With this it will be convenient to discuss the following:
Amendment No. 154, in
clause 5, page 3, line 8, at end insert—
'(f) in conjunction with the Pension Protection Fund Board to take all reasonable steps to maintain the cost of the levy on occupational pension schemes to the minimum compatible with the Regulator's other duties under this Act.'.
Government amendment No. 9.
I shall speak first to amendment No. 154, because it leads on fairly naturally from the point that I was just making. Looking at the specifics, the amendment's aim is
''to maintain the cost of the levy on occupational pension schemes to the minimum compatible with the Regulator's other duties under this Act.''
The amendment is not an attempt to water down what the regulator does in appropriate cases. It arises from points made to me by the National Association of Pension Funds, which is concerned that the regulator should not get carried away in a rush of understandable enthusiasm, and should always bear in mind that it is there to regulate an industry in which the vast majority of pension schemes are run competently and honestly. Any excessive burdens will make matters worse, not better.
Along with amendment No. 153, amendment No. 154 goes to the heart of what the Bill is about. Before I leave amendment No. 154, I should say that of course we will in due course have lengthy and probably seemingly endless debates about the pension protection fund, the level of the levies and the element of risk built into them, including the initial levy and so on. We have all those discussions to look forward to. However, it is vital that we do not lose sight of the aim of protecting and maintaining the occupational final salary schemes that already exist and are surviving, as well as of encouraging new ones to open. We should at least aim to see that existing schemes do not close to new members.
Amendment No. 153 would insert an additional provision
''to promote occupational pension provision by minimising regulatory burdens applying to well run schemes and their sponsoring employers.''
I suspect that the Minister will agree with every word that I am saying. The stated objective is to have a light-touch regulatory regime in respect of the well-run, properly organised schemes, and for the regulator to reserve its attentions and enhanced powers for schemes that are in difficulties, for whatever reason. The resources must be used in that way as a step forward from the existing regulator. We really must press the Minister on the aim of the Bill.
When the Minister made his winding-up speech on Second Reading, I put to him the comments of the Government's pensions tsar, Mr. Adair Turner, who seems to take the view that of the 9 million or 10 million people currently in occupational final salary schemes, there will in 20 years' time be as few as 1.5 million workers in such schemes. If that is true, all the Bill will do when it becomes an Act is preside over a continuing trend of decline and closure. We all know that a large number of schemes have already closed to new members. On the basis of the most recent NAPF figures, which I am sure have been overtaken by events, a new worker joining a new company today will have less than a one-in-five chance of finding a final salary scheme that is open and that they may join. That trend continues.
Although I might be reading too much into the Minister's reply to my intervention on Second Reading, it appeared that he was saying that the Bill was about protecting the status quo and protecting those who are already in schemes, and those who will remain in them, to ensure that they get what they are entitled to. That is a laudable aim. However, we need to press the Government hard—[Interruption.]
Order. I do not know where that noise is coming from, but it has continued for a bit too long. Can we make sure that it does not happen again? Or perhaps the Member involved would like to take the machine out of the Room and step on it.
Thank you, Mr. Griffiths. It is difficult to make a point against this barrage of electronic noise. I am not very technologically advanced, but in my experience most of these things have an off button, if only it can be found.
I was making an important point, to which we should return again and again, about whether there are two aims for the Government, and whether the second aim, which we would support wholeheartedly, is to encourage employers not only to keep these schemes open to new members, but to open new ones. There was a barrage of media interest and excitement the other day when Electricité de France opened a new final salary scheme.
In response to the Under-Secretary's sedentary comment, I can say that the scheme got such publicity because it was so unheard of. It was like a
Bateman cartoon: the man who opened a new final salary scheme. I understand that it is perhaps more a matter of two existing schemes being put together. However, in any event, all credit to EDF for opening one.
We Conservatives would love to see many more such schemes opened, but we do not think that the Bill will encourage that. We have progressed through the various burdens, costs, levies, regulations, codes of good practice and everything else—the layer upon layer of red tape that is to be imposed on schemes. We believe that employers will be even less likely to keep the schemes open or to open new ones. I am using the amendments not only on their own merits, but to press the Minister on whether, as I thought his remarks on Second Reading suggested, his aim is to preserve the situation—to put it in the deep freeze and protect the people already in the schemes—or whether there is a forward-looking aim to encourage the schemes to remain open or to encourage new ones to open. That is a key question for the Committee. Otherwise, we will spend a large chunk of our time just nailing the lid down on the coffin.
Does the hon. Gentleman accept that without the regulation that he mentioned, there will be no point in opening final salary pension schemes, as the pension promise contained in them will be meaningless? That is why we need the regulation introduced by the Bill.
Yes; that is the dilemma at the centre of the Bill. We all accept that we need better and more focused regulation and a scheme—whether the proposed one is the right one is a matter for debate, but not yet—to protect people. As the hon. Gentleman and several Labour Members said on Second Reading, all that matters in all 248 clauses and the myriads of potential regulation is confidence. The issue is about trying to reinvest confidence in pension provision. The Bill should aim not so much at the people in existing schemes, although they are important, or even—there will be some debate about this, I am sure—at the 60,000 who have lost out and will not be covered by the legislation, as at the generation of young people who are completely turned off pensions in any shape or form.
Are those young people going to be attracted to private pension provision? There is not much in the Bill that will turn them on to pensions, and there is not a great deal to encourage hard-pressed employers to keep schemes open. We are already seeing a clear trend away from final salary, defined benefit schemes to other types of scheme, including defined contribution schemes in particular. That trend may be unstoppable; the Bill will certainly not stop it.
The two amendments tabled by the hon. Gentleman and Government amendment No. 9 raise the issue of the proportionality of regulation. At first glance, amendments Nos. 153 and 154 seem entirely sensible: we want a regulator who will minimise the impact of his actions on the schemes that he regulates and who will keep the cost of running the regulation as low as possible.
I was interested in the hon. Gentleman's discussion of the closure of final salary schemes and the impact of the Bill in that regard. Clearly, the regulator's scope covers both final salary and defined contribution schemes. With regard to defined contribution schemes, the regulator will presumably try to ensure that the money physically gets into the pension fund, and as no promise is attached to a money purchase scheme, that is where the regulator's interest will end.
However, a promise is attached to a final salary scheme, so the onerousness of the regulation will be greater. In a final salary scheme, the employer makes a promise to the worker that goes far beyond that involved in a money purchase scheme. Running a final salary scheme, which has that promise attached, will induce greater regulatory intervention, and that might be a reason for employers to decline to offer such a scheme. That is the case at present; the question is whether the new sort of regulator will make that distinction even more acute.
One hopes that if the guidelines for the new regulator say that it should go for high-risk schemes—the ones where the employer is close to the wall or the funding level is too low—the intention of amendment No. 153, which is that the regulator should not be a burden on well-run schemes with sponsoring employers, should be fulfilled. The Government might even accept the amendment because it is very much in the spirit of what the regulator will do; largely, it will leave well-run schemes alone and concentrate on the dodgy ones. Amendment No. 153 is in the spirit of what the Government think will happen anyway, so it will be interesting to see whether they object to it. It would certainly reinforce what they are trying to achieve.
I note that Government amendment No. 9 clarifies the reference in clause 5 to stakeholder schemes. I hinted at that issue when I made some general remarks under clause 1, but I now want to pin the Minister down. One of the concerns about regulatory burden, which is the subject of this group of amendments, is that the same issue gets covered by more than one regulator.
Amendment No. 9, which clarifies clause 5, says that the regulator deals with aspects of stakeholder pensions—but so does the Financial Services Authority. Where is the dividing line? Is it the case that if I buy a financial product I will be covered by the FSA, which will ensure that I was sold it properly, but if I access it through an employer rather than as an individual, the regulator will have oversight?
There might not be an employer contribution; I might be using payroll deductions through the employer for a stakeholder pension, although there was no requirement for the employer to put any money into it. I could therefore be simply putting in my own money by means of the employer's payroll deduction. Does that come under the pensions regulator because the money has passed through the employer's bank account? If I take out the same stakeholder pension, but put my money straight into
it, that would not be covered by the pensions regulator, because no employer would be involved.
It will be strange if the purchase of the product comes under one regulator, but the oversight of the money in the fund comes under another. I could work for an employer with many employees, and have a personal pension that, rather than being part of a group pension, is an individual stakeholder product. Will the regulator be concerned with that? When the Minister speaks to Government amendment No. 9, it will help if he says where the dividing lines will be. Is there a danger of having more regulation than is needed? Will two different regulators be dealing with stakeholder pensions, and different bits of the same products?
My other observation is about double regulation. With amendment No. 154, we keep coming up against references to the pension protection fund while reading about the regulator. The amendment says
''in conjunction with the Pension Protection Fund Board''—
I realise that that is not a Government amendment, but a lot in it relates to the Government amendments. The regulatory burden will be greater if the pensions regulator and the pension protection fund are both placing burdens on schemes. We know that the pensions regulator can ask schemes for information, and the guidance notes assure us that that will not be onerous, because schemes have had a trial and they did not mind the requirements.
We know that the pensions regulator can ask for information to pass on to the pension protection fund. Can the pension protection fund initiate its own inquiries with schemes directly, or will the pensions regulator act as a clearing house for requests, to avoid duplication? Could a scheme find itself with the regulatory burden of receiving requests from both the pension protection fund and the pensions regulator? The FSA could be involved as well. Would the regulatory burden of all that not be disproportionate?
We all accept the need for regulation in such areas, but I hope that the Minister can reassure us that there will not be duplication, overlap and confusion about where the responsibility lies.
This group of amendments and the clause give me the opportunity to raise an issue that was raised with me by an employer who runs a large utility company. He is keen to maintain the final salary occupational pension scheme, and is keen on the Bill and its provisions, including the pension protection fund. He is also sympathetic to those who have lost out as a result of firms becoming insolvent.
The issue that that employer raised with me, which I had not come across before, was about the regulator of his industry—in this case, the gas and electricity regulators—and the role of the new pensions regulator. Under the responsibilities outlined in clause 5, and the additional responsibilities referred to in the Opposition amendments, will the pensions regulator have a role, and the responsibility and ability, to discuss help for occupational pension schemes with the regulators of other industries, that are making pricing decisions in those industries?
The point that the employer raised with me was that in the utilities industries, decisions on what to do about price—whether to pass costs on to the consumer or back to the company—are often thought of simply in terms of the cost to the consumer and the profit of the company. However, if companies wish to maintain their final salary pension schemes, that could be a material factor. Will the pensions regulator be able to act a little more widely than just inspecting the books of pensions schemes, and talk to other industry regulators about the necessity of keeping final salary occupational schemes healthy? Would that fall within the powers outlined in the clause?
We have had another useful discussion. I thought that the comments of the hon. Member for Eastbourne occasionally had Second Reading tinges to them, but there is no doubt that the debate has been helpful. I might reflect on some of his remarks towards the end of my contribution, although I will not be drawn too much into a full Second Reading debate, because we have already had that, and we can no doubt have it again—on Third Reading, for example.
I was struck by the hon. Gentleman's remarks about regulation, and the fact that regulation is not generally liked by industries. Words such as red tape, burdens and intrusion come to mind, yet when there is a great scandal—and the House discussed the Penrose report on Equitable Life yesterday—everyone suddenly attacks the lack of regulation, the lack of intrusion and the lack of record keeping. They talk about the feebleness of the systems. Obviously, as with so many other things, we must get the balance right, but I am not sure that this is quite the week in which to talk about the regulation of pensions simply in terms of red tape and burdens. Indeed, the Penrose report itself said that the regulatory system
''failed policyholders in this case'',
although as we know, it also said that
''regulatory system failures were secondary''
to the failures of the company.
We have to learn lessons. When we think that regulation needs to strike a balance between proper record keeping for massive companies and a harder, tougher approach for companies that look risky, we should not be afraid of ensuring that that is what happens. Indeed, this Government established the FSA partly because we thought that toughening up was needed in that sphere. Lord Penrose recognised its importance when he said that the FSA's regulatory reform had
''sought to anticipate many of the lessons that might be drawn by this enquiry and it should come as no surprise that it has largely succeeded''.
No doubt there were people who thought at the time that the FSA approach was too tough.
The Minister slightly misunderstands our point, which is that burdensome regulation can be ineffective, whereas light regulation can be effective, and the other way
round; the one does not necessarily follow from the other. To be effective, regulation does not have to be burdensome. That was possibly the point that my hon. Friend the Member for Eastbourne was making.
I was agreeing with the hon. Member for Eastbourne in his description of the criteria that should govern the new regulator. I do not think that there is a lot that we disagree on, but I felt that in this particular week, we needed to emphasise the point that sometimes, tougher regulation is needed.
Government amendment No. 9 corrects a drafting error. It ensures that the regulators' objectives include protecting benefits in respect of all pension schemes that are or have been registered as stakeholder pensions, whether or not they are trust-based.
The hon. Member for Northavon made some comments about stakeholder pensions; I hope that he will forgive me if I choose to say more about that later. However, I will say now that the regulator has a key role. It ensures that employers designate a stakeholder scheme appropriately. It checks that providers are charging only the 1 per cent. cap. It keeps a register of stakeholder schemes. If employers make contributions, it has the power to check, as for other pension providers, that the right amount is paid at the right time. The FSA's checks are much more focused on the selling by the provider of the stakeholder pension scheme. I will seek to find an opportunity in the discussion on an appropriate clause to say more about this, and/or I will write to the hon. Gentleman about the role of the regulator with regard to stakeholder pensions.
The Welfare Reform and Pensions Act 1999 requires that when a personal pension scheme that was registered as a stakeholder scheme is no longer registered as such, it must be wound up, in order to protect members who may be misled into thinking that they are continuing to pay the maximum of only 1 per cent., which I mentioned earlier.
Amendment No. 153 would add an objective to those specified for the regulator in clause 5. In developing the new regulator, we have been mindful of the criteria set out by the Better Regulation Task Force, which suggest that the regulator's approach should be proportionate, targeted, accountable, consistent and transparent; we had a dialogue about the importance of those qualities. If that approach is followed, that will minimise burdens on well run schemes, because regulatory resources will be targeted on the schemes that are most at risk or most in need of help and support.
A key recommendation of the National Audit Office's review of OPRA was that the pensions regulator should have statutory objectives, which OPRA does not have. Building on that, we identified the appropriate objectives as protecting the benefits of members of work-based pension schemes, reducing the risk of situations arising that may lead to calls for compensation from the new pension protection fund, and promoting the good administration of the regulated schemes.
We believe that amendment No. 153 has worthy aims, but it is unnecessary. The objectives and
functions that the Bill provides for give the regulator the flexibility to operate a risk-based approach. That will minimise the regulatory burdens on the well run schemes to which the amendment refers.
Amendment No. 154 would add an additional objective to those specified for the regulator in clause 5. It would oblige the regulator to work with the board of the new pension protection fund to minimise the levy payable by occupational pension schemes. It is right for the partnership between the PPF and the regulator to be a key element in our new regulatory structures. The board of the PPF will be responsible for setting future PPF levy rates and structures. It will be the responsibility of the board to understand the implications that the levy structure will have for pension schemes and the overall funding position of the PPF. Before altering the levy rate or structure, the board will be required to consult its stakeholders and publish any determinations it makes on the levies. I therefore believe that there are already appropriate measures in the Bill to check the cost of the levies payable by schemes. The regulator, like OPRA, will be funded indirectly through a levy on pension schemes. The regulator will collect that levy on behalf of the Secretary of State; he will set the rate, as he does for OPRA.
In the light of what I have said, in order to make progress without being drawn back into the important discussions that we had on Second Reading, I hope that the hon. Gentleman will withdraw amendment No. 153. I am not asking him to do as one might with the electronic device, and take it outside and stamp on it, but I ask him politely to withdraw it.
I am sorry that that Minister chose to categorise an important issue that I touched on as a matter for Second Reading. It is a theme that should run through the Committee stage as the word ''Blackpool'' runs through a stick of rock. Otherwise, there is a danger of the Bill becoming irrelevant nonsense.
It is important to ensure, as we launch ourselves on this voyage of discovery, that the Minister, our captain, has a compass—by which I mean some idea of what he is trying to achieve and where he is trying to get to. I will not pursue the maritime analogy to destruction, but it is slightly odd—those who watch and read our deliberations may also think it odd—that he did not want to be drawn on that crucial point. He may like to reflect on the comments that he made on my specific intervention on Second Reading asking what his aims were. To some extent, we are in his hands.
I think that our objectives are clear. There are at least 10 million people—we think rather more—in occupational defined benefit, so-called final salary schemes. If not today then in the next few years, or in 10, 20 or 30 years' time, there is the possibility that their company could go bust and they could lose their pension rights. We see that at the
moment. Our objective, our goal and our ambition is clear. We want to build confidence in the system by protecting those people's pension rights. That is a clear objective, and when we pass the legislation to set up the fund to achieve that objective, with the regulator's help, it will be a major social policy achievement.
Ah, that is more like it. There was common agreement on that aim. I could not have put it better myself. Yes, that is the aim—but is it the only aim? Does the Minister accept that the background against which that laudable aim will be pursued by the regulator, the PPF and the other panoply of agencies, will be a reduction from 10 million to, say, 1.5 million people in those schemes in the next 10 or 20 years? That is what the Government's pensions tsar says. Or does the Minister hope, as part of a second or subsidiary aim, to slow that rate of shrinkage in final salary schemes, or even to reverse it? That is the point that I raised. It is not a Second Reading point, it is a ''What are we all doing here?'' point.
I can see the Minister's argument. The Government have decided to list some statutory objectives in the Bill, as did not happen with the previous legislation. Once they have decided to do that, the teasing question arises: where do they stop? It is reasonable for people to take different views on that. It is evident that no one could object to those two objectives in themselves. That was the point made by the hon. Member for Cardiff, West (Kevin Brennan).
Whether those objectives should be added to the existing four objectives is a point for debate. They are every bit as important in their own way as objectives (a) to (d), which are set out in the Bill. It is disappointing that the Minister is not prepared to accept them as objectives in Bill. It is inherent in what he said that he accepts them as objectives, because they are part and parcel of the policy that drives the Bill forward. I accept that point. But if the Government are going to the trouble of listing their objectives—which is, I concede, a step forward from the 1995 Act—I do not understand why those objectives should not also appear in the Bill. However, I do not wish to pursue that point endlessly, so I beg to ask leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Amendment made: No. 9, in
clause 5, page 3, line 15, leave out from 'which' to end of line 19 and insert
Question proposed, That the clause, as amended, stand part of the Bill.
I have one only short question for the Minister on the regulator's objectives under subsection (1)(c)—
''to reduce the risk of situations arising which may lead to compensation being payable from the Pension Protection Fund''.
I probably know the answer to my question, but I should like to clarify whether the actions that the regulator undertakes pre-empt anything listed in chapter 3 of part 2, where the circumstances in which the board assumes responsibility for eligible
schemes are listed. Does the regulator have any right to fish before any of the incidents listed there happen?
We will be able to give fuller answers to that question as the discussion continues. We seek to arm the regulator with a range of powers. The tougher ones are at one end of the continuum and at the softer end there are powers to provide information and education, and in between there is a whole range, including powers to inspect premises to look at records. The answer is yes, we have the powers to intervene as appropriate.
Question put and agreed to.
Clause 5, as amended, ordered to stand part of the Bill.