Clause 124 - The pension compensation provisions

Pensions Bill – in a Public Bill Committee at 9:45 am on 30th March 2004.

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

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

When we get to schedule 7, which will be enacted by clause 124, in a moment, I expect that we will have a long and detailed discussion of the details of compensation under the PPF. However, under the rubric of clause 124, which sets out the overall framework, it would be helpful to have a brief steer from the Minister on the philosophy underlying the detailed decisions that the Government have taken about the structure of compensation. Clause 124 says that periodic compensation and lump sum compensation should be payable. Immediately, that raises a question. Clearly, we are worried about people's pensions but clause 124 is not just about pensions—it mentions lump sums, and allows the payment of lump sums even when the scheme rules did not.

There is a philosophical question about how far the PPF is trying to replace the pension arrangements that the scheme would otherwise have given, and how far it is trying to do something slightly different. For example, lump sums are payable under the clause even if they were not under the scheme, but in other cases, benefits that would have been payable under the scheme are not replicated in the PPF provisions. We will debate in detail the issue of unmarried partners and so on later, but a muddled approach underlies all our discussions about the benefit structure of the PPF.

The clause provides for a cap, but only for non-retired scheme members, not for retired scheme members. What is the philosophy behind that? If the schemes had run on, none of the caps would have applied. Why is there a cap in one place and not in another? Will the Minister clarify whether it is the Government's intention that the PPF will, as far as possible, try to give people what they would have got if

their employer had not gone to the wall with an underfunded scheme, or are the Government trying to create a kind of pseudo-pension with certain characteristics that they think schemes should have, such as lump sums, even if the scheme did not have them, but without unmarried partners' benefits, even if the scheme had them? Do the Government have a model of an ideal scheme? What is the thinking that will underlie our subsequent discussions on the detail of the schedule to follow?

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

With your permission, Mr. Cran, I will comment on two points that were raised by the hon. Member for Eastbourne earlier.

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

Order. I am perfectly happy for you to refer to those two points, Mr. Wicks, but I would like to separate that from the current discussion. If the issue is germane to the clause, that is fine, but if it is not, let us find another way of talking about it.

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

I shall try to find another way of talking about it later; I was just trying to be helpful to the hon. Member for Eastbourne. For now, I will talk about clause 124 and touch briefly on the point made by the hon. Member for Northavon (Mr. Webb).

Clause 124 sets out the pension compensation provisions relating to the new fund. The detail of the compensation rules is provided in schedule 7, section 123(2)(c), and will be set out in regulations under section 130. The purpose of schedule 7 is to detail the PPF compensation provisions relating to scheme members, their survivor—or in certain circumstances, dependants—when their defined benefit pension scheme or hybrid pension scheme, with a defined benefit element, enters the PPF.

The clause enables the provisions in schedule 7 to be considered and applied in order to calculate PPF compensation entitlement. Without the clause, PPF compensation could not be paid to any member of an eligible scheme that had been taken over by the PPF.

It will be more helpful if some of the issues that were raised by the hon. Member for Northavon are discussed at the relevant time—when we discuss the schedule. I do not think that there is a simple one-line answer to his question, but the broad one is that on PPF compensation we are going for a simple, broad-brush approach whereby existing scheme pensioners are paid 100 per cent. of their pension rights and other scheme members are paid 90 per cent. I concede—though I make no apology for this—that from time to time we shall examine the specifics of the scheme.

On the subject of partners, when, sadly, a scheme member has died and a partner who is not married is receiving benefit, she or he will continue to do so; it seemed right not to interfere with an existing arrangement. Some characteristics are more scheme-specific, but broadly speaking we are not seeking to replicate every last detail of the rights under a scheme. We are going for a broader-brush approach. That is equitable, and we also think that such a system is simpler to administer. Wherever possible, we are going for simplicity.

Photo of Nigel Waterson Nigel Waterson Conservative, Eastbourne

I urge the Minister not to be too broad-brush, because we must remind those who are following the shaping of the Bill that there is a cap, and the board is given a power to reduce benefits. Leaving aside the issue of the 90 per cent./100 per cent. distinction, there is also the question of the 1997 cut-off. Anyone who thinks that the Bill will guarantee their pension, full stop, in a broad-brush way has been misled.

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

Yes, but I would prefer to deal with those issues when we get to the relevant moment. Those who are concerned about their pension rights being guaranteed stand more chance of that if the Bill receives Royal Assent than they would if we took the advice of those who declined to give it a Second Reading.

Question put and agreed to.

Clause 124 ordered to stand part of the Bill.