Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014

Debate between Lord Bates and Baroness Harris of Richmond

Wednesday 9th July 2014 Grand Committee

[Lord Bates]

That the Grand Committee do consider the Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014.

Relevant document: 3rd Report from the Joint Committee on Statutory Instruments

My Lords, I am satisfied that these regulations are compatible with the European Convention on Human Rights. They make consequential and supplementary changes to primary legislation to support the clarified definition of money purchase benefits in Section 29 of the Pensions Act 2011.

A further, and more detailed set of regulations, The Pensions Act 2011 (Transitional, Consequential and Supplementary Provisions) Regulations 2014, deal with consequent changes to secondary legislation. These were laid before Parliament on 3 July 2014. Both sets of regulations will come into force at the same time as the clarified definition in Section 29 of the Pensions Act 2011.

The clarified definition of money purchase benefits will ensure that only benefits which cannot develop a deficit in funding can be money purchase benefits. Noble Lords may be familiar with the decision of the Supreme Court in 2011, in the case of Houldsworth and another v Bridge Trustees Ltd, that certain benefits which could develop funding deficits or surpluses could still fall within the definition of money purchase benefits.

While this decision concerned two specific types of benefit structure found in a particular scheme, it created widespread uncertainty in the pensions industry. That was because the decision could also be interpreted as covering other types of benefits and place these outside the protection of the regulatory framework for benefits that are not money purchase, even though they had the potential to develop funding deficits.

Section 29 of the Pension Act 2011, which has retrospective effect, and the supporting regulations remove that uncertainty. Where in the past decisions have been made by schemes that are in keeping with the clarified definition, the retrospective effect of Section 29 will ensure they remain valid, despite the fact that those decisions may be incompatible with the Supreme Court’s judgment. Where decisions have been made that are inconsistent with the clarified definition there is transitional provision in the regulations so that schemes will not need to unpick past decisions. Going forward, however, it is important that the trustees and managers of schemes know what action they need to take in respect of benefits they have previously treated as money purchase, but which do not meet the clarified definition. That will ensure that their members are protected.

In particular, these regulations amend Section 84 of the Pension Schemes Act 1993 to provide an alternative method for trustees or managers to revalue certain types of benefits known as cash balance benefits. The cash balance method allows the sum available for a cash balance benefit for a deferred member to be revalued by any method that is applied to the benefits of active members where it cannot be calculated by reference to the salary.

The regulations also include decisions made by the board of the Pension Protection Fund that relate to benefits affected by the clarified definition as matters that are reviewable under Schedule 9 to the Pensions Act 2004. That will ensure that during the transitional period, where the board has exercised discretion as to whether to treat benefits as money purchase benefits, that decision can be challenged and subject to a formal review process.

The Government have worked closely with the pensions industry to identify the type and number of schemes that will be affected by the clarified definition of money purchase benefits. The majority of schemes will be hybrid schemes—that is, they will contain a mixture of money purchase and non-money purchase benefits. Hybrid schemes make up about 2% of the estimated 40,000 private occupational schemes in the UK which include money purchase benefits—that is, approximately 800 schemes.

I commend the Pensions Act 2011 (Consequential and Supplementary Provisions) Regulations 2014 to the Grand Committee and ask its approval to implement them.

Pensions Bill

Debate between Lord Bates and Baroness Harris of Richmond

Monday 20th January 2014 Grand Committee

[Lord Bates]

My Lords, in moving Amendment 68, I will also speak to the other amendments in this group. Government Amendments 68 and 69 respond to recommendations of the Delegated Powers and Regulatory Reform Committee. They provide that regulations made under certain powers in the Bill would be subject to the affirmative resolution procedure. I am grateful to the Committee for its consideration of the powers in the Bill and subsequent report.

As I do not wish to detain noble Lords for too long, I thought it would be helpful to briefly outline the regulation-making powers affected by the government amendments. They would provide that the regulations made under the following clauses would be affirmative: Clause 17, which provides for regulations to prescribe the rate at which deferral increments will be calculated for the single-tier pension; Clause 18(3), which provides for regulations to modify the amount of state pension to be used when calculating the deferral increase due where a person has been resident overseas during their period of deferral; Clauses 19 and 31, which provide that regulations may be made to disqualify a prisoner from being paid a single-tier pension or bereavement support payment; Clause 20, which provides for regulations to exclude people who are not ordinarily resident in Great Britain or a specified territory from entitlement to the annual uprates of the single-tier pension; and Clause 33, which provides for regulations to prohibit the offering of incentives with the intention of inducing a member of a defined benefit pension scheme to agree to a transfer of their rights to another pension scheme or arrangement.

Turning now to the other amendments in this group, Amendment 68ZA would make regulations under Clause 17(5) affirmative. As I have already said, Amendment 68 provides for regulations under Clause 17 to be affirmative so this amendment is not necessary. Amendment 68B would make regulations under Clause 42 affirmative. Clause 42 provides for regulations to be made to enable the recovery of Pension Protection Fund levies for past periods. This is a technical area relating to ensuring compliance with EU law on state aid, following a decision by the European Commission and a subsequent ruling of the General Court in respect of the BT pension scheme. This found that partial exemption from the PPF levies due to the existence of a Crown guarantee constituted unlawful state aid. The Government understand that BT has appealed the ruling of the General Court to the European Court of Justice.

Regulations were made in 2010, following the Commission’s decision, to ensure payment of the levies going forward. Clause 42 simply provides for regulations to allow recovery of outstanding levies relating to the period from 2005-06 until 2010, when the regulations took effect. In agreement with the Commission, an escrow account was set up pending the final legal outcome and already holds the maximum amount of risk-based pension protection levy that could be due, plus applicable recovery interest. The Government are not aware of any other scheme in the same position as BT, so any regulations would have limited application.

Given the limited scope of this power and the opportunity to scrutinise the Government’s intentions during the passage of the Bill, we consider the negative procedure appropriate in this instance. Any regulations made under this power would simply ensure that the prompt payment to the PPF of the levies for past periods is possible should BT’s final legal challenge not succeed. This will ensure that the UK is in compliance with state aid law and so avoid possible fines. I therefore ask noble Lords not to press their amendments. I beg to move.

[The Deputy Chairman of Committees (Baroness Harris of Richmond) (LD)]

My Lords, if Amendment 68 is agreed to, I cannot call Amendment 68ZA by reason of pre-emption.

[Lord Browne of Ladyton]

My Lords, I speak to government Amendments 68 and 69, and to Amendment 68ZA, for what that is now worth, and Amendment 68ZB in the name of my noble friend Lady Sherlock and myself. As the Minister pointed out, Amendment 68ZA is now unnecessary in the light of government Amendment 68.

We welcome the government amendments in this group. As the Minister explained, they have been tabled in response to some of the recommendations made by the DPRRC. I am pleased to see that the Government have come to accept the DPRRC’s recommendation that Clause 17 powers relating to the effect of pensioners postponing or suspending state pensions should be affirmative; that was the purpose of our Amendment 68ZA.

Amendment 68ZB is purely a probing amendment, and has been remarkably successful in drawing from the Minister an extensive explanation of the regulation-making power under Clause 42, and why the Government felt that it was appropriate that it should proceed by the negative resolution procedure. I am extremely grateful to the Minister for that detailed explanation and, in the light of his full explanation, which is now on the record, I will not press that amendment.