Clause 16

Pensions Bill – in a Public Bill Committee at 2:15 pm on 24th January 2008.

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Occupational pension schemes

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I beg to move amendment No. 4, in clause 16, page 7, line 33, leave out paragraph (c).

Photo of Nicholas Winterton Nicholas Winterton Conservative, Macclesfield

With this it will be convenient to discuss amendment No. 5, in clause 17, page 7, line 40, at end add—

‘(c) is prescribed or is of a prescribed description and that has its main administration elsewhere than in an EEA State.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

The purpose of the amendments is to seek clarification from the Minister about the differences between personal pension schemes and occupational pension schemes in the three different jurisdictions mentioned here, namely, the United Kingdom, the European Economic Area and outside the European Economic Area.

There is obviously a difference in categorisation between occupational and personal pension schemes. For example, what happens about personal pension schemes that are outside the European Economic Area is not clear. I am sure that international pension law is probably even more complicated than United Kingdom pension law but, given that we are bringing in such a significant Bill, it is important to be clear about what happens in the different jurisdictions, not least because more and more people are working internationally. There is a big increase of workers migrating to and from different countries. I would be grateful for any further elucidation that the Minister could give about the two amendments.

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I am grateful to the hon. Gentleman for the constructive way in which he has put the questions. He is right that more people than ever before are working internationally, travelling abroad and coming to work in this country. Both clauses 16 and 17 set out the definition of occupational and personal pension schemes. He has noted the difference between these two clauses, namely, that we take a power to specify occupational schemes based outside the EEA, but he will not that we do not do the same for personal pensions. We believe that there are sound reasons for the distinction, which I will now explain.

A key requirement of all qualifying schemes, occupational and personal, is that they must be appropriately regulated. Occupational pension schemes based in the UK are regulated through domestic law, which implements the European directive on the activities and supervision of institutions for occupational retirement provision—IORP. Schemes  administered within the European Economic Area, the EEA, are also regulated under the same directive, providing assurance that scheme standards and regulation are comparable to those in the UK. However, for schemes based outside the EEA there is no universal regulation that we can use as a basis for ensuring that schemes are suitable to be used for the purposes of the employer duty. Far from international law being complicated, to some extent it is non-existent or not particularly existent. There are some provisions and agreements, but of a limited nature.

So, we will have to consider the circumstances where people sign up to a foreign-based scheme—perhaps a scheme based in the United States or elsewhere, for a worker who has come over here or a worker working for an American company. We will look at those on a more individualised basis to ensure that any scheme that is used as a pension scheme is able to be used for the purposes of the employer duty and is therefore appropriately regulated.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

Just to put a specific example to the Minister, if an American came to this country with a 401(k) scheme—a personal pension scheme in the United States—that was a good scheme with a high level of contribution, what would be the effect if he were then working for a UK employer?

Photo of Mike O'Brien Mike O'Brien Minister of State (Pension Reform), Department for Work and Pensions

I do not want to give carte blanche to all 401(k) schemes. We would look at the particular scheme to identify whether it would comply with the nature of our pension schemes. I know a bit about those schemes, and I would have thought that, in most cases, they probably would. Let me not give a ministerial imprimatur to all those schemes. I will just say, in broader terms, that that is the sort of scheme we want to be able to allow. Assuming it is properly regulated by US domestic authorities, it would probably—I use that word advisedly—comply with the requirements, particularly if the employee coming here from the US was satisfied that that was the sort of scheme he wished to use and maintain, and was returning there. That would probably be fine.

I would advise a little caution, however, if a UK-based company decided that it was going to use foreign-based pension products for their domestic employees. We would want to look at that with some care, and ensure that the specific pension scheme fully complied. I suspect that operators of 401(k) schemes would not allow themselves to be put in that position. It may well be that in other countries there are schemes, probably privately run, which would be in the market for taking on pension provision here. If they were in the EEA, we would know how they are regulated. If they were outside the EEA, we would want to be able to say that certain schemes are appropriate and others are not. We are proceeding on that basis. The amendment would interfere with that. However, given the way the hon. Gentleman put his point across, I do not think I need to spend time in rebuttal: I needed only to explain the purpose of the way in which we are addressing the various schemes.

Photo of Andrew Selous Andrew Selous Shadow Minister (Work and Pensions)

I think these exchanges are proving of use to the many people who will look at them in Hansard tomorrow and in the weeks to come. We are in  an increasingly global economy. Many workers can expect to spend part of their careers working elsewhere, and there are many foreign workers coming in and out of this country. These are the sorts of practical issues we need to be quite clear about in order to give guidance to employers and employees alike as to what the new regime is likely to allow and not allow. Having  heard the Minister’s reasonable explanation, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 16 ordered to stand part of the Bill.

Clause 17 ordered to stand part of the Bill.

Further consideration adjourned.—[Mr. David]

Adjourned accordingly at half-past Two o’clock till Tuesday 29 January at half-past Ten o’clock.