Clause 209 - Debt due from the employer when assets insufficient

Pensions Bill – in a Public Bill Committee at 4:00 pm on 18th March 2004.

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Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions 4:00 pm, 18th March 2004

I beg to move amendment No. 284, in

clause 209, page 134, line 37, leave out 'insolvency' and insert 'relevant'.

Photo of Mr James Cran Mr James Cran Conservative, Beverley and Holderness

With this it will be convenient to discuss Government amendments Nos. 285 to 292, 282 and 283.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

Amendments Nos. 284 to 292 would amend the clause, which would itself amend section 75 of the 1995 Act containing provisions on debts from employers when schemes wind up or their sponsoring employer experiences a relevant event. Clause 209 aligns those provisions with those on the pension protection fund and refers to events that are part of the processes relating to the PPF. If the Committee would like me to go through each of the amendments in turn I shall happily do so. However, I take it that the Committee would like to move on briskly.

Amendment agreed to.

Amendments made: No. 285, in

clause 209, page 135, leave out lines 2 to 6 and insert—

'(3) Subsection (2) applies only if—

(a) no relevant event has occurred in relation to the employer in the period beginning with the appointed day and ending with the commencement of the winding up of the scheme, or

(b) since the date of the last such relevant event but before the end of that period, a cessation event has occurred in relation to the scheme.'.

No. 286, in

clause 209, page 135, line 8, leave out 'insolvency' and insert 'relevant'.

No. 287, in

clause 209, page 135, line 20, leave out 'insolvency' and insert 'relevant'.

No. 288, in

clause 209, page 135, line 22, leave out 'insolvency' and insert 'relevant'.

No. 289, in

clause 209, page 135, leave out lines 24 to 29 and insert—

'(a) if the qualifying relevant event is within subsection (6B)(za)(i)—

(i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6A) in circumstances where that event is the first event within that subsection to occur after the qualifying relevant event, or

(ii) the commencement of the winding up of the scheme before any event within subsection (6A) occurs;

(b) if the qualifying relevant event is within subsection (6B)(za)(ii)—

(i) the occurrence, in relation to the scheme, of an event within paragraph (a) of subsection (6AA) in circumstances where an event within paragraph (b) of that subsection had not occurred since the qualifying relevant event, or

(ii) the commencement of the winding up of the scheme before any event within subsection (6AA) occurs.'.

No. 290, in

clause 209, page 135, line 46, at end insert—

'(6AA) The events within this subsection are—

(a) the issuing of a notice under subsection (2) of section 102 of the Pensions Act 2004 confirming that a scheme rescue is not possible;

(b) the issuing of a notice under subsection (3) of that section confirming that a scheme rescue has occurred.'.

No. 291, in

clause 209, page 135, line 47, at end insert—

'(za) a relevant event occurs in relation to the employer in relation to an occupational pension scheme if and when—

(i) an insolvency event occurs in relation to the employer, or

(ii) the trustees or managers of the scheme make an application under subsection (1) of section 101 of the Pensions Act 2004 or receive a notice from the Board of the Pension Protection Fund under subsection (5)(a) of that section,'.

No. 292, in

clause 209, page 136, line 4, leave out paragraph (b) and insert—

'(b) a relevant event (''the current event'') in relation to the employer is a qualifying relevant event if it occurs on or after the appointed day and either—

(i) it is the first relevant event in relation to the employer to occur on or after that day, or

(ii) since the date of the last relevant event which occurred before the current event (but not before that day), a cessation event has occurred in relation to the scheme,

(ba) ''appointed day'' means the day appointed under section 98(2) of the Pensions Act 2004 (no pension protection under Chapter 3 of Part 2 of that Act if the scheme begins winding up before the day appointed by the Secretary of State),

(bb) ''cessation event'' means—

(i) in the case of a relevant event within paragraph (za)(i), an event within subsection (6A)(b), (c) or (d), and

(ii) in the case of a relevant event within paragraph (za)(ii), an event within subsection (6AA)(b), and'.—[Mr. Pond.]

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I beg to move amendment No. 316, in

clause 209, page 136, line 14, at end insert—

'(4A) In subsection (8) leave out ''not''.'.

This is not the most elegant amendment, and it is certainly not the longest that has been tabled so far. Nevertheless, it is important because it seeks to ensure that pension fund debts under the terms of the clause are preferential debts for the purposes of the Insolvency Act 2000. Any pension debt, in the case of an underfunded final salary pension scheme, is not treated as a preferential debt. The upshot of that is that the prospects of recovery are small, because the schemes come behind a long list of preferential debtors, particularly those with floating charges over the company's assets. Preferential debts have included the Inland Revenue and Customs and Excise, although I understand that under the Enterprise Act 2002 Crown debts no longer constitute preferential debts. Those with floating charges are at the core of preferential debts, although there is currently a list of employer debts. Some of the social security contributions may apply up to a limit of a year, and some of the employer contributions to the state pension scheme—and to a contracted-out scheme—

may apply up to 12 months before the time of insolvency.

The pension fund deficit is, by and large, excluded from that list of preferential debts. In the case of Allied Steel and Wire, as the hon. Member for Cardiff, West will know, £57 million of the £82 million recovered for preferential debt by the receiver will go to the banks, mostly Lloyds TSB. Some £20 million will go to Gerling NCM, a supplier of scrap metal that remortgaged the company, and just £5 million will go to the workers.

That problem applies in other cases, too, such as that of HH Robertson. In that case, an asset stripper moved in, bought the company for a dollar, took the assets out and left a massive hole in the pension fund. The assertion was that if there had been protection under the Insolvency Act 1986, giving the pension fund preferential treatment, that action would not have proceeded in the same way. Under that Act, if, once the insolvency expenses and any secured claims have been dealt with, the total preferential debts are greater than the assets left, the assets are shared out equally among the preferential debt holders. That would be a means of preventing creditors from trying to get their cash out and foreclosing on their loans. That may well have been practice in the ASW case, too.

If banks realise that they are no longer at the front of the queue for the assets of the company that they push to insolvency, and realise that they will have to take a share along with the pension fund deficit, it may not be so attractive for them to consider sending that company into insolvency.

Much of what I have said relates to the current legal situation, and that will, of course, be changed by the Bill. However, there are two points of relevance to the provisions of the Bill. One relates to the period after the pension protection levy comes into force, and the other is the transitional period. Concerns have been raised that, after the creation of the PPF, some creditors will feel that they are in a better position to release their cash from companies, because they will view that prospect with greater equanimity knowing that there is a safety net in place. Creditors may act against companies in order to get their cash out, and there may be a spate of companies being pushed into insolvency so that people can take early advantage of the new provisions under the PPF. Clearly, changing the position as regards preferential debt would also make creditors think twice before initiating such a strategy.

Secondly, there is the interim or transitional period after enactment but before the PPF comes into force. I imagine that that issue is probably engaging Ministers, as they weigh up the issue of what we do about workers at ASW and other companies. Clearly, if there is a deal, and some form of compensation is offered, there is the question of what happens to companies that go into insolvency a week after those arrangements have been announced. There may be a similar rush by creditors to move companies into insolvency, so that they can get their cash out, knowing that some kind of compensation arrangement is available that will help in relation to

the pension fund deficits and help avoid any negative public relations for the creditors involved. I can understand why that may be a factor in the Government's deliberations.

Once again, changing the situation as regards preferential debt arrangements for pension fund deficits would provide at least some bar.

Photo of Kevin Brennan Kevin Brennan Labour, Cardiff West 4:15 pm, 18th March 2004

On that point, does the hon. Gentleman acknowledge that that should not be a bar to the Government's doing anything with regard to compensation, as the argument would apply equally when the pension protection fund was introduced?

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

Yes, I certainly accept that and I would not want to provide the Government with any comfort in compensating the workers of ASW and other companies, as that is the Government's responsibility. There are several reasons why it would be prudent—to use the word of the day—to look again at preferential debt treatment of pension deficits. That was one issue on which the Government invited responses in the technical paper that accompanied the publication of the Green Paper.

In an Adjournment debate in the Chamber called by the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt), the then Minister for Pensions, who has now plummeted to the top as the chair of the Labour party—I am not very good on constituencies—

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I am grateful to the hon. Gentleman. The right hon. Member for Makerfield (Mr. McCartney) responded to that debate, saying:

''Certain unpaid pension contributions may be pursued as a preferential debt in the event of insolvency of the employer. It seems to me that the issue is whether the contribution that employees have made—often over many years—to the success of their company and to the running of their pension fund, should enjoy a preferential status.''

He went on to say:

''I believe that the answer to that is self-evident, and I assure my hon. Friends that I will raise the matter with ministerial colleagues at the Department of Trade and Industry.''—[Official Report, 16 October 2002; Vol. 390, c. 440.]

He said that the answer was self-evident; unfortunately he did not say which way he came down on the issue. Very canny; I can see why he was promoted—well, if it is a promotion.

In the Under-Secretary's response it would be interesting to hear what was the view of the consultees about the issue of preferential debt and what the Department of Trade and Industry said in response to the then Minister's comment.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

I understand the hon. Gentleman's concern, which is shared by other Members. It is because the Government take such concerns so seriously that moving pension schemes up the order of priority for payment was one of the options considered in the December 2002 Green Paper, as he has reminded the Committee. It was one of the biggest ever consultations on pensions, and we receieved

about 800 responses from a wide range of groups and individuals.

The hon. Gentleman asked what were the responses. There were various views among the respondents about the option. The trade unions were unanimously in favour, as were the majority of voluntary and consumer organisations and members of the public. There was a mixture of views among the other respondents. Among the seven employers who responded, most were in favour. The CBI said that it was

''strongly opposed to moving pension schemes up the order of priority. This could have serious and unintended consequences''.

It then said:

''Employers with DB schemes will find it harder to obtain secured loans or see the cost of loans increase . . . it could hinder future overseas investment into the UK''.

It ended:

''Other unsecured creditors would lose out and find themselves penalised through no fault of their own.''

With a difficult decision to make on the balance of those arguments, we decided that it was not sensible to move forward with the option for the reasons outlined in the CBI's response.

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

The list of creditors includes the taxpayer—the Inland Revenue. Although I can accept that there are problems with prioritising the pension fund debt above banks, with its implications for the cost of borrowing, surely society might want to step in behind the members of an underfunded pension scheme. It would not affect the cost of capital or any of the issues raised in the passage that the hon. Gentleman just quoted.

Photo of Mr Chris Pond Mr Chris Pond Parliamentary Under-Secretary, Department for Work and Pensions

No, although the hon. Gentleman recognises that in 2002, as the hon. Member for East Carmarthen and Dinefwr (Adam Price) pointed out, Crown preference was abolished as part of the move away from preferential treatment. The reason is that in those circumstances it is unlikely that anyone will get very much at all. In addition, to push one group ahead of another can create unintended priorities. While we recognise how important it is that we do everything possible to protect the interests of scheme members, in those circumstances we are not convinced that this measure is the best way forward. I ask the hon. Member for East Carmarthen and Dinefwr to examine it in the context of all the other protections that exist in the Bill, and on that basis to agree that it is not an essential or a necessary way forward and to withdraw the amendment.

Photo of Adam Price Adam Price Spokesperson (Economy and Taxation; Education & Skills; Miner's Compensation; Regeneration; Trade & Industry)

I am saddened, but not surprised, to see the Government siding with the CBI against the trade union movement and consumer organisations. However, I do not want to detain the Committee unduly. This is a fight that we must win another day, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 209, as amended, ordered to stand part of the Bill.