New Clause 19

Pensions Bill – in a Public Bill Committee at 1:15 pm on 21st February 2008.

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Defined benefit schemes: amendment of rules

‘The Secretary of State shall lay regulations prescribing circumstances in which a statutory override can be applied that enables scheme rules to be amended to reflect the Pensions Act 2004 changes to the indexation cap for service going forward and for the change in the revaluation cap introduced under section 79.’.—[Mr. Waterson.]

Brought up, and read the First time.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

The new clause is another return to the simplification, or deregulation, agenda. It is very limited in scope; it is for a limited statutory override. One of the issues looked at by Messrs. Lewin and Sweeney in their review was statutory override. The amendment is sponsored by the National Association of Pension Funds, and the background is the whole thrust of trying to limit or reduce the costs and burdens on sponsoring employers of existing defined benefits schemes. Those costs have gone up a lot in recent years. The latest NAPF annual survey showed that the administration costs of an average scheme have risen by over 50 per cent. in the last two years alone. That is a staggering figure.

The NAPF welcomes the Government’s rolling deregulation programme—rolling is just about correct, although it is not very fast. It says,

“we believe the Government could go further and accelerate the process”.

That is a marvellous piece of understatement. One way in which that could be done, would be to introduce a limited statutory override into the Bill. I have already touched on the work of the external deregulation reviewers. They identified a problem whereby some schemes are unable to take advantage of Government simplification measures, due to the way in which their own scheme rules are drafted. It is not the law itself  that stops them, it is their own scheme rules. The problem is about how that can be changed.

Lewin and Sweeney recommended that the Government should legislate to ensure that employers and pension scheme trustees can override their scheme rules in certain specific cases set down in the legislation. That would include the right to make changes to the indexation requirements introduced in the 2004 Act, and it should apply in other circumstances such as the revaluation in clause 79.

As we near the end of the Committee stage I may, for once, be pressing on an open door. The Government have said that they agree with the measure in principle, but they also believe that it should be possible to make such changes by secondary legislation. The NAPF does not entirely agree with that because of the complexity of the pensions set up at the moment. It believes that we should send what it calls a “strong signal of support” to those employers offering high-value occupational pension schemes—something that I entirely agree with. It says,

“the amendment...seeks to put the matter beyond doubt and provide a power—in primary legislation—which will enable the Secretary of State to make regulations to extend the Pensions Act 2004 indexation changes and those set down in clause 79 of this Bill regarding revaluation to all pension schemes.”

I have two final points that are important to put on the record.

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

The hon. Gentleman will be aware that section 68 of the Pensions Act 1995 enables regulations of the sort that he describes to be brought forward. In effect, the provision that would enable us to bring forward the regulations is already there. If it were the case that we intended to bring those regulations forward, that prompts the question of what point the amendment would serve.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

The obvious riposte to that is to ask the Minister why he has not brought forward regulations, draft or otherwise. The NAPF accepts what the Government are saying in principle, but it thinks that we should send a strong message to industry and sponsoring employers that this is possible. I do not want to get into this too deeply, but there are wider issues about sections 67 and 68 of the 1995 Act. The Department’s view has been that those sections do not bar pensions schemes from doing this, that or the other. In fact, on the basis of legal advice, which as we all know is rarely black or white, many employers have often felt that they are not allowed by those sections to do certain things. We will return later to those issues, particularly in relation to section 67. We still think that it is worth proceeding with the new clause but if, when he comes to speak substantively on this, the Minister can confirm that these regulations are about to hit an unsuspecting world, I might take a more charitable view on pressing the new clause.

Any decisions regarding changes to scheme rules would still be subject to mutual agreement by the employer and the scheme trustees and the changes would only affect pension rights accrued in the future, not those earned in the past. That is a chunk of consensus that is now accepted on all sides. It emerges from Sweeney and Lewin that accrued rights should not be tampered with. On that basis, I commend the new clause to the Committee.

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

I am not sure that I entirely got the answer I was seeking about why this particular new clause is necessary. I do not think that there is any difference between my view and that of the hon. Member for Eastbourne about the need to provide a statutory override. We have already indicated, as a matter of policy, that we intend to issue regulations for consultation later this year, which will enable the override to be put in place. Given that we already have a statutory capability to introduce those provisions, I do not detect from the hon. Gentleman any convincing argument as to why we need to include it in the Bill; I would be prepared to consider it if there was one. The provision is there and we do intend to make this change; he is knocking at an open door and it is important that the statutory override is put in place.

This can be quite a complex area, as the hon. Gentleman said, so I want to ensure that when we publish the regulations we have time for the various employers’ groups and others to look at the regulations and give us their views. That is the better way forward. The new clause would not prevent us from doing that, but it is unnecessary for that purpose. I aim to have a consultation later this year to achieve what the hon. Gentleman seeks. I hope that it will then be brought into effect by Parliament, either this year or in the early part of next year, so the change that he seeks is on its way, and not even at a slower pace than that sought by the new clause. The reason we have not brought it forward so far is that we have been working on the Bill—there is a limit to the availability of parliamentary draftsmen and officials to do everything at once. I wish that such resources were unlimited, but they are not. I will seek to bring forward the changes as quickly as is reasonably possible.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions

I am delighted that the Minister thinks that he has the powers to do this, and at some point might even use them. I appreciate the point about limited availability of parliamentary draftsmen, which is why we have tried to help him out by drafting the relevant provision. I do not think that he has raised any technical issues on that particularly. He has confirmed my worst fears that this is indeed part of what is called a rolling deregulatory programme. We would like to see it roll a bit faster, that is all that I am really saying. Now it is all going to be swept up in the review. Another review was announced in the Chamber today, I gather, so I think that we are up to 57 reviews since the current Prime Minister took over.

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

I assure the hon. Gentleman that we are not reviewing the statutory override idea at all; we are merely going to put it into regulations. The Lewin and Sweeney review has been completed so there are no more reviews, it is just a matter of getting the regulations out there, consulting on them to get them right, and getting them implemented.

Photo of Nigel Waterson Nigel Waterson Shadow Minister, Work & Pensions 1:30 pm, 21st February 2008

Yes. Let us not go further into the nature of the Lewin and Sweeney exercise, but it seems like a wartime convoy going at the speed of the slowest ship when there seems to be a lot of consensus on what needs to be done. The Minister has the powers, and we should get on and do it. Clearly, the door at which I am  pushing, and which is supposed to be open, is stuck. Until the odd-job man makes an appearance, I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.