Clause 1 - The Pensions Regulator

Pensions Bill – in a Public Bill Committee at 9:45 am on 9th March 2004.

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Question proposed, That the clause stand part of the Bill.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

Before moving clause 1, I should like to say a few words—and I do mean relatively few, Mr. Griffiths—about the Bill as a whole.

I have already mentioned that the Bill is long and that it deals with complex material. Committee members will know that the two central planks of the Bill are aimed at establishing the pensions regulator, which we are about to discuss, and at establishing the pension protection fund. All being well, we will come to that in a couple of weeks' time in part 2. There are, of course, other important changes in the rest of the Bill, and many of them will provide administrative easements for pension schemes and will help people plan their retirement, in terms of information. I have just given undertakings that we

will do our best to ensure that colleagues receive Government amendments as soon as possible.

Clause 1 establishes in law the pensions regulator. That body will be in place from April 2005, subject to the passage of the Bill and, therefore, Parliament's will. The current pensions regulator, the Occupational Pensions Regulatory Authority, has laid good foundations for the regulation of work-based pensions ever since it was established in 1997. We propose to build on OPRA's experience of more than seven years of regulation. However, we recognise that OPRA's effectiveness has been restricted by the current legislative framework, which often obliges it to take action in respect of many minor breaches of the law.

Our proposals for the new regulator will remove such restrictions and make the pensions regulator more flexible and responsive. Our proposals for the regulator also implement wide-reaching recommendations made about the regulation of work-based pensions in a number of key reports. The Pickering report, the quinquennial review of OPRA and the National Audit Office study of OPRA all recommended that any regulator should target its resources on the cases in which members' benefits are at greatest risk, and should avoid cheapening the regulatory currency, as one organisation put it, by wasting time on what might be regarded as petty breaches. That is exactly what we propose that the pensions regulator will do.

The Cabinet Office's Better Regulation Task Force has stated, from its experience of working with regulators across Government, that regulatory bodies are most effective if they can focus their resources on areas of real risk. The taskforce has also recommended that regulators should, wherever and whenever possible, adhere to the principles of better regulation as expressed by the taskforce, and should be proportionate, targeted, accountable, consistent and transparent in their approach to regulation. We intend the pensions regulator to embed those principles in its design, working processes and overall regulatory approach.

Clause 1 establishes the new regulator for work-based pensions. The pensions regulator will be funded indirectly through a levy on pension schemes, just as OPRA is. The regulator will collect that levy on behalf of the Secretary of State. We currently estimate that the regulator's running costs will be about £23 million a year. That compares with a projected £17 million for OPRA's final year, which we think will be 2004–05.

The increased running costs reflect the staffing and processes required to support the wider and more flexible powers of the new regulator, its additional responsibilities in respect of the pension protection fund, and its more proactive, outward-focused approach to regulation. We will need to review the precise coverage of the new levy and issues such as whether it will continue to include, as the OPRA levy now does, an element for funding the Office of the Pensions Advisory Service, often known as OPAS.

An effective and well respected regulator is central to our reforms. As far as possible, we must ensure that

pension schemes are well run and that their considerable funds are protected against poor administration and wrongdoing. That is the purpose underlying the creation of the new regulator and its governance structure.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

This is a useful moment to pull together some of the arguments that will re-appear when we deal with the amendments to part 1 of the Bill, and to look at the philosophy behind the regulator. I was grateful for what the Minister had to say about OPRA. [Interruption.]

Photo of Mr Win Griffiths Mr Win Griffiths Labour, Bridgend

Order. There is extraneous noise. However, it seems now to have disappeared.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I would grasp any excitement that there is during this Committee stage.

The Minister rightly said that this is not a question of junking OPRA and saying that it has been a failure—quite the opposite. I hope that the Government—not only in the Minister's opening words, but in the regulatory impact assessment and in the fact sheet that appeared yesterday—have conceded that OPRA has made a contribution. However, it is time to move on. There was a growing impression that it was spreading itself far too thin and was ticking boxes across a range of issues, rather than focusing on the cases that mattered.

We are looking at a different philosophy. The Minister mentioned, as I have briefly, the review by Dr. Davis, the quinquennial review, the National Audit Office report and the comments made by Pickering about having a new kind of regulator. As Pickering says, the new kind of regulator is envisaged as having the authority to intervene in a proactive way. We welcome that and support the regulator, subject to a few points of detail—six sittings' worth, I suspect, from looking at the timetable.

I want to put one cultural point to the Minister. As Pickering says, it will be a new kind of regulator that will be different in its approach; it will be proactive and focused and it will have significantly more resources—I will return to that in a moment. One hears that a large proportion of the OPRA staff are expecting to be TUPE'd over to the new body, and I see the Minister nodding at that. I am sure that some element of continuity is important, but is he satisfied that if that happens, the new culture that the Bill is rightly trying to engender will be apparent? I am not necessarily suggesting a re-education programme for the staff, but it is difficult to get people out of their old ways and habits sometimes. I would like some reassurance from him on that, particularly as to how that would apply to the people at the top of the existing structure, although I do not want to get into discussing personalities.

Then there is the question of cost. A variety of concerns have been flagged up by organisations. The Association of Consulting Actuaries, which plays a major role in Committee, has expressed concerns

about whether the proposals would lead to what it calls an ''invasive regulator.'' It said:

''If the additional requirements placed on the New Regulator manifest themselves in widespread additional paperwork . . . this will lead to an acceleration in scheme closures''.

That is one of the themes—one of the leitmotifs—that will run through this Committee stage. Will having a highly invasive regulator in a complex new structure, together with the requirements of the PPF, which we shall discuss later, have the opposite effect to the Government's laudable aim of not only protecting, but encouraging that type of pension scheme? That is a concern that has been flagged up.

The British Chambers of Commerce says something similar:

''The Bill imposes more onerous duties on trustees, managers and other persons involved with pension schemes to provide information to the Regulator.''

I do not think that anyone would disagree with that being the case and with that being useful. However, it points out:

''This will translate into higher costs for employers that operate schemes''.

That is a genuine concern, which needs to be addressed. Similar concerns have been touched on by organisations such as the National Association of Pension Funds.

It is instructive to examine the regulatory impact assessment. With all due respect to whoever drafted the explanatory notes, the RIA is often more interesting and more helpful on large Bills. As the Minister did, it begins by registering the fact that:

''Opra has made a good job of fulfilling the role it was required to perform, and encouraged better governance of pension schemes.''

I place on the record that that is something that Conservative Committee members agree with. However, it says:

''When addressing breaches of pensions legislation, the regulator should not just punish''.

It then goes on to talk about compliance, and we shall return to that in more detail.

As the Minister has said, it is estimated that the regulator will have annual running costs of approximately £23 million, including the costs of any monitoring or enforcement action. That represents an increase of £6 million—25 per cent.—on OPRA. There will be a one-off start-up cost of approximately £6 million and a further £20 million for IT development.

My initial concern is that the estimate is conservative. The position of the regulator is a new one, with a new range of powers, some of which are far-reaching. It will need to extend TUPE across a lot of the existing OPRA areas, and I suspect that it will have to take on some specialised new matters, particularly given the tight time scale for implementing and setting up the bodies that we are discussing.

Will the Minister reflect on whether that estimate needs to be revisited? We do not want to end up with a son of Ofcom—a large, lavish, expensive, invasive regulator. These are early days. We not want to have a

regulator that is out of control, both financially and in other areas. That is why the Opposition will try to persuade Committee members that here and there there should be limitations on the activities and powers of the regulator. That is all in the detail. We accept the principle, and think it is a good idea. We support the new regulator, and clause 1.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 10:00 am, 9th March 2004

We too support the principle of the establishment of a new kind of regulator. Establishing a regulator who is proactive and who looks for major breaches that could lead to large numbers of people losing large amounts of money—rather than one that is bound by statute to chase up nit-picking breaches of the regulations—has to be the right way forward. In principle, we are in favour of establishing a new kind of regulator, so we support clause 1. However, there are a couple of broad issues that we wish to raise, and it will be sensible to put them on the table now and come back to them in more detail later.

First, how will the new regulator relate to other bodies? The briefing note that the Minister circulated to Committee members is helpful. It says that the Financial Services Authority and the pensions regulator are intended to be complementary, and attempts will be made to ensure that there is no overlap, and no gaps. That is a challenge. There is a risk that some elements of the pensions world will be regulated by both bodies, and some—if we are not careful—by neither. Each of those outcomes would be unsatisfactory.

There are, for example, grey areas concerning group personal pensions. There is clearly an employer aspect to those, but an individual personal pension would be regulated by the FSA. Are there other such areas, in which companies, employers and providers could find themselves regulated twice if we are not careful? I hope that the Minister will reassure us that that matter has been thought through systematically, and that there is no overlap between the functions of the two regulators.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Does the hon. Gentleman share my concern that on the fact sheet, which I suspect is helpful, and is certainly designed to be fairly simple to follow—I can follow it, so it must be—a simplistic distinction is drawn on page six? It states that the pensions regulator should not be concerned with sales and marketing, but with the ongoing regulation of pension arrangements. Does the Minister agree that in practice it may be difficult to draw that line?

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions

I think that the hon. Gentleman is correct. There will be grey areas. He expressed a concern that regulation should be proportionate. Double regulation is unlikely ever to be proportionate. I hope that the Minister can reassure us on that point.

If a constituent comes to me with a company pension problem, I am sometimes confused about where to go, and where to send them. There seem to be a plethora of different organisations, each with a slightly different role. My worry is that the new regulator will not sweep them away, but could instead add to the complexity. There will be a pensions regulator, and a pensions regulator tribunal where

people who do not like what the pensions regulator said can go; the pensions regulator will have a determination panel; and OPAS will continue. There will also be a pensions compensation board, a pensions ombudsman and a pension protection fund—and those all relate to company pensions.

We might be missing an opportunity. I appreciate that each of those organisations has a different role, but what scope is there for bringing not all of them, but some of them, under one roof? I would be grateful for the Minister's reflections on that. The public—employees and members of pension schemes—are not well served if they do not know where to go or who is responsible. If something goes wrong, do they go to the regulator, the ombudsman or the advisory service? That needs to be made clear for the public. I am worried that even in these early clauses we are creating lots of different institutions that may confuse people.

The only other observation that I should like to make at this stage relates to the overlap between the regulator created under the clause and the pension protection fund, which we will deal with later. It is important that those two bodies dovetail effectively and that there is not an overlap between them. I am already slightly confused—it did not take long for me to get confused—about whether if a fund is not looking healthy, the pension protection fund will say to the regulator, ''That's your job. You keep an eye on it. You issue an order to them. You make sure they're keeping up to the funding requirements.'' Will the pension protection fund sit and watch, or will it be monitoring funds, looking at and seeking information, and ensuring that schemes are funded to such a level that the PPF will not be drawn on? Will that duplicate the regulator's activities? I appreciate that the Bill says that the information that the regulator gathers can be for the purposes of the PPF—so information can be passed on—but will the PPF be asking for the same information as the regulator, or related information?

How do all the different bodies fit together? We have plenty of scope to explore that idea, but we want a proactive regulator that sees the big picture, not one that duplicates or triplicates what other bodies and regulators are doing. We want members of schemes to know who to go to, and how these bodies relate to each other. Perhaps we have missed an opportunity to streamline the system when we create yet more bodies, which is always a danger when tackling a problem. I should be interested to hear the Minister's reflections.

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

This has been a useful preliminary discussion of some important issues. The hon. Member for Eastbourne rightly notes that staff who are working for the existing body, OPRA, have rights to transfer to the new body—the regulator. As he said, those two bodies will be covered by TUPE. I take on board his important question. As we are using an existing body as the foundation for a new body, how are we to ensure that it is genuinely a new body—not one that throws away all the good practices of the past, but one that has, to use the hon. Gentleman's term, a new culture? I am exercised by that question. In another life, when I was Under-Secretary of State for Lifelong Learning and we created the learning and skills councils, there were those who were concerned

that that would be a re-badging of the then TECs, and others who thought that it might be a re-badging of the Further Education Funding Council. I shall not say any more about that—but these are important issues in public policy.

I am satisfied that we can get the right balance on continuity. I thank the hon. Gentleman for his positive remarks about the work of OPRA, which are justified given the framework in which it has been operating. On visiting OPRA recently, I was impressed in different ways. Colleagues there are some of our major champions of the need for change and some of the keenest and most expert supporters of the concept of the new regulator. There has been much change in that organisation in the past year or so. I also understand that in terms of the leadership of the regulator, at both professional and board level, we need to make some judgments about the right mix of continuity and change. We intend to make those judgments. When there is news about important appointments, we shall try to bring that to the Committee.

I am satisfied that we can get the change we want. As the hon. Member for Eastbourne implied, there is no need to take the OPRA troops out into the fields and re-educate them in a Maoist fashion—or rather, given their location in Brighton, to take them on to the Sussex downs or the beaches. We do not need to fight this battle on the beaches; there are others way to do it.

The hon. Member for Eastbourne raised the important issue of how we make sure that new, and in many respects recalcitrant and tougher, regulations do not become too invasive for the generality of organisations. There is no one single answer to that. Throughout our deliberations on pensions and in the Bill, we have tried to get the right balance between imposing new duties and introducing easements to lighten the load. We have been in discussion with the industry about the kind of information that will need to be given to the regulator. We fully take on board the hon. Gentleman's point about the need to get that balance right.

On costs, the hon. Member for Eastbourne found himself in the interesting position of not accusing—that would be too pejorative a word—but suggesting that we may be being too conservative—not a charge that we normally face. We have costed the proposals thoroughly from the bottom up. Given the new powers, we have asked what is needed, and we are convinced that the costings are right.

For the most part, schemes will be required to provide to the regulator information that is already readily available. People from a sample of schemes have been asked to provide the information that is likely to be part of the scheme return, and they have been broadly supportive of that, and what it requires. They have expressed no significant concerns about possible costs to them. We are keeping that under review, not only in the early days.

I thank the hon. Member for Northavon for his broad support—although I expect that his remarks

will quickly disintegrate into devastating technical criticism and proper scrutiny, which we will do our best to cope with. During our deliberations, we will be able to tease out the respective roles of the new regulator and the FSA. I can see why many in the outside world might ask proper questions about them, but we are convinced that there is a distinction to be made between the work of the FSA and that of the regulator. We obviously want to ensure that those distinctions are clear, but that the two organisations work closely together where necessary.

The hon. Member for Northavon made a useful point by noting how many different organisations there are in the pensions world. At first sight, questions may well be asked about whether we really need all those organisations. We are not in the business of inflating the number of organisations for the sake of it. However, we will be able to demonstrate to the Committee why the tribunal has to be at some distance from the body that it adjudicates, and I know that the hon. Gentleman will take that factor on board straight away.

During our discussions, we will also be able to demonstrate why the regulator and the pension protection fund have different functions, but nevertheless need to work very closely together. They need to work closely together because the more effective the regulator is in regulating company pension schemes, especially those at risk, the less demand there will be on the resources of the pension protection fund. Furthermore, for the pension protection fund to do its job properly, it needs first-class information and intelligence about the state of health of company pension schemes. In large part, that information will come from the regulator. This is an important question, and there will be different detailed opportunities to return to it.

Photo of Steve Webb Steve Webb Shadow Secretary of State for Work and Pensions 10:15 am, 9th March 2004

Will the Minister try to clarify the relationship between the roles of the pensions ombudsman and the regulator? Will there be circumstances in which people could go to either of them, or both?

Photo of Malcolm Wicks Malcolm Wicks Minister for pensions, Department for Work and Pensions

There will be separate discussions about the ombudsman. However, the role of the regulator is to keep a close watchful eye on the range of schemes, particularly on the basis of information and intelligence, so that it can scrutinise using the new powers, and some existing powers that it will take over from OPRA, which we will discuss later today, or perhaps on Thursday. There is also OPAS, the Office of the Pensions Advisory Service, which members of pension schemes with concerns can ask to consider the issues and reach agreements with company pension schemes wherever possible. Failing that, there is the right to go to the ombudsman in more serious cases. As we will see later, in addition to the existing functions of the pensions ombudsman, the PPF needs an ombudsman's function and we shall make proposals about that. The hon. Member for Northavon can add that to his list of complexities to make important debating points about, but we shall seek to justify why that new office is important.

Question put and agreed to.

Clause 1 ordered to stand part of the Bill.