's attention on 22 November last year. The typographical error occurs in what is now Regulation 5(3) of the Financial Assistance Scheme (Internal Review) Regulations 2005, which is now corrected, as amended by the Financial Assistance Scheme (Modifications and Miscellaneous Amendments) Regulations 2005 which came into force on 24 November 2005.

We said at the time that we would correct this error at the earliest opportunity. We have done so and the correction is contained in the regulations that we are debating today. The correction restores the original intention of allowing the scheme manager to extend the one-month time limit for scheme members to ask for an internal review to 12 months where necessary.

I move on to the Information and Consultation of Employees (Amendment) Regulations 2006. This is consequential to the main set of regulations that I have just discussed. As many of you will be aware, the Information and Consultation of Employees Regulations 2004—commonly known as the ICE regulations—came into force in April 2005 for organisations with 150 or more employees. Introduced as part of a landmark framework agreement between the CBI and the TUC, they established important rights for employees to be consulted on an ongoing basis about matters which affect them.

The ICE regulations are designed to be flexible. They allow employers and employees to agree consultation arrangements, tailored to suit their needs. Consultation arrangements may cover a wide range of strategic issues and could include listed changes to pension schemes. There is, therefore, some potential for an overlap between the ICE regulations and our proposed new requirement to consult on changes to pension schemes. During the Department for Work and Pension' s public consultation in June, a number of consultees, including the CBI expressed concern that employers might be required to consult about listed pension changes under both regulations.

We understand their concerns. It is not right that an employer may find that he is expected to consult on listed pensions changes under both regimes, or could be exposed to double jeopardy. These regulations deal with this issue by amending the ICE regulations. The amendments ensure that the employer is required to consult under our pension regulations only, not under the ICE regulations, provided that he notifies the relevant employees or their representatives of his intentions in advance.

Our approach has a precedent. The ICE regulations contain a number of similar provisions, to ensure that there is no overlap between them and other long-standing requirements on employers to consult about collective redundancies and business transfers. This SI simplifies the law and prevents a potential overlap between two sets of obligations on employers. The two instruments ensure that employers will consult their employees or their representatives so that pension scheme members are fully aware of the implications of a proposed change to their pension and that there is meaningful discussion with their employer about the proposal. They also provide that an employer will have to consult under the pension provisions only, and not under the ICE regulations as well. Again, I am satisfied that these instruments are compatible with the European Convention on Human Rights, and I commend them to the House. I beg to move.

Moved, That the draft regulations laid before the House on 12 January be approved [14th Report from the Joint Committee].—(Lord Evans of Temple Guiting.)

Photo of Lord Skelmersdale Lord Skelmersdale Shadow Minister, Work & Pensions

My Lords, I am again most grateful to the Minister. I am the first to agree that consultation is necessary when an employer proposes a change to a pension scheme. Such changes, as the Minister has said, may involve a move from a defined benefits scheme to a money purchase scheme. I note that full consultation is to be phased in, so that, in the first instance, a requirement to consult applies only to firms employing more than 150 staff from April this year. From April 2007 it will be firms with 100 to 150 staff; and from April 2008, it will be firms with 50 or more—unless, as the Minister said in his introduction, they are exempted. That rather confused me. Just who may be exempted, and why?

It is good employer practice to consult, and I recognise the list of consultees that the Minister gave us. My problem, however, is that the employer may choose from recognised trade union representatives, elected or appointed information and consultation representatives, those under any pre-existing consultation arrangements or representatives of the pension scheme—I stress "or". Why is the department allowing employers to "perm" one from five, to use a football pools analogy? Pension scheme representatives should always be consulted, and at least one other—either trade union, or elected or appointed information and consultation representatives.

I shall change track slightly. Consultations are all very well, but they must be real—by which I mean that the employer must be prepared to change his mind, either in general or particular, otherwise there is no point in consultation at all. I note that these regulations attempt to make these consultations real, and the Minister has explained how this is to be done. Being of a suspicious nature, however, I had asked him how this is to be policed. Are there to be arrangements for an appeal to the Pensions Regulator if the consultees feel that they have been ignored, or what?

The original information and consultation of employees regulations—the so-called ICE regulations—were an important step forward in employer/employee relations. They established the right of employees to be consulted on an ongoing basis about matters which affect them. It seems obvious that changes to pension schemes would indeed affect employees, and would therefore be covered by the ICE regulations. It would be regulation gone mad, however, if employers had to consult about listed pension scheme changes under both that and the first of these two sets of regulations.

Today's second lot of regulations requires that as long as the employer tells his employees' representatives under which regulations he is consulting them, he has to do so under only one regulation. That is common sense, and I am delighted to see the Information and Consultation of Employees (Amendment) Regulations 2006. I am even more delighted to see that the Government have taken note of their consultation, and that that consultation, at least, was real.

Photo of Lord Oakeshott of Seagrove Bay Lord Oakeshott of Seagrove Bay Spokesperson in the Lords, Treasury, Spokesperson in the Lords, Work & Pensions

My Lords, I congratulate the noble Lord, Lord Skelmersdale, on his diligence in inquiring into this. He has left no stone unturned, and I therefore do not intend to try to turn any. I look forward to the Minister's reply with interest.

Photo of Lord Evans of Temple Guiting Lord Evans of Temple Guiting Government Whip, Government Whip

My Lords, I am grateful to both noble Lords for their contribution. Our congratulations to the noble Lord, Lord Skelmersdale, on spotting the slight difference between these two sets of regulations. An example would have been that, as he said, from April 2008, under these regulations an employer with exactly 50 employees would not have to consult on pension changes, whereas under the Information and Consultation of Employees Regulations 2004, an employer with 50 would. The difference is one employee.

We accept that this is a very unsatisfactory situation, and will take action to remedy it at the earliest opportunity. It is our intention to make the necessary amendment in time for it to come into force at the same time as these regulations.

The noble Lord, Lord Skelmersdale, asked about the reason for exempting small employers. As I explained, the exemption for small employers will be phased in over the next two years so that, from April 2008, only employers with fewer than 50 employees will be exempt from the requirement to consult about pension changes. This is consistent with the wider consultation arrangements under the Information and Consultation of Employees Regulations. We would encourage all employers, irrespective of size, to consult their employees as a matter of good practice, but it would not be proportionate to impose an additional burden on small businesses.

The noble Lord also suggested that an employer should consult the pension representative and at least one other set of representatives. Our intention is to promote meaningful consultation in ways best suited to individual companies. We do not wish to disturb existing consultation arrangements that are working, nor do we want to prescribe a one-size-fits-all approach.

The regulations provide that the employer who is required to consult must make arrangements to ensure that, as far as is reasonably practicable, he consults all the affected members of the pension scheme. The employer may choose from the consultation arrangements that he has already agreed with his employees or elected pension representatives in deciding how he achieves this. Provided that the employer makes arrangements to consult all the affected members or their representatives, we believe this to be sufficient. Requiring employers to consult pension representatives and other representatives could be cumbersome and inefficient, as well as placing an additional, unnecessary burden on employers.

The noble Lord asked me to explain the arrangements for policing these regulations. The Pensions Regulator will oversee compliance with the regulations. If the consultation requirement is breached, affected employees may complain to the regulator, who will consider action against the employer which could ultimately lead to a financial penalty.

I am sure that all noble Lords will join me in supporting the aims of the regulations on consultation by employers. They will provide information and an opportunity for discussion to affected members of an employer's pension scheme when a significant change is proposed. It is important that individuals are fully aware of the implications of changes to their pensions so they can adjust their savings and retirement plans accordingly.

These two sets of regulations will allow the consultation by employers and the information and consultation of employees provisions to operate as intended.

On Question, Motion agreed to.