Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020
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Baroness Stedman-Scott
That the Regulations laid before the House on 15 September be approved.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Stedman-Scott) (Con)
My Lords, I am pleased to introduce the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) (Amendment and Revocation) Regulations 2020 that were laid before the House on 15 September. I am satisfied that the provisions in the regulations are compatible with the European Convention on Human Rights and therefore ask the House to consider these regulations.
The Corporate Insolvency and Governance Act 2020 introduces some important measures, such as a moratorium on creditor action and restructuring tools to give specified corporate entities in financial difficulty the best chance of survival. This is part of a suite of measures to help business weather periods of economic uncertainty. The regulations debated on 14 September ensured that when certain corporate entities obtain a moratorium on creditor action, and the pension scheme trustees or managers are a creditor, the board of the Pension Protection Fund can exercise those creditors’ rights in relation to the moratorium as set out in the regulations, in specified circumstances. The regulations also ensure that when a restructuring is proposed under new measures, in respect of certain corporate entities, and the trustees or managers are a creditor to whom the restructuring is proposed, the board of the Pension Protection Fund can exercise the trustees’ creditors’ rights under the new restructuring measures, that way ensuring that pension schemes are not left without the appropriate protections in the legislation.
The regulations being debated today simply extend the Pension Protection Fund’s creditors’ rights to certain other corporate entities: relevant co-operative and community benefit schemes in the case of the moratorium, and relevant societies in the case of the restructuring provisions. The regulations also revoke a previous set of regulations because of a legal defect caused by an omission in a related statutory instrument. We have expedited the making and laying of these regulations in order to rectify the situation. The “made affirmative” procedure has enabled these regulations to come into force soon after they were laid.
These regulations form part of the corporate insolvency and governance legislative regime. If a relevant co-operative and community benefit society obtains a moratorium from its creditors, or a restructuring is proposed in respect of a relevant society as applicable, the Pension Protection Fund is able to intervene as a creditor to protect its interest in the relevant specified circumstances.
Moratoriums give companies and other relevant corporate entities respite from action that could otherwise cause them to close. During a moratorium, businesses will be more able to plan a beneficial restructure; this will reduce unnecessary business failures, thereby preserving jobs and value in the economy. Restructuring plans enable companies with viable businesses but significant debts to restructure with limited disruption. This will facilitate corporate rescue and reduce formal, value-destructive insolvencies, thereby preserving businesses and saving jobs.
Given the importance of the Pension Protection Fund as the statutory compensation scheme, it is crucial for the Pension Protection Fund to have access to and influence over certain decisions relating to moratoriums and recovery plans in the relevant circumstances. Should a rescue attempt fail, it is the Pension Protection Fund that steps in to pay compensation to eligible pension scheme members. Protecting the fund’s interest should help maintain confidence that the Pension Protection Fund will be able to continue to make compensation payments for as long as they are needed.
I would like to put on record something about the previous PPF regulations that we debated on 14 September: they have no impact, or no effect, on the regulations we are debating today. I am aware that there has been some concern about the legal status of the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020, which were debated on 14 September, in so far as they relate to charitable incorporated organisations. The current legal position in respect of charitable incorporated organisations has been complicated by the making of a separate statutory instrument, the Charitable Incorporated Organisations (Insolvency and Dissolution) (Amendment) (No. 2) Regulations 2020, by the Department for Digital, Culture, Media and Sport. Those regulations disapplied some of the new provisions of the Insolvency Act 1986 in relation to charitable incorporated organisations. One of these provisions, Section A51 of the Corporate Insolvency and Governance Act 2020, was used to make my department’s regulations, the Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020, in so far as they applied to charitable incorporated organisations. As a result, the provisions in my department’s regulations have not applied to charitable incorporated organisations since 13 August 2020, that being the date the Department for Digital, Culture, Media and Sport regulations came into force.
The legal position, which is clear from reading both sets of regulations together, is that the Department for Digital, Culture, Media and Sport regulations repeal impliedly those aspects of my department’s regulations, in so far as they apply to charitable incorporated organisations. The Department for Digital, Culture, Media and Sport will restore the position as set out in my department’s regulations at the next available opportunity. The Department for Digital, Culture, Media and Sport regulations do not otherwise affect the validity of my department’s regulations, or the powers that we use to make those regulations. I commend these regulations to the House.
Baroness Stedman-Scott (Con)
My Lords, I am grateful to noble Lords for this helpful debate and their interventions. I hope that I have been able to establish why these amending regulations are required. Extending the Pension Protection Fund rights as creditor to relevant co-operative and community benefit societies and relevant societies, as applicable, will help to ensure, if those entities are also sponsoring employers of a Pension Protection Fund eligible pension scheme, that the interests of the scheme and the Pension Protection Fund are protected during a moratorium, or where a restructure of the business is proposed under the new corporate insolvency and governance legislation, as applicable.
I will do my very best to answer all questions; where that is not possible, I will write to the noble Lords concerned and place a copy of the letter in the Library. The noble Baroness, Lady Drake, asked whether trustees agreeing to a corporate rescue will be within the scope of the new criminal sanctions in the Pension Schemes Bill, and which has precedence. We do not think that there is a conflict between the provisions in the Corporate Insolvency and Governance Act 2020 and measures in the Pension Schemes Bill. The new criminal offences proposed in the Bill make it clear that an offence is committed only if the person did not have a reasonable excuse for committing the act or engaging in a course of action. The aim of the powers in the Pension Schemes Bill is to target individuals who intentionally or knowingly mishandle pension schemes or put workers’ pensions at risk by behaviour such as chronic mismanagement of a business or avoiding pension liabilities. There is no intention to frustrate the legitimate business activities where they are conducted in good faith.
The noble Baroness, Lady Drake, also asked whether the Pension Protection Fund has the power to demand detailed information or conduct its own investigation into the financial position of the company. There are requirements in the Corporate Insolvency and Governance Act to provide information to the board of the PPF in relevant specified circumstances in respect of the moratorium and the restructuring measure. The Pension Protection Fund may also be able to use existing powers to request information from the company when it is relevant to the exercise of its functions in relation to an occupational pension scheme—in this case, the exercise of creditor rights. If the company refuses or neglects to provide the information without reasonable excuse, the company would then be guilty of an offence. However, a company could argue that the standard information provided to all creditors is enough to enable the board of the Pension Protection Fund to exercise its creditor rights, so it does not require any further information to exercise those rights above and beyond what other creditors get.
My noble friend Lady Altmann asked why these regulations revoke a previous set of regulations, and which parts were revoked. An omission in HMT’s order meant that there was no power to make provision for the Pension Protection Fund to exercise creditor rights in relation to relevant societies in my department’s regulations. As a result, certain provisions of those regulations were ultra vires. The entirety of our further set of regulations has been revoked and replaced with the regulations being debated today.
My noble friends Lord Trenchard, Lady Altmann and Lord Bourne, asked how many entities have gone into a moratorium since the legislation was passed. The Insolvency Act publishes insolvency statistics monthly, and the 14 October publication included the new moratorium for the first time. Two moratoriums have been entered into since the Act came into force on 30 September.
The noble Lord, Lord Loomba, the noble Baronesses, Lady Wheatcroft and Lady Janke, and my noble friend Lord Bourne, raised the issue of the sustainability of the PPF’s funds as a result of Covid-19. The Pension Protection Fund is confident that its long-term funding strategy and diverse investment approach position it well to weather the current market volatility and future challenges. The Pension Protection Fund’s latest modelling shows that the fund is well placed to achieve its self-sufficiency target: the ability to pay Pension Protection Fund compensation in full, with a 10% buffer.
The noble Baroness, Lady Janke, and my noble friends Lord Naseby and Lord Bourne, raised the issue of why our co-operative and community benefit societies need to be included. Mutuals are organisations owned and controlled by their members rather than by shareholders. They operate on a “one member one vote” structure, and include co-operatives, community benefit societies and financial services providers, such as building societies, credit unions and friendly societies.
The noble Baronesses, Lady Wheatcroft and Lady Ritchie, asked about the Pension Protection Fund’s resources to intervene in moratoriums and restructuring in the current economic climate. The Pension Protection Fund has an in-house restructuring and insolvency team, and the ability to call on third-party advisers to support its work. The PPF keeps its level of resourcing under review, but at present is confident that it can engage in moratoriums and restructuring plans as necessary. The noble Baroness, Lady Wheatcroft, asked what we were doing to enhance the ability of trustees. The Pensions Regulator has guidance on its website for trustees.
My noble friend Lord Flight, the noble Baroness, Lady Wheatcroft, and other noble Lords, raised the question of the skills of PPF in restructuring arrangements. The PPF has a dedicated in-house insolvency and restructuring team, and, as I have said, can also draw on a large range of third-party advisers. It is important to recognise that the PPF has been involved in restructuring arrangements since its launch in 2005. My noble friend Lord Flight also asked about the value of PPF pension schemes assets. The total assets in the October 2020 PPF 7800 Index were £1771.4 billion.
The noble Baroness, Lady Ritchie, quite rightly and understandably, asked what engagement there has been with the devolved Administrations. We have worked with Northern Ireland on some of the detail of the policy and helped Northern Ireland in the preparation of its regulations, which have now been published. There was engagement with the devolved Administrations during the development of the measures included in the Corporate Insolvency and Governance Act. Northern Ireland has introduced its own regulations to ensure parity, as relevant. The noble Baroness also raised the issue of the credit union in Northern Ireland. I will write to her about that, as I will on the question about meetings between the DWP and the PPF regarding their performance.
My noble friend Lord Naseby asked what we are doing now that the courts have declared the PPF compensation cap as unlawful. The PPF compensation cap is still a live issue before the courts, and therefore I cannot comment further on it.
My noble friend Lady McIntosh raised the issue of an impact assessment. One has not been prepared for these regulations because the measures do not impose any regulations on business or lift any regulations from it so there is no direct regulatory impact.
My noble friend also asked whether we can seek to reduce reliance on the big four accountancy firms. The Competition and Markets Authority market study on the statutory audit market was published on 18 April 2019. The report made a series of wide-reaching and ambitious recommendations, including proposals for the joint audit and an operational split between audit and non-audit services.
The noble Lord, Lord Hain, rightly mentioned workers, how they are looked after and their rights in relation to both these regulations and pension schemes. I am interested in the book that he referred to; if it is acceptable to the noble Lord, I will write to him with a more specific response to his questions.
The noble Baroness, Lady Janke, asked what happens if scheme trustees or managers and the Pension Protection Fund do not agree on a course of action. We expect PPF and scheme trustees or managers to work together in the common interest of the pension scheme. For example, when a restructuring plan is proposed, in the circumstances specified in the regulations, both the scheme trustees and managers will be able to make an application to the court and participate in meetings ordered by the court.
My noble friend Lord Naseby asked in what circumstances the Pension Protection Fund would increase its levy. The PPF entered the pandemic in a strong financial position, as I said. Its latest annual report showed that it has significant reserves and it was clear that it monitors the position regularly.
My noble friend Lady McIntosh asked who will advise community and mutual organisations. Again, I will need to write to her on that.
The noble Baroness, Lady Sherlock, asked why DCMS still brought forward its regulations when they affected ours. I will write to consult my DCMS colleagues on her questions. I can confirm that CIOs are currently not covered by our regulations; DCMS will resolve this at the next possible opportunity.
I hope that I have answered the majority of noble Lords’ questions. As I have committed before, if I have not done so, I will write to noble Lords and place a copy in the Library. I commend the regulations to the House.