Clause 94 - Duty to notify insolvency events

Pensions Bill – in a Public Bill Committee at 2:00 pm on 25th March 2004.

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Photo of George Osborne George Osborne Shadow Minister (Treasury) 2:00 pm, 25th March 2004

I beg to move amendment No. 256, in

clause 94, page 57, line 14, at end insert

'who shall have a duty to inform the members of the scheme'.

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

With this we may discuss the following amendments: No. 257, in

clause 96, page 60, line 13, at end insert

'who shall have a duty to inform the members of the scheme'.

No. 258, in

clause 97, page 60, line 29, after 'scheme', insert

'who shall have a duty to inform the members of the scheme'.

No. 259, in

clause 102, page 63, line 25, after 'scheme', insert

'who shall have a duty to inform the members of the scheme.'.

No. 262, in

clause 117, page 72, line 42, at end insert

'who shall have a duty to inform the members of the scheme'.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Unlike other Committee members, Mr. Cran, I have not been rude to you—[Hon. Members: ''Yet.''] Indeed.

Amendment No. 256 relates to clause 94 and the other four amendments relate to later clauses. Without getting into a substantive discussion about the later clauses, it is worth touching on the principle. The amendments are basically the same in that they require the trustees and managers of a pension scheme to keep the members informed about what is happening to the scheme as it is dealt with by the PPF and the board.

It is probably wrong to use the term ''well managed'' because a well managed scheme would not be looked at by the PPF. One would hope that conscientious managers and trustees would keep members of the scheme fully informed about what was happening to it. However, that will not always be the case. There may be instances when trustees and managers are negligent or do not take the time and trouble to inform scheme members of what will be a traumatic experience for them.

We have spoken many times—indeed, we mentioned it only this morning—of the anxiety that people feel when their pension is in trouble, the company is facing insolvency and their scheme may be underfunded. That could be the most stressful experience of their life. Without straying into the subject covered by this morning's debate, we all have constituents who have gone through that. We know that it is not only a time of enormous uncertainty, but that there is often a vacuum of information. It is often difficult to get information on what is happening to a scheme and a pension, and scheme members read about it in the newspaper without hearing about it first-hand.

The amendments would impose a duty on trustees and managers to inform scheme members. We have used the identical phrase in each amendment which would insert in the various clauses an obligation on trustees and managers so that they

''shall have a duty to inform the members of the scheme''.

The circumstances in which they shall have that duty are different, which is why there are different amendments.

Amendment No. 256 applies to clause 94, which requires the insolvency practitioner to give notice to the board within the notification period, and would require the trustees, having been informed by the practitioner, to pass on that information to the scheme members. One hopes that good, conscientious trustees would let scheme members know that the company with which they have a scheme is entering insolvency. However, the amendment is merely a failsafe mechanism—a belt-and-braces approach—to ensure that they do that.

Clause 96, to which amendment No. 257 relates, requires an insolvency practitioner to issue a notice about whether a scheme rescue has occurred or is not possible. Again, there is an obligation to inform a number of people, including the board, the regulator, the trustees and managers of the scheme. Our amendment would put a subsequent obligation on the trustees and managers of that scheme to tell their members.

Amendment No. 258 applies to clause 97, which deals with an insolvency practitioner's failure to issue a required notice. The board will issue the notice that should have been issued by the insolvency practitioner to the trustees and the managers. The amendment would simply require the trustees and managers to inform scheme members in that circumstance.

Amendment No. 259 applies to clause 102, which relates to the board's duty when it receives an application from the trustees or managers of a scheme because the employer is no longer a going concern. It requires the board to confirm whether a scheme rescue is not possible or whether such a rescue has occurred. Again, scheme members should be kept informed in such circumstances.

Amendment No. 262 jumps way ahead to clause 117, which we may get to before Easter if we are very lucky. The clause deals with circumstances in which the board ceases to be involved with an eligible scheme. Again, scheme members should be informed in such circumstances. The principle of keeping people informed is pretty straightforward.

As I understand it, the point of the PPF is first and foremost to provide protection for pensions and to try to avoid the situation in which 60,000 or so people have lost part or all of their pensions. However, there is a secondary objective: to restore faith in occupational pensions. Part of that could be achieved by giving an assurance that scheme members would be more involved with and kept more informed about their occupational pension schemes. We have discussed other provisions—member-nominated trustees and so on—that would achieve that. It would be good to extend that principle to this part of the Bill so that as a scheme goes through the fairly traumatic process of being considered and examined by the PPF, the scheme members are kept fully informed.

I say ''fully informed'', but some of the information required would be fairly basic: whether a company has gone insolvent, whether there could be a rescue attempt or whether the PPF is still involved. One would hope that the trustees would keep scheme members informed in such circumstances. However, it is possible to imagine circumstances in which they would not. I am thinking of schemes that have been badly run by negligent people in which the trustees, managers and, perhaps, employers have had little or no concern for the scheme members.

After all, the PPF will deal with some of the worst managed schemes in the country. In such circumstances, the amendments provide a fall-back position that puts a duty on trustees and managers to

keep scheme members informed about one of the most important things in their lives: their pension.

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

Good afternoon, Mr. Cran. It is a pleasure to see you. Unlike my colleagues, I have curried favour with you; I hope that you will bear that welcome in mind if I stray.

We are considering a small group of clauses concerned with the entry rules to the PPF. I hope that Committee members agree that it would be helpful if, in addressing the amendment, I set the scene for those clauses.

I rather agree with the hon. Gentleman's argument, but in my own way. I hope that he withdraws his amendment because it is unnecessary and his objectives will be met in another way. Those schemes with a pension promise and on which people set their hopes of receiving a set amount of retirement income will be eligible for PPF compensation. Therefore, all private sector-defined benefit schemes, including hybrid schemes that have an element of defined benefit provision, will pay the PPF levy, except those schemes that have a Government guarantee and those that are currently exempt from the applications of the minimum funding requirement and are also exempt from the new scheme's specific arrangements. The PPF is intended to protect members whose companies have gone bust, where schemes are left underfunded and the companies cannot pay members their promised pensions.

To qualify for PPF compensation, events along the following lines must occur. Entering formal insolvency or bankruptcy proceedings is classed as the qualifying insolvency event, which gets the PPF involved. That triggers the beginning of an assessment period in which the PPF considers whether a scheme rescue is possible, whereby another company takes over the insolvent firm and its pension scheme. The PPF also carries out a valuation of the scheme's assets. During that assessment period, members are paid scheme benefits equal to the compensation that would be payable by the PPF, so no one is left short of money in the meantime.

If a scheme rescue is possible, the scheme will be taken on by the new company and the PPF ceases involvement. If a scheme rescue is not possible and the scheme has enough assets to pay members at least a level of benefit that would be payable under the PPF, the PPF ceases involvement and the scheme will wind up in the normal way. Members will be refunded any difference between the benefit received during the assessment period and the pension that they should have received and will now receive according the original scheme rules. If a scheme rescue is not possible and a scheme does not have enough assets to pay members at least the level of benefit that would be payable by the PPF, the board will take over the scheme and members will continue to receive the PPF level of compensation.

As my right hon. Friend the Secretary of State made clear on Second Reading, given the time constraints it has been necessary to introduce some aspects of policy in Government amendments. I thank

hon. Members in advance for their patience. Similarly, greater precision on PPF design, such as the exact nature of entry rules, will appear in regulations. Again, I trust that our debate will prove constructive in developing that next tier of detail.

Needless to say, it is hugely important that no one is tempted to take advantage of the PPF so that its funding position is protected and people have confidence in the PPF guarantee. Several moral hazard provisions are already in the Bill. We have recently discussed the safeguards in the new scheme-specific funding, which aim to limit calls on the PPF as well as on the pension regulator, who will have close relations with the PPF and a commitment to protect it. Hon. Members should be aware that further measures to reinforce protection of the PPF will be introduced when we consider new clauses after Easter.

We are all agreed that protection needs to be introduced sooner rather than later, which is why we are working hard towards introducing the fund in the first part of 2005, subject to the will of Parliament. It is vital, however, that we do not run before we can walk and rush through the design stage in our haste to meet a set deadline. That is why, as we embark on making the PPF a reality, we are continuing to engage with experts, who have helped enormously from the outset, and it is why I look forward to the chance to explain further our decision making during the forthcoming discussions. Having set out the context, I shall deal with clause 94.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne 2:15 pm, 25th March 2004

The Minister said that we are all agreed on the timetable. I do not think that Opposition Members are agreed. Later, I shall explain why we think that commencement should be postponed until the risk-based levy is firmly in place, and why the Government should look much more closely at the interim measures that we debated this morning.

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

Indeed, we had a good debate this morning. There might be an opportunity to have the discussion that the hon. Gentleman wants later today or next week.

Clause 94 sets out the insolvency practitioner's duty to issue to the PPF board, the pension's regulator and trustees or managers of the pension scheme notification of when a insolvency event occurs in relation to an employer. The occurrence of the insolvency event triggers the PPF's involvement in a scheme and marks the beginning of the assessment period, during which the PPF board will establish whether a scheme should come into the pension protection fund. The insolvency practitioner's role, both in notifying the PPF board, the regulator and scheme trustees or managers of the occurrence of the insolvency event, and in determining the scheme's eventual status, is crucial to the entry rules for the new fund. It is imperative that the insolvency practitioner's role is clearly set out in legislation, including details of the various bodies that should be notified of the insolvency event in relation to the sponsoring employer of a scheme and the time frame in which that should be done.

The amendment would require that trustees or managers of a scheme must copy certain notices received from the insolvency practitioner or the PPF board to members. Provision currently allows for those notices to be issued to the board, the regulator and the trustees or managers of the scheme.

As I told the hon. Member for Tatton (Mr. Osborne), I am sympathetic to his amendment's objectives. Indeed, similar amendments have been proposed to other parts of the Bill and I have replied in a similar way, because essentially they involved the same question. His proposal is not necessary because clause 165(1)(b), which deals with the provision of information to scheme members, ensures that regulations will require trustees or managers of a scheme to inform members of all appropriate information. That will include most notices, applications or determinations that relate to a scheme and its status as regards entry to the PPF. Thus the amendment would needlessly replicate existing provision. Perhaps the hon. Gentleman will withdraw it.

Photo of George Osborne George Osborne Shadow Minister (Treasury)

It is useful to have the Minister tell us what will be in the regulations, since we have not seen them, so the debate has been worth while. We take him at his word and that the regulations issued under clause 165 will require trustees and managers to keep scheme members fully informed.

I have a final question for the Minister. Will the events prescribed by regulations under clause 165—detailing where scheme members will have to be contacted—cover all the amendments: the events under clause 94, which requires the insolvency practitioner to give notice to the PPF and the trustees; the events under clause 96, whereby the insolvency practitioner issues a notice; the event set out in clause 97, when the insolvency practitioner has failed to issue a notice and the board steps in to do that; the events under clause 102, when the board receives an application from trustees and managers; and, indeed, the events under clause 117, which details the circumstances in which the board ceases to be involved with the scheme?

Photo of George Osborne George Osborne Shadow Minister (Treasury)

Good. That is the kind of crisp answer that one prays for in Parliament. In view of such a clear assurance that all the things that we were concerned about will be covered in regulation, and because we hope that scheme members' interests will be protected in the sense they will be kept fully informed of what is happening to their pension during what will inevitably be a period of great anxiety, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 94 ordered to stand part of the Bill.