Clause 188 - Powers of the Regulator

Pensions Bill – in a Public Bill Committee at 2:45 pm on 23rd March 2004.

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Amendments made: No. 345, in

clause 188, page 119, line 13, leave out paragraph (e) and insert—

'(e) that the trustees or managers—

(i) have failed to prepare a schedule of contributions when required to do so under section 184,

(ii) have prepared a schedule of contributions that does not comply with the requirements of that section or any prescribed requirements, or

(iii) have failed to review and revise a schedule of contributions as required by subsection (3) of that section.'.

No. 346, in

clause 188, page 119, line 35, at end insert

'specifying—

(i) the rates of contributions payable towards the scheme by or on behalf of the employer and the active members of the scheme, and

(ii) the dates on or before which such contributions are to be paid.'.—[Malcolm Wicks.]

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

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I have three points to make about clause 188. A moment ago, I flagged up the fact that I wanted to return to the powers that were available when an agreement could not be reached between trustees or managers and the sponsoring employer, as envisaged under clause 186(4). Those powers are largely set out in clause 188(2); the regulator has some wide-ranging powers.

The National Association of Pension Funds says that it would

''like to see a statutory requirement on the Regulator to consult on and publish its policy framework for determining matters which could be subject to orders as set out in Clause 188 (2) (a) to (c).''

That may already be in the pipeline. There is a department within a Department producing draft regulations, codes of practice, guidance and God knows what else. If such a requirement is not already on its shopping list, perhaps it could be added to it.

The Library briefing makes an interesting point. There seems to have been a change of Government policy since the June 2003 White Paper was published; we have to remember the dates, because there has been a blizzard of White and Green Papers on pensions policy. That document proposed that trustees should be given a sort of nuclear option as a last resort—the power to freeze or wind up the scheme. Pensions Week, which is quoted in the briefing, thought that that would give power and strength to the trustees in their dealings with the sponsoring employers. Given that they now have to meet the full buy-out cost on wind-up, perhaps they will be more reluctant to allow that to happen. The Government seem to have gone down the slightly different path of giving the regulator more specific powers to impose a schedule of contributions or to give directions on how and over what period any failure to meet the statutory funding objective should be rectified. Will the Minister give some background on that shift on the part of the Government?

My final point concerns issues that I assume we will deal with one day—those related to simplification. We are quite properly dealing with the powers of the regulator to modify a scheme in the circumstances set out in clause 188. However, so far, the Bill is missing what I shall call by way of shorthand the section 67 points—they relate to section 67 of the Pensions Act 1995—which the Minister has, in fairness, said that he will come to. Those would make it easier for the sponsoring employer and the trustees to amend the terms of an existing scheme, rather than just shut it down. Under clause 188, the regulator would be given significant powers in certain circumstances, but we should not forget the enormous attraction of simplification, which could be available to most

schemes. Hopefully, one fine day, that could happen as part of this legislation.

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

Clause 188 gives the pensions regulator additional powers to intervene and take corrective action if it becomes aware that any part of a scheme funding process is breaking down. It is an important clause. Subsection (1) sets out the circumstances in which the regulator may intervene, such as when an agreement cannot be reached with the sponsoring employer or when some key part of the process, such as an actuarial valuation, has not been carried out.

In such circumstances, the regulator would have the wide range of powers in subsection (2), which it could use in a proportionate and targeted way to help resolve matters. The powers under subsection (2) would modify the future accrual of benefits for active members, direct how a scheme should calculate its technical provisions, determine the time frame over which funding deficits must be made good and/or impose a schedule of contributions.

Such powers are essential to assist the regulator in the exercise of its responsibilities to protect members' interests when the security of their benefits appears to be at risk, and to help to protect the pension protection fund from the moral hazard of trustees pursuing funding strategies that do not comply with the legislation in the expectation that the fund will bail their scheme out if things go wrong. The powers will be additional to those set out in part 1, including powers to issue improvement notices, to prohibit or appoint trustees, to issue a freezing order and, ultimately, to order the winding up of a scheme in exceptional cases.

In answer to the points raised by the hon. Member for Eastbourne on consultation, yes, we propose that there should be consultation. It is important that the regulator's powers in clause 188(2) should not be construed as a get-out clause for trustees and employers who wish to absolve themselves of the responsibilities imposed on them by part 3. The regulator will therefore publish guidance on how it proposes to exercise those powers under normal circumstances. I expect such guidance to be available from day one. The regulator's code of practice will be drafted by operational experts in consultation with relevant stakeholders involved in schemes. Before a code of practice becomes active, it will be subject to a rigorous approval process that will require agreement by the Secretary of State and scrutiny by Parliament. Either may reject the code and insist on revision.

The hon. Gentleman asked why the power of trustees to wind up a scheme—the so-called nuclear option—has been dropped. As he intimated, such a power was included in the proposals announced in the Green Paper in December 2002. It was intended as a power of last resort, only for use if the trustees could not reach agreement with the employer on funding the scheme. However, we received many representations that trustees should not have the power to wind up a scheme and force an employer who is willing to continue to sponsor it to meet the full buy-out costs.

Since the Green Paper was published, we have continued to develop detailed proposals for legislation in the light of continuing discussions with the pensions industry and other interested parties. We have taken account of those concerns in drawing up the detailed proposals in the Bill.

Question put and agreed to.

Clause 188, as amended, ordered to stand part of the Bill.