Deferred Pensions

– in Westminster Hall at 1:30 pm on 17th January 2006.

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Photo of Ashok Kumar Ashok Kumar PPS (Rt Hon Hilary Benn, Secretary of State), Department for International Development 1:30 pm, 17th January 2006

I am grateful to Mr. Speaker for having granted me this debate, which I have been trying to get off the ground for nearly a year, on and off.

The subject is extremely important to my constituents who were formerly factory workers employed by Texon UK, and who are deferred members of an insolvent pension scheme run by their former employer. I know that the Minister is aware of the issue, as there has been much correspondence between me and his office on the matter during the past year.

My constituents were made redundant 10 years ago, when Texon UK embarked on the job-cutting exercise that was a precursor to its going into receivership. Texon, once called United Shoe Machinery, had been a local employer for many years, serving the shoe-making industry. Thankfully, the factory, located on the Skelton industrial estate in the East Cleveland area of my constituency, still operates following a management buy-out, but with a much reduced work force. Nevertheless, 120 jobs are important and I wish the company every success in future.

That, however, will not alter the scale of the problem faced by my constituents. They were unhappy about the redundancies, but they accepted them, because they felt that they had the reassurance of a pension from the company pension scheme when they reached retirement age. However, that was not to be—hence this debate.

I shall focus on two connected issues. My first concern is the financial arrangements made within the company, at the time owned by Texon, and my second what appear to be grave limitations in the new financial assistance scheme for deferred occupational pensioners. The sorry saga began when USM Texon was taken over by a private equity company, Apax, which made significant changes to the company pension scheme. A new USM pension plan was set up and 279 machinery workers were transferred into it. However, a transfer payment to cover these liabilities was made only in September 2000 when a further 318 deferred pensioners and 360 existing pensioners were moved into the new USM plan. That left several hundred people in the old Texon scheme, a number whom were my constituents.

The transfer of this second tranche of members was not made until a few weeks before the company went into receivership in October 2000. Once the company ceased trading it was obvious that the pension scheme would be under threat. The threat became reality when wind-up proceedings were lodged because the scheme had insufficient funds to meet its pension liabilities. At that time the scheme had an estimated deficit of some £30 million. Under winding-up rules, existing pensioners were first in the list for a payout, so 360 old USM pensioners received the bulk of their expected benefits, but the remaining 544 USM members—including those of my constituents who are deferred pensioners—have lost their pensions and any right to contributions they had made to the scheme. The problem was made worse when the Texon scheme went bust in April 2004 with a deficit of £20 million.

My first concern is, therefore, whether the former employers concerned have acted in good faith. As I said, the pension scheme was the subject of a number of financial transactions prior to the company's going into receivership. The original transfer payment made by Apax amounted to £33.1 million—a sum insufficient to meet Apax's obligation under the minimum funding requirement, but one that had been calculated on the basis of a valuation of the scheme's assets made three years previously. I understand that the view among senior actuaries was that if the valuation had been conducted on an up-to-date basis, Apax would have had to put an additional £2.3 million into the scheme. Indeed, the independent trustee appointed to wind up the scheme wrote to ask it to reverse the transfer.

Parts of the trustee's letter, quoted in The Daily Telegraph, said that reversing the transfer would

"Avoid the risk of criticism for making a transfer only a few weeks before the firm went into receivership."

He went on to point out that

"pensioners and deferred members were not asked to consent to the transfer and it seems unfair that they should now suffer a reduction in benefits as a result of a transfer over which they had no control".

Those financial transactions must have had an impact on the overall health of the USM and Texon schemes. I accept that the Minister has no direct responsibility for individual company pension schemes, but as the behaviour of companies managing such schemes can impact on his responsibilities, such as the finances of the financial assistance scheme, I would ask him to talk to his ministerial colleagues in the Department of Trade and Industry about this case. I appreciate that he might want to refer me to the pensions ombudsman and the pensions regulator. However, given the remit of those bodies, that might not produce the results that my constituents seek.

Past referrals have been made to the pensions ombudsman, but I understand that he was unable to investigate the role played by Apax because he has no jurisdiction over a company's shareholders. I understand that a complaint to the pensions regulator also made no progress because, apparently, it can investigate only the actions of trustees. In this case, it decided that they had done nothing illegal, although the regulator said that the complaint contained information that

"might be of interest to the DTI."

I understand that a complaint to the DTI was also rebuffed, because it could investigate only complaints made by shareholders, and that complaints about pensions fell outside its remit due to their "unincorporated" status. Some serious joined-up thinking is needed on all these issues.

The second issue I wish to turn to is the way in which the financial assistance scheme will affect my constituents. They have told me that at first they felt that they could rely on it. However, it is apparent that only a few from Skelton will gain any assistance through the scheme, because of the age profile of the workers who were made redundant. In the main, they are good citizens, hard-working men in their 40s and 50s with families. I have known some of them for more than 20 years. They are not people who were within three years of retirement, and who will get 80 per cent. of their pension from the FAS. I do not for a moment disparage the scheme itself. It was a good start, and helped those people who were facing the worst prospects. I applaud the fact that it injected £400 million to assist those who urgently needed such help. However, as things stand, many thousands of people who are in the same circumstances as my constituents will not benefit.

This is a serious issue of faith. Past Governments have stressed the need for people to make independent provision for retirement and have backed occupational schemes heavily. My constituents followed that advice and invested in a company scheme that they saw as in their best interests. They now find themselves cut adrift, having to face a future dependent on what the state can provide. I am aware that there is a comprehensive spending review and that there will be a review of occupational pensions. There will also be a review of how the state relates to a member of a scheme who might need assistance. However, I have been told that that review may not report until 2008. If that is correct, it will further dishearten many of my constituents.

I hope that the Minister will tell me that the review will be expedited. That would mean that my constituents and their trade unions could make submissions and that the finished findings of such a review could be fed into the comprehensive spending review process immediately. The Government need to grasp the problem urgently. We are told that that will be hard, given the financial implications. However, we need to recognise that those affected, such as my constituents, are a numerically defined group. Importantly, as the starting date of the pension protection fund was April last year, they are a closed group that cannot grow.

My affected constituents are of a defined age cohort and will not easily find a job that could give them a reasonable prospect of employment for a period long enough to build matching pension provision. The same demographic consideration would also tell us that mortality will play its part, roughly defining the total time period that the scheme would need to cover. The Government should factor in the costs that would have to be met by the state, in any case.

If we make assumptions about the people affected by such insolvent pension schemes who will need to have recourse to state benefits, another fact emerges. In that equation, the financial transfers between an expanded FAS and the cash that the Department for Work and Pensions would incur could well be neutral, at best. Would there be a cost if the FAS were widened? Of course, but the Government have made bold gestures in the past and can do so again. The Government can seriously explore other funding avenues: receipts from advance corporation tax, perhaps, or, as has been suggested before, the use of dormant assets in unclaimed accounts. I am aware that the Government see the last matter as a long-term issue and are possibly earmarking receipts from that for youth activity. However, the wronged pensioners at Texon UK and other pensioners in the same boat are also a deserving group.

An extension of the FAS to cover those within 10 to 12 years of retirement would bring a lot of joy to my affected constituents. I look forward with hope to the Minister's reply.

Photo of Stephen Timms Stephen Timms The Minister of State, Department for Work and Pensions 1:43 pm, 17th January 2006

I begin by congratulating my hon. Friend Dr. Kumar on securing this debate on an important topic of concern to many people in his constituency who are former employees of the company to which he refers. Similar issues face many other people who are former employees of other companies and members of other schemes. I pay tribute to my hon. Friend for the work that he has done and the eloquent case that he has made on behalf of his constituents. I have had many meetings with hon. Members whose constituents have been affected by the wind-up of underfunded pension schemes. I have great sympathy for all those who have lost part or, in some cases, all of their expected pensions in such a way. It is a devastating experience for anybody to endure.

The USM Texon pension scheme and the impact of the company's insolvency on employees in the shoe-making industry has been eloquently described this afternoon by my hon. Friend. I want to address, as far as I am able, the pension issues that he raised. First, he raised concerns about the activities surrounding the USM Texon pension scheme, the behaviour of the employer and some of the financial transactions. Other Members have raised similar concerns about the events in that company. I am advised that both the Occupational Pensions Regulatory Authority, the predecessor to the pensions regulator, and the pensions regulator considered the case and came to the conclusion that the activities surrounding the pension scheme did not break pensions legislation. That is rather a narrow test, of course, but the regulator can take action only if the law has been broken. The Pensions Act 2004 greatly strengthened legislation in that area, but without a breach of legislation or regulations, the regulator is not in a position to act.

The pensions ombudsman is still considering cases arising from the scheme. In particular, a scheme member has complained that the trustees failed to produce a transfer value statement when asked to do so and the pensions ombudsman expects to reach preliminary conclusions on the case quite soon. The outcome of the complaint will have a bearing on a number of other complaints that the ombudsman has received in connection with the scheme about bulk transfer issues, and will be of interest to those who have raised their concerns with my hon. Friend.

I gather that there have also been complaints to the Department of Trade and Industry companies investigation branch, but, since the complaints relate mainly to pensions, it was concluded that they should be taken up elsewhere. I do not think that the DTI can investigate complaints made only by shareholders; in this case, Members have made complaints. With investigations that are under way at the moment, the work of the pensions ombudsman is most relevant to the case that we are considering.

My hon. Friend had a good deal to say about the financial assistance scheme, introduced through the Pensions Act 2004. I am grateful to him for recognising that, for some people, the FAS provides valuable help. Neither the Government nor the taxpayer has a liability in such cases, but we have set up the scheme to help members of underfunded pension schemes who were fewer than three years away from the scheme's normal retirement age on 14 May 2004 and whose scheme had commenced winding up between 1 January 1997 and 5 April 2005—a contained group, as my hon. Friend rightly said—while being sponsored by a principal employer who had experienced insolvency prior to a given date. Hon. Members will know that protection in cases where insolvencies occurred after 5 April 2005 will be provided by the pension protection fund. However, that cannot be the case for insolvencies that occurred before the fund was created and before the PPF levy supporting the fund was raised.

The FAS operational unit opened on 1 September 2004. Work has began on a collecting scheme and member data so that decisions can be made about whether schemes and individuals qualify for FAS. Once that information has been provided, decisions can be made and assistance paid to affected scheme members.

The first qualifying schemes were announced on 25 October 2005. So far, 146 schemes have qualified. The first qualifying members, who happen to be members of the ASW Cardiff pension scheme, are now receiving initial payments from the FAS. Those initial payments—they are 60 per cent. of the expected pension—are payable until the scheme completes wind-up; at that point, full FAS payments of 80 per cent. of the expected pension will commence, together with any arrears due. Work continues on processing data for other schemes, so that we can issue payments to more of those affected as soon as possible.

Scheme trustees have until the end of the notification period on 28 February—the end of next month—to notify the operational unit that they wish their pension schemes to be considered for the FAS. I urge any trustees who have not yet made such a notification already to do so soon.

The USM Texon pension scheme was on the indicative list of schemes potentially eligible for the FAS that was published last February. The trustees have now made a formal application to the scheme. The scheme notification has been accepted, and the operational unit is considering whether the scheme qualifies. That will involve obtaining additional information from the trustees—namely, the date of the employer's insolvency and the name of the principal employer. That minor information has only just been requested, so it is not yet possible to confirm that the USM Texon pension scheme will be eligible for the FAS. I am therefore not able to state which members will qualify for assistance. However, I hope that the matter will be resolved within the next month or so.

My hon. Friend felt that the £400 million provided for the FAS is not adequate, and that more money should be made available to extend assistance to more people. He said that most former employees of USM Texon—at least those in his constituency—are too young. They were more than three years from their scheme pension age in May 2004. Our priority when designing the structure of the FAS was to get help quickly to those who faced the most urgent difficulties. We took the view—I think that my hon. Friend will agree that we were right—that those were the people closest to or already at retirement age, who would be least able to make alternative provisions to replace their lost pensions. However, as with any cash-limited scheme, some people will fall outside the qualifying criteria.

My hon. Friend said that if we were to extend the period from the current three years of scheme pension age to 10 or 12 years it would be very helpful to his constituents. I understand that. As he knows, my right hon. Friend the Chancellor told the Labour party conference in September 2004 that the Government will be reviewing the funding of the scheme, alongside the Government's other spending priorities, in the next spending review. In the meantime, however, funding is fixed for the current spending review period, up to and including 2007–08.

Should it be decided to provide additional funding, my hon. Friend wondered when it would start. It would take effect from the beginning of the financial year 2008–09. He was also concerned about how long it would take. That answer is a little more encouraging: an announcement will be made in the summer of 2007, so the information will be available rather earlier than he feared it might be. Ahead of that review, however, our plans will cover only those who fall within the criteria that I have set out. I cannot offer my hon. Friend any prospect of extending eligibility ahead of the review.

Those who were more than three years from their scheme pension age in 2004 will not yet be at their scheme pension age, so they are not yet in a position to need help. I can understand people wanting to know the outcome of the review as soon as possible, but I can give no expectation of it happening before the summer of 2007.

The position of people outside the current scope of the scheme will be considered as part of the review, alongside the other spending priorities that the Government need to address. I appreciate that such uncertainty will be difficult for many, but Government funding is already allocated, and no additional source of funds is available.

My hon. Friend made some suggestions for obtaining additional funding for the FAS. He suggested using unclaimed assets from banks and other financial institutions or receipts from advance corporation tax to increase scheme funds. On the use of unclaimed assets, my right hon. Friend the Chancellor explained last month in the pre-Budget report that an agreement had been made with banks and building societies that such assets would be used to improve youth and community facilities. Before the election, I was the Minister at the Treasury dealing with that issue. I therefore know that many proposals have been promulgated in various quarters on how to use those unclaimed assets. However, there is much less certainty about how much money is available. Some of the figures that I have seen are significantly greater than the reality is likely to prove. I caution my hon. Friend against seeing funding from that source as being a likely solution.

The Government's view is that if owners and their assets cannot be reunited, the money should be reinvested in the community, particularly in disadvantaged communities, and that that should be done in a sustainable way through a co-ordinated delivery mechanism, with a focus on services that are responsive to the needs of young people; they should also be used to deal with financial education and financial exclusion. That seems logical, given that difficulties with financial literacy and financial education may have led to the assets being mislaid.

The removal of payable tax credits for advance corporation tax—they were effectively a subsidy for the payment of dividends rather than money to be reinvested in the business—has not led to an availability of uncommitted funds. It was part of a package of measures, which included a reduction in the rate of corporation tax. I know that my hon. Friend has been a strong advocate of increasing investment in manufacturing in order to boost the productive capabilities of the economy; and that package was helpful from that point of view. I note that, at the last election, none of the political parties argued for reinstating those credits. Indeed, as I said earlier, the resources secured from that source have been committed elsewhere.

I pay tribute to my hon. Friend for his campaigning and for the committed work that he has carried out on behalf of those of his constituents who have been so hard hit by the collapse of the firm and the pension scheme. We made good progress in setting up the FAS, which ensured that the first payments were made on schedule before Christmas. I know that my hon. Friend and many others are eagerly awaiting the review of the FAS; the outcome is due in the summer of 2007.

Question put and agreed to.

Adjourned accordingly at two minutes to Two o'clock