Pension Schemes Bill [Lords]

Alan Brown Excerpts

Report stage & 3rd reading & 3rd reading: House of Commons & Report stage: House of Commons
Monday 16th November 2020 Commons Chamber

In conclusion, it is for those reasons, among many others, that I will support the Government today. I know just how hard the Minister has worked on the Bill, alongside his colleagues, and I thank him for his efforts. Tackling climate change is, of course, of crucial importance and the Bill most certainly marks the next step in our journey to reach net zero.

[Alan Brown (Kilmarnock and Loudoun) (SNP)]

It is a pleasure to follow the hon. Member for Keighley (Robbie Moore). I noticed that he mentioned cross-party working, so on that basis I look forward to him voting with the SNP tonight when we press some of the amendments to a vote. I very much appreciated that early commitment.

I rise to speak to new clauses 4 and 5, tabled by my hon. Friend the Member for Airdrie and Shotts (Neil Gray)—I have also put my name to them. In January 2018, I introduced a private Member’s Bill on multi-employer pension schemes, including provision for the protection of unincorporated businesses. The Bill was intended to correct what I saw as the unintended consequences of the section 75 amendments, which were legislated in 2005. Like many private Member’s Bills, it did not go anywhere, so tonight I am keeping a promise to the plumbers of my local Scottish and Northern Ireland Plumbing Employers’ Federation branch. I promised that I would do all I can to try to get legislative changes for a solution to the section 75 debt issue, which has adversely affected the plumbing and mechanical services industry pension scheme.

It is disappointing that nearly three years down the line since I introduced my Bill the reality is that we are no further forward. It is also just over four years since my hon. Friend the Member for Perth and North Perthshire (Pete Wishart) first raised the matter in a Westminster Hall debate. As he pointed out earlier, the then Minister pledged to find a solution to the problem. We are still waiting, despite the argument that there has been some progress over the years. I put on the record my thanks to SNIPEF and the Plumbing Employers Action Group for their assistance in tweaking the amendments to try to reflect ministerial comments that were made in Committee.

From 1995 until further changes in 2005, the plumbing pension fund was assessed on a minimum funding basis. When it was valued like that, the scheme was deemed fully funded and therefore any employer leaving the scheme did so without detriment to the overall scheme. As we now know, the 2005 changes led to the scheme being assessed on an insurance buy-out basis, which has caused the current issues. Those issues have been exacerbated, because those who left in compliance with the then rules on the old assessment did not accrue or owe any debts, but on the new basis, they have now created liabilities that the remaining employers have to pick up. Even now, the scheme is close to being fully funded if it was still assessed on an ongoing basis, which shows that changes should be possible. Given that the UK Government will not allow a change to the buy-out assessment process, surely we need to look at the modest changes proposed in new clauses 4 and 5.

Nobody is arguing against the principle of ensuring that a pension pot is sustainable. We understand the need to minimise risk to the taxpayer in terms of the Pension Protection Fund having to pick up any slack. However, the stark reality is that unless some amendments to legislation are made, many individuals will be made bankrupt. Surely we have a duty, as legislators, to prevent that. This is individual employers who were doing the right thing for their employees at the time, to ensure that their employees had a healthy pension in their retirement.

Over the years, Ministers have often referred to “easements”. However, statutory easements do not cover all situations—in particular, where an employer has retired or ceased trading or has triggered a section 75 debt prior to the closure of the pension scheme to future accrual. As my hon. Friend the Member for Perth and North Perthshire said, there is a small group of some 30 retired unincorporated ex-employers for whom no easements have ever applied. They are unable to use a deferred debt arrangement as that is only available for limited companies, and in any event, the scheme closed for future service in June 2019, meaning that the deferred debt arrangements cannot be used by a closed scheme. In addition, having been unincorporated businesses that have now ceased trading, they cannot apportion their debt to another business or person, so they have no easements or recourse available to them at this moment in time.

Due to a failure of notification, this group did not even know that they had debts until it was too late for them. The average debt that this group faces is some £500,000, with the highest being £1.2 million. Nobody benefits if these people are made bankrupt. The reality is that, if they are made bankrupt, the total debts will not be recovered. Critically, the pension fund will not be materially financially stronger even if these individuals are pursued and they lose their homes and are made bankrupt. Such punitive action is in no one’s interest. That is why we want these modest changes to be made.

In Committee, the Minister stated:

“The new clause would be unfair to those employers previously connected with the scheme who have already paid their section 75 debt”.––[Official Report, Pension Schemes Public Bill Committee, 5 November 2020; c. 123.]

He also stated that

“the new clause would weaken the protections contained in the current deferred debt arrangement system. We need to balance the needs of the affected employers with the risks to scheme members and other employers.”––[Official Report, Pension Schemes Public Bill Committee, 5 November 2020; c. 122.]

On the face of it, those are reasonable sentiments, but the issue is that so much of this debt—up to 60% of it—is orphan liabilities. There is an inherent unfairness in the way that the debts have been assessed, accumulated and attributed. We need to find solutions, rather than argue about ifs and buts as a way out of doing so. Otherwise, financially strong businesses can still be stuck with a huge, often unpayable debt, which takes a grave personal toll on the individuals involved.

While there are some options for managing or delaying section 75 liabilities available to those currently trading, there is little help available to those who have already retired. Our new clauses try to strike the right balance. The adjustments proposed in the revised new clause 4 are designed to narrow the focus of the amendments proposed in Committee to make it clearer what factors pension scheme trustees or managers should take into account when considering the application of de minimis discretion, and to make it clear that de minimis discretion should not be to the detriment of the pension scheme overall. That hopefully addresses some of the Minister’s concerns about fairness.

The Minister said that 0.5% in itself might be a small threshold, but there is concern about the cumulative effect of a number of 0.5% disregards. We need to stop finding reasons not to do something. The additional stipulations in new clause 4 should give added comfort in that regard, particularly the non-detriment aspect of the overall scheme.

New clause 5 would permit employers in a pension scheme closed to future accrual to apply for a deferred debt arrangement providing that they meet the other statutory tests. This would allow a deferred debt arrangement to be put in place where an employer triggered section 75 before scheme closure but did not have a DDA in place. Although the trigger for the deferred debt arrangement happened pre-closure, the employer must still meet the statutory test for a DDA; in other words, an employer must still be trading and have an ongoing contractual commitment to the scheme. This is needed to support employers who are still trading and otherwise trapped and forced to continue trading, unable to sell on or transfer ownership of the company.

I say to the Minister that we need to remember that some people are literally working themselves to death, unable to retire. I have constituents who are unable to stop working because of the section 75 debt and liability that hangs over them. A couple of years ago, a medium-sized company in my constituency stopped trading, but it is a safe bet that the individual who is the owner of that company still has a section 75 debt issue remaining. Action is required. As my hon. Friend the Member for Perth and North Perthshire said, it would be great if we could just make some progress tonight and if the Government supported these modest amendments. Just think of the relief that this could bring to many individuals. If the Government are not willing to do that, I look forward to hearing what their solution is instead.

--- Later in debate ---

However, the crucial point is surely this: the current legislation already provides a discretion for trustees not to pursue employers’ debts if they decide that it would be too costly or too lengthy to seek a recovery. Trustees also have the flexibility to collect reduced employer debts without compromising their Pension Protection Fund backing if they are funded above a section 179 basis, but, with no disrespect to the proponents of these measures, this is a decision ultimately for the trustees to take and it is the trustees who need to look at themselves to consider whether they wished to pursue this debt—

[Alan Brown]

One of the issues is that trustees have a legal duty in terms of the trust. At least this amendment would make it much easier for the trustees to implement not chasing up the debt. If somebody has a debt of £1.2 million, who defines what is too costly for the trustees to decide to chase that debt? That is part of the issue.

[Guy Opperman]

With no disrespect, that is a matter for the trustees. The hon. Gentleman can make the case to the trustees as to whether it would be too costly or too lengthy to receive a recovery.

In respect of new clause 5, the deferred debt arrangements were introduced as an easement to help employers struggling to manage their section 75 debts in an open non-associated multi-employer scheme. The new clause, I am afraid, offers only a temporary respite at best. The debt would still exist and would have to be paid in the future. The employer would have to pay potentially a larger section 75 debt in future if the scheme’s funding position declined further. The employer would also remain liable for deficit repair contributions. The amendment would not, I suggest, help sole traders who want to retire, or who have retired, and want to completely end their liability of the scheme.

In respect of new clause 2 and the Pensions Commission, I am afraid, as I have repeatedly made clear to the hon. Member for Airdrie and Shotts (Neil Gray), that this is not something that the Government can support.

I finally turn to new clause 1, which was proposed by the right hon. Member for East Ham (Stephen Timms) and the Chair of the Select Committee. It is quite clear that there is a common intent across the House to improve guidance to individuals. I cannot support his amendment, not least because it would potentially apply, so I am advised, to defined benefit as well as defined contribution. It is something that would massively enhance the workload of Pension Wise by at least 10 times. He will be aware that there are more than 4.4 million individuals with unaccessed DC pension wealth aged 45 to 54 in the UK. In 2019-20, Pension Wise processed 200,000 transactions. I respectfully suggest—