Plumbers’ Pensions

Alan Brown Excerpts

Tuesday 25th October 2016 Westminster Hall

[Pete Wishart]

Absolutely. These people are not city spivs. They have not malevolently tried to get out of paying their contributions. They are people like my hon. Friend’s constituent, who have conscientiously paid into schemes and never knew they would face a potential issue at the end of their working careers. It is so unfair that they are being exposed to issues such as this. These are the people who fix our central heating, get the washing machine working again, fix our broken pipes and repair the boiler.

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

Is it not strange that last year in the Budget, the Government found £6 billion to make cuts in inheritance tax and capital gains tax? This issue is actually about inheritance. I have a constituent who is unwilling or unable to pass on his business to his son, because of its liabilities. My hon. Friend has touched on a very simple solution, which is a change in the method of valuation of the pension liabilities.

[Pete Wishart]

I want to come up with a few suggestions for the Government about how they can resolve some of these real and difficult situations. My hon. Friend is right; it is incumbent upon the Government to work with us. This is not about having a go at the Government. We were all unaware of these unintended consequences. My plea today is that the Government do two things: first, acknowledge that there is a serious difficulty here, and secondly, work with us and the sector to resolve it.

I want to give a couple of examples that show how invidious the situation is for many of our constituents right across the country. One is a guy called Mike. Mike’s business was established in 1985 by his father. He joined the business a few years later as an apprentice plumber. Mike and his dad built a business like so many family plumber businesses that we are familiar with, which provided a professional service to customers and tried to ensure that its employees were looked after. Their business grew, and by 1990 they had a pension scheme for their employees and were paying sick pay and holiday pay through a scheme operated by SNIPEF. Over the years they have had many apprentices, and they currently employ 14 staff. Their employees have all been trained to the highest possible standard.

Over the past 26 years, Mike has paid something approaching £400,000 in employer pension contributions to the scheme. Mike’s father is now retired and seriously ill, and Mike cannot bear to share his worries about the business with him, despite the fact that they have worked so closely together over the years. Mike, like so many employers including the plumbers I met in my constituency, has only just been able fully to understand the magnitude and significance of section 75 and cannot believe its implications for responsible employers. Mike’s business is unincorporated and he now realises that by triggering the debt he will lose his home, his life savings and other assets that he has spent all his working life securing. In his words, he is faced with continuing to work and accruing a section 75 debt until he dies, because he fears the effect of triggering the debt.

I have loads of example, which I might send to the Minister for his reflection and views, but I will give one more. Kyle’s business—another family business—was started by his father in 1982. Until recently he was a 50% shareholder, but in 2015 he bought out his partner for more than £100,000 and, at 52, he now owns 100% of the business. He currently has one plumber in the scheme and has contributed £242,000 to it over the past 37 years. Kyle has a young family and is worried sick about his potential liability. He has made all but one of his employees redundant and is now working for another company. He would like to close his business completely and sell off his business property, but he knows that doing so would trigger a huge debt. His time is now split between running his own company and working as an employee for another.

Kyle has contacted SNIPEF and has been told that his liability is an incredible £1.7 million. He is worried beyond belief, he cannot sleep at night and he feels totally destroyed and depressed. He says he just wants to curl up in a ball and die. Plumbers in our constituencies have done nothing wrong, but they are left in that condition. I have given real-life examples that we must address. I have many other examples, and I will pass them on to the Minister.

I want the Government to do a couple of things. I know the matter is difficult and technical—I have looked at it and understand the Minister’s difficulty in resolving it, but resolve it he must. First, let us agree today that the issue is huge and acknowledge that something must be done to resolve it. The Minister could make a start by considering the problem of the debt being triggered by the departure of the last active scheme member working in a business. The Pension and Lifetime Savings Association has said that employers are artificially retaining a single active member so as not to trigger the scheme.

The Government could also look at how the debt is calculated. It is based on an insurance assessment of the scheme’s value, which will obviously inflate its value. Surely it could be calculated by technical measures looking at the way the scheme operates and the actual membership. The phantom liabilities, or orphan liabilities, must be dealt with, because they inflate the scheme’s value. No one knows where the people to whom those liabilities relate are, and they no longer participate in the scheme, yet the valuation is kept artificially high. To enable us to move forward, there should be exceptions for small and micro non-associated family businesses. The Minister has an army of civil servants available to try to resolve the matter, and a pensions Bill is going to be introduced, which will allow him to look at it. I hope very much that he will do that.

I want to allow my hon. Friend the Member for Edinburgh North and Leith (Deidre Brock) a few minutes to speak, as she has been looking at the matter and SNIPEF is based in her constituency, but I have a plea for the Minister. We know that something is going on, and he has acknowledged that—I have seen some of his helpful responses to hon. Members who have raised these concerns. Will he please work with us? These people have done absolutely nothing wrong. They are the cornerstone of our community and provide a service to it. My appeal is that MPs, the Government and the sector work together to resolve some of these issues.

--- Later in debate ---

[The Parliamentary Under-Secretary of State for Pensions (Richard Harrington)]

It is a huge pleasure to serve under your chairmanship, Mr Bailey. I thank and commend the hon. Member for Perth and North Perthshire (Pete Wishart) for securing this debate. I am delighted that I can pronounce his constituency name without assistance. I also thank other hon. Members for their contributions.

This is a serious matter and not one the Government take lightly. I am quite new to this job, but it seems to me that the real lobbying from constituents through their Members of Parliament to the Government is an example of how things should work instead of teams of lobbyists coming to formal meetings. I commend hon. Members who are representing their constituents. They are not facing a heartless Government who treat the matter as a minor detail. The examples the hon. Gentleman gave of Mike and Kyle are typical and I would be pleased if he would send me details because I have seen similar examples and the question is how we deal with them.

I have listened carefully to what has been said about this worrying situation faced by small employers. As the hon. Gentleman said, they are fantastic people who have been going about their business for many years. The Government have received and listened to representations asserting that there is a simple solution. There is not. The issue is complex and, unfortunately because of the way government works, we cannot react quickly because the unintended consequences that have happened can lead to others. I hope hon. Members will not think this is just Government waffle.

Before I came into the Government I thought things were much simpler than they are and that is part of our democratic system, but it does not mean that we treat them lightly. I am well aware of the difficulties facing small employers in these schemes when managing their own pension commitments in the current economic climate and their responsibility for other people in the scheme.

[Alan Brown]

I appreciate what the Minister is saying about the matter being complicated for technical reasons and that the Government are sympathetic, but we need to know about the timescale. Some of these plumbers have already triggered section 75, so there is debt coming at them at a rate of knots. Timescales and assurances are required.

[Richard Harrington]

The hon. Gentleman has made a very reasonable point, which I hope to come to. By the way, my door is open to hon. Members and, if they feel it necessary, their constituents or representatives. This is not something that we are avoiding. I had better make progress now if the hon. Member for Kilmarnock and Loudoun will excuse me.

We have been talking to a lot of stakeholders about aspects of the operation of employer debt for some time. I have read the files. The hon. Gentleman asked for urgency, and he is right, but the matter is in hand. Last year, there was a call for evidence, which is an official mechanism for seeking views, on the operation of the current regime, the effectiveness of the current easements and the impacts of proposed changes. My officials are reviewing the responses that we received and exploring what further flexibility we could introduce to help employers to manage precisely the kind of debt that has been referred to, but as many respondents to the call for evidence highlighted, there is no easy or quick solution. Quite a few different ones have been mentioned.

My original thought was, as I said, that the issue was much simpler and that a change to the system of valuation could deal with it—the hon. Member for Perth and North Perthshire made a point about that in his opening speech. However, all of this has consequences. The reason why these laws were in existence in the first place was to protect the very people who otherwise could have found themselves retiring with no pension because of all the surrounding circumstances, but we are not saying that this is something that will just go on for years and years; we hope to do a formal consultation very soon.

I should like to state again on the record that the current employer debt legislation is there for a very good reason: to protect members of occupational pension schemes and ensure that, when they retire, they receive the pension that they have been promised. We cannot let that aim disappear. We have to find a way to ensure that the injustices mentioned by hon. Members contributing to the debate are dealt with, but at the same time we must not do anything to threaten the pensions of the other people.

The Government have made a significant number of changes to the legislation in response to representations made by employers. A number of mechanisms are in place whereby only part of the debt, or no debt at all, may be payable. The hon. Member for Perth and North Perthshire may be aware that there are currently eight such mechanisms in legislation, which reflects the wide variety of circumstances that can arise with diverse scheme structures and the equally diverse range of employer types. For example, the existing scheme and flexible apportionment arrangements permit an employer debt attributable to the departing employer to be shared among the remaining employers or taken over by them, so reducing the debt to nil or a nominal amount. Those can be useful provisions in cases in which an employer ceases to employ members or undertakes corporate restructuring.

For small employers, which we are talking about today, that are participating in a large non-associated multi-employer scheme such as the plumbers scheme, a period-of-grace arrangement provides for the situation in which an employer temporarily ceases to employ active members but intends to do so again in the future. The regulations provide for a period of grace of up to 36 months when no debt triggers, giving time for new employees to be recruited.

The high proportion of orphan members has been mentioned. The scheme would like the liabilities that relate to such members, whose employers no longer participate in the scheme, to be passed elsewhere rather than be shared among remaining employers. The requirement to meet a share of orphan liabilities is common to all schemes and an important part of member protection. Although it would be very difficult to make a special case for a particular scheme, we are looking more widely at the challenges faced by defined-benefit schemes and want to encourage a wide debate about the challenges facing those schemes and what the solutions might be, including that one. We are well aware that some parts of the pension sector are stressed, but the situation is very mixed and the problems are far from universal. We are trying to build a better understanding of those, using the call for evidence and all the meetings with stakeholders, to form an opinion on what the Government intervention should be.

[Alan Brown]

I thank the Minister for giving way again. The topics that he is covering involve wider pension issues. Does that not underline yet again the fact that there should be an independent pensions regulator to help to address these matters?

[Richard Harrington]

That is a whole different argument, as the hon. Gentleman knows. I would be very happy if we could have another debate on that and I am happy to check with him informally about it because it is something that has been proposed, particularly by his party. Respectfully, however, as far as this issue is concerned, that is irrelevant. I am not saying that the argument has merits or does not, but as far as this issue is concerned, we do not have a standing commission. The Government are here to try to deal with the issue and it is our intention to do so. We will produce a Green Paper very soon. We have said that that will be in the winter, which will certainly be before the leaves reappear, even in Scotland. We will do it as quickly as we possibly can.