Clause 180 - Statement of funding principles

Pensions Bill – in a Public Bill Committee at 11:00 am on 23rd March 2004.

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Malcolm Wicks rose—

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I think that the Minister is about to move the amendment formally.

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

The hon. Gentleman is anxious to get on the Government Front Bench. I was, indeed, about to move the amendment formally.

Amendment made: No. 318, in

clause 180, page 114, line 20, after 'reviewed', insert

', and if necessary revised,'.—[Malcolm Wicks.]

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

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

Now that we have disposed of the amendment, I want to make a couple of quick comments about the clause. It is clear that the

Government intend the statement of funding principles—the SFP, as we shall learn to call it—to be reviewed at least every three years. What is the reasoning behind that? The provisions are perhaps an echo of the 1995 Act, so the Minister will probably tell me, ''If it was good enough for the Tories, it's good enough for us.'' [Interruption.] Indeed, the Halcyon days argument. In all the Committees on which I have ever sat, the arguments have eventually become categorised, and a sort of shorthand has taken over.

If that three-year period were to straddle the recent collapse in the stock market, it could make a complete nonsense of the funding principles going in compared to those that should be coming out. Will further guidance be issued on that? Is there a role for the regulator in spreading best practice? Harking back to part 1—it was a long time ago since we discussed that—it seems that that is something for which codes of practice might be available.

Is the Minister relaxed about the possibility that funding principles might be different for particular schemes? It is inherent in the new system that every scheme will have its own set of criteria that will, supposedly, be tailored to that scheme, but might that create problems, with the application of different funding principles? I am trying to get a feel for how the Minister expects the arrangement to work in practice, particularly on the three-year basis.

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

The clause requires that trustees prepare and keep under review a statement of funding principles. That important new document will be one of the key elements of the new scheme funding arrangements.

The statement will set out the trustees' strategy for ensuring that their scheme is appropriately funded. Subsection (2) requires that it shows the trustees' decisions about what methods and assumptions the scheme actuary should use when calculating the scheme's technical provisions, and about how, and over what period, any funding deficits will be corrected. Regulations under subsection (1) will specify certain other key information underpinning the funding of the scheme that will need to be included in the statement. That could include whether, and under what conditions, funding surpluses may be paid to the employer. As with other clauses in this part of the Bill, the regulator may impose penalties for breaches of the requirements or for unreasonable failure to comply.

The statement will play an important role in improving the transparency and understanding of the funding of defined benefit pension schemes. Our main purpose is that it should set a framework for the parties involved in the funding of the scheme—the trustees, the sponsoring employer and the scheme actuary—to develop an appropriate funding strategy, but we also intend to require trustees to send a copy of the statement to any scheme member who wants to see it.

Committee members will know that schemes are already required to prepare a statement of investment principles. Complementary information about funding is a logical and consistent step. Trustees will be able to

combine those two documents if they consider it appropriate for their scheme. As hon. Members will see when we consider later clauses in this part of the Bill, trustees will need to obtain the advice of the scheme actuary and the agreement of the sponsoring employer when preparing the document. The statement will, for the first time, set out clearly and transparently how the funding of each scheme will operate.

The hon. Member for Eastbourne asked about the time period. Regulations will specify minimum review requirements for the statement. It is intended that, as a minimum, trustees will be required to review the statement in line with each full three-yearly actuarial valuation, but they will also be able to review it at any other time that they consider appropriate. I think that that answers his question. He is right to say that we have been through a period of fluctuation. We do not want to impose a more regular requirement, such as an annual requirement, but what I have said about the importance of trustees being able to review it is an important qualification.

Question put and agreed to.

Clause 180, as amended, ordered to stand part of the Bill.