Pension Schemes Bill [HL]

Baroness Altmann Excerpts

Committee stage & Committee: 4th sitting (Hansard) & Committee: 4th sitting (Hansard): House of Lords
Wednesday 4th March 2020 Grand Committee

[Lord Balfe (Con)]

This is a rather technical amendment in many ways. I declare my interest as the president of the British Airline Pilots Association, one of the unions that would be affected by a change in the law such as is suggested here.

Members generally pay into pension schemes on the basis of putting so much in for an accrual rate, which gives them a pension. But if pensions go into the lifeboat, the amount that people can get out is limited. This ruling was originally done for a very good reason: to stop boards of directors awarding themselves large pensions, then a company going bust while they transferred the liability for their excesses into the lifeboat. However, it had an effect which I do not think was foreseen. There are a number of people in the private sector who have quite high earnings and are in pension schemes—at that time largely in DB schemes—and they were affected by this ruling. In short, it meant that people were paying into a scheme but not getting out what they had been paying in for. They were given a promise but it was not honoured, because of the cap that was put in place.

Amendment 80 seeks to review this cap. I accept that it is a complicated matter and would be more than happy if, in responding, the Minister can say that she is prepared to have this added to the subjects we are to discuss at the meeting which has been promised. I recognise that if we were to change the law, we cannot just abolish it. We would need to look at things; in particular, I suggest that we would need to erect some safeguards with reference to accrual rates, so that we would not allow an accrual rate above a reasonable level—possibly 2%. Any person affected would also have to be able to demonstrate that they had paid into the pension scheme over a number of years, and had not been awarded a lump sum of years just before the company went under. There would also have to be maximum contributions for tax relief. In other words, you could not suddenly have a huge contribution going in and building up a large amount of pension.

The amendment is basically aimed at enabling workers who have paid for a pension scheme but happen to be high earners to look forward to getting what they have paid for. I point out that, at the moment, the main people affected would be those who used to work for Monarch. But I would not like to predict where, for instance, the British Airways pension scheme will be 10 years from now. The Spanish company that is now the owner of BA might well be in a position where, for some reason or other, it is not able to fully honour the pension agreement. It is better to look at it now than to do so then.

I also make the point that most high earners in society are covered by public sector pension schemes. The people who work in the health service, for instance, are covered by the health service scheme; senior civil servants are covered by the civil service scheme; most people in the nuclear industry are covered by a public sector scheme. It is often forgotten that even in private schools, the staff are actually in a government-backed scheme. There is a lot of debate going on at the moment because the costs for private schools that pay into the Department for Education-funded scheme have increased considerably. None the less, teachers in private schools are covered by a public scheme.

As I said at the beginning, I ask only that the Minister would kindly agree to add this to the agenda. It is a problem that is capable of being solved. It is not quite as simple as my amendment suggests—I accept that—but putting forward this amendment was basically the only way of dealing with the scheme as it stands. Quite a bit of legislation, in the form of statutory instruments, would be needed to cover the way in which any deviation or loosening of the scheme was governed, because it is emphatically not the intention of this amendment to free up pension schemes so that irresponsible boards of directors could award themselves large pensions. This is to do with workers who have paid into a pension scheme for many years and are unwittingly caught by the cap because their employer is unable to fulfil its pension obligations.

[Baroness Altmann (Con)]

I have added my name to this amendment. I support my noble friend and echo his request to the Minister for a meeting to discuss this issue further. I understand that it may not be possible to arrange immediately, and needs careful consideration, but, given the rulings in court cases and so on, it may be worth trying to address some of these issues, which are clearly causing distress to an important, albeit small, number of people.

[Lord McKenzie of Luton (Lab)]

My Lords, we have some difficulty with this amendment. We are more than happy to put it on the agenda for a meeting, although I recall earlier sessions when I think the noble Lord, Lord Balfe, convened a meeting with the pilots’ association for us to range over this. At that stage neither we nor the Government were particularly happy with any change—or the sort of change suggested here.

There is an issue about affordability for the PPF that has to be taken into account. We should also bear in mind that funding for the PPF comes from a levy on these other pension schemes, so the higher costs go the greater the hit on those schemes. As I understand it, the proposition is that it would cover not only those who receive a payment in future but all those currently receiving capped payments. It would free up those amounts, too.

I do not know whether the noble Lord has an impact assessment for this proposal; if so, we should certainly see that. Although he partially dismissed it in his speech, when the scheme was designed the moral hazard issue was very much in mind—heavy hitters and senior people in organisations are better able to control the destination of their pension funds and remuneration, and there should be a mechanism in there to ensure that the options were not open-ended. At the moment the cap bites, I think, at something like £40,000, so we are not talking about people with minimal pensions. I think the average payout from the PPF is about £4,000, so there is a big contrast. Having said that, I am more than happy to join a discussion to review these issues—but I am not convinced that we would change our position.

The PPF has done marvellous work over the years, enabling people to receive an income when there would have been nothing. It is a very good organisation. We may check to see whether its view now is different to its view previously, but I doubt it, so the onus is very much on the noble Lord to come forward with an impact assessment to say how much this would cost if we did it. Having said that, we on this side would not be able to sign up to it.

[Baroness Altmann]

I echo that praise for the Pension Protection Fund. It has been a marvellous success story and has rescued so many people. It is run efficiently and with care for those who claim on it. I cannot praise it highly enough.

[Baroness Scott of Bybrook (Con)]

My Lords, let me begin by thanking the noble Lords, Lord Balfe and Lord Sharkey, and the noble Baroness, Lady Altmann, for this amendment. I believe that the intention is to improve member protection in the event of employer insolvency. The amendment would remove the Pension Protection Fund compensation cap currently applied to payments for members who were under their scheme’s normal pension age when their employer became insolvent.

It might be helpful if I first explain that the Pension Protection Fund is a compensation scheme and, as such, was never intended to meet the full pension promise made to every member of a failed scheme. Members over their scheme’s normal pension age and those who were in receipt of survivors’ benefits or an ill-health pension broadly receive full protection. Everyone else receives broadly 90% of their scheme benefits, subject to an overall cap. This means that the cap applies to early retirees as well as deferred members, ensuring that Pension Protection Fund compensation is calculated on the same basis for members of the same age in the same scheme.

It is worth mentioning that the Government are defending the cap before the domestic courts. Their position in this litigation, and current policy, is that the cap meets important objectives and should be retained. First, the cap helps to give greater protection to those who have reached their scheme’s normal retirement age at the time of employer insolvency. These members are likely to have fewer opportunities to supplement their income in other ways. Secondly, the cap helps to control the costs of the fund—costs that may otherwise fall on levy payers. Finally, as we have heard, the cap is intended to encourage people with influence over the schemes to fund them responsibly and to discourage excessive risk-taking. Key decision-makers have an incentive to ensure that their schemes stay out of the Pension Protection Fund because the cap is likely to have a direct impact on the compensation that they would receive.

The level of the cap was set after much research and analysis. The current full amount is around £40,000 at the age of 65. Members under their scheme’s normal pension age initially receive 90% of the capped amount, which equates to around £36,000 at the age of 65. Nevertheless, this far exceeds the estimated average defined benefit pension of around £8,000. Only a few members of the Pension Protection Fund are affected by the cap. The nature of the cap means that it affects predominantly high earners; abolishing it would, therefore, mainly benefit those high earners.

In conclusion, the cap is a necessary and proportionate means of achieving a number of significant policy aims in relation to the Pension Protection Fund compensation scheme. I hope that this provides sufficient reassurance to noble Lords, and I urge the noble Lord to withdraw his amendment. At the same time, we would be more than happy to add this issue to the agenda for our meeting, which has been arranged for Thursday 12 March at 10 am.

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The BMA’s briefing tells us that the scale of the pensions problem and its impact on the NHS workforce and patient services cannot be underestimated. It is, unfortunately, being felt across the country. Waiting times for cancer and routine care are the longest on record. A&E performance is the worst since records began, and 11 million patients are experiencing unacceptable waiting times for GP appointments as doctors continue to be forced to reduce their work to avoid huge, disproportionate tax bills. There is an urgent need for the Government to address this situation. Amendment 83 calls for a review of the annual allowance and taper; Amendment 86 calls for the current short-term mitigations to be extended into the future on a permanent, statutory basis. Like the noble Baroness, Lady Neville-Rolfe, I want to put pressure on the Government. As she ably described, this could be approached in a number of different ways. I hope that we can put pressure on the Government, and I look forward to hearing what the Minister has to say about how this situation can be resolved.

[Baroness Altmann]

My Lords, I support Amendments 83 and 86. Noble Lords have already explained the problems in great detail. However, this crisis dates back more than two years. NHS hospitals and regional authorities have been trying for some time to deal with the fall-out of the taper and to find a resolution, but so far there has been no action. The Government promised action within 30 days last December, and we are still waiting. The doctors and medical staff in this scheme were given a promise, but it has not been honoured because of flawed attempts to save money on pension tax reliefs for so-called high earners. Yet the costs resulting from the unintended consequences of the legislation—I understand the thrust of that legislation—in paying locums, cancellations and inadequate NHS services may well outweigh any savings that might have been achieved by trying to clamp down on high earners.

I was at a BMA consultants’ conference today, giving a presentation on pensions. In a room seating around 400, those consultants decided to have an emergency vote and it was unanimous in favour of urgent government action, such as Amendment 86 being introduced. There was clear anger around the room at what they feel is a betrayal of their terms and conditions of service. They had no warning of the changes in tax relief, which were said to affect only those earning more than £150,000 a year; in fact, the way that the cliff edge and the threshold work means they have hit people earning a lot less than that. They were given no chance to mitigate their losses. In the private sector or in other government schemes some mitigations have been offered, but not for the NHS.

In any case, the rules of this taper make it impossible to predict what tax bill you might incur as a result of being asked to take on extra work because it depends on your current year’s earnings, which you will not know until the end of the current year. The Government could consider using last year’s earnings; at least one might have a fighting chance of knowing what extra work one might be able to take on. The scheme-pays arrangement, whereby it is possible that staff will not have to pay the charge, is a loan at around 6% interest that rolls up every year. Some consultants in their 40s were explaining to me today how that feels so penal. One could imagine changing that interest rate, for example.

The bottom line is that even the NHS pension scheme was unable to provide the staff with the information that they, or their advisers, would have needed to predict what the tax consequences of the work they were doing might have been. If they do not know what the impact will be, it is logical that they are not going to do the work. I understand that the plan in the Budget may well be for the Government to increase the threshold and introduce a bit more flexibility. I can assure the Committee that if that is the plan, it will not solve the problem.

The proposal in Amendment 86 is a practical way in which doctors can be reassured that if they carry out extra work, especially in the current extreme medical environment that we may well be facing, they will not be penalised taxation-wise and pension-wise for doing so. This amendment might not fit precisely in the Bill, but I would be grateful to hear from my noble friends what the reaction is to the proposed method of dealing with this problem. If the Bill represents, as the BMA said in its briefing, a valuable opportunity to find a resolution to this long-running problem then I hope that it will be able to address the issue, and put our NHS and our most valuable medical staff back on an even keel.

[Lord McKenzie of Luton]

My Lords, this issue has been rumbling around for far too long and it is time to try to get a solution to it, particularly, as many noble Lords have explained, because of the pressure that the NHS would have been under anyway but for the recent crisis. My noble friend Lord Warner made a strong case with his proposition and we would certainly like to reflect on it. I know that the problem is that lots of people have reflected from time to time on a possible solution. That reflection goes on, but we do not yet have a solution. But Report on this Bill will be coming up shortly, and of course we have a Budget of some sort not far in the distance.

I have a couple of questions. I do not know whether my noble friend Lord Warner or the Minister can help with them. Was the one-off payment that the NHS made to cover the annual allowance taxable, and what might the consequences of that be? Under the scheme-pays arrangement, as the noble Baroness, Lady Altmann, hinted, if the problem is the penal interest rate then what is to stop those rates being adjusted, and who controls them?

We also need to bear in mind in all this is that these rules, unless I misunderstand them, have general application in the tax system. We need either to find a way of having some special arrangements or to accept that the adjustments we make here would have to be run for the tax system generally. We will need to work through the consequences of that. I am conscious that this contribution has not added one bit of sense to a practical solution, which is what we need to reach. Maybe, at the end of the day, we simply need to rank the solutions that we have on the table and choose the best, even though that may not be optimisation.

I am sure we all remember the pressure about this—I certainly remember pressure from the old Luton and Dunstable Hospital about it—and the real adverse effect that it causes on the delivery of services. We cannot continue to allow that to go forward; we simply have to drive through a solution to this. That is the challenge; presumably, the Treasury has ultimate responsibility for meeting it. But if it will not then we should, with the help of my noble friend Lord Warner and his expertise in these areas.

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[Baroness Altmann]

I take my noble friend’s point on the specific proposals in Amendment 86 in the name of the noble Lord, Lord Warner, which I have signed. However, were the amendment to be redrawn to suggest that an extension of the current arrangements for 2019-20 be brought forward also into 2020-21, would that address my noble friend’s concerns about the unauthorised scheme payment and the charges to the scheme? We could time-limit this but also address the urgency, because even if something is reported in the Budget, it is unlikely that the staff will have the reassurance for the forthcoming tax year, which is only a few weeks away.

[Lord Warner]

I just want to amplify the point made by the noble Baroness, Lady Altmann. Those of us who have been around in government for some years know that the announcement of review reports in Budgets do not necessarily mean that anything in those reviews will be rapidly implemented. My suspicion would be that any such reviews would have a longish period of consultation and would not appear in the next finance Bill—that is a likely outcome. Building on what the noble Baroness said, I need to go back to my clients—if I may put it that way—who will want to know what the position is. If I prove to be right over what happens on 11 March, would the Government be willing to consider something along the lines of buying two to three years for the NHS doctors? Will they help me get the wording right, so that it does not fall into the elephant traps that the Minister has set out? When we get to Report, we cannot just leave this; we have to come back to this issue with some credible solution. I would be delighted if the announcement on 11 March delivered a quick response, but if we do not deliver a response that covers the next two financial years, we will put the NHS in great peril.

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Moved by

[Baroness Altmann]

93: After Clause 128, insert the following new Clause—
“Suitability of pension schemes for automatic enrolment
(1) The Secretary of State must by regulations made by statutory instrument make provision to require that, where an employer makes arrangements by which a jobholder to whom section 3 of the Pensions Act 2008 applies, or a worker to whom section 9 of that Act applies, becomes an active member of an automatic enrolment or other pension scheme, the employer and the trustees, managers and administrators of the scheme have ensured that it is suitable for low-paid jobholders or entitled workers such that they are treated fairly in connection with their contributions. (2) A statutory instrument containing regulations under this section may not be made unless a draft of the instrument has been laid before and approved by a resolution of each House of Parliament.”Member’s explanatory statement
This amendment aims to ensure that employers, trustees, managers and administrators have assessed the scheme they use for auto-enrolment to ascertain that it treats low paid staff fairly and does not force them to pay additional contributions to replace tax relief they have lost.

[Baroness Altmann]

My Lords, noble Lords will understand that I believe that this amendment is vital to the ongoing success of automatic enrolment.

I add my congratulations to the noble Baroness, Lady Drake, for the work that she did with the original Pensions Commission, which set up automatic enrolment. It has been a success. My amendment seeks to build on auto-enrolment by introducing protections particularly for low earners—at least 70% of whom are women—and provides that the Secretary of State must make regulations that require the trustees, managers, administrators and employers of these workplace pension schemes to ensure that the scheme is suitable for low earners and treats them fairly.

I seek to introduce this into the Bill because, currently, more than 1 million women who are earning below the personal tax threshold, which is around £12,500 in any one job, are required to pay—unwittingly and unknowingly in probably all cases—25% more for their pension because their employer has chosen a particular pension scheme that is not suitable for them because it charges them so much extra.

The noble Lord, Lord McKenzie, referred to addressing pensioner poverty and undersaving. Clearly, the fact that the lowest earners in the country have an extra 25% added to the cost of their pension, which has to come out of their pay, makes them more likely to have affordability issues and could, potentially, lead to them opting out of the pension because of the extra costs. These are, generally speaking, the people who most need help to build up a pension for later life and who are at greater risk of pensioner poverty. That is what the auto-enrolment system was meant to address, given that we have the lowest state pension in the developed world.

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I understand my noble friend’s desire to see resolution of this issue and I know that she has raised it with the Treasury. For the reasons I have given, I am afraid that I cannot accept her amendment, but I hope she will welcome the new Government’s manifesto commitment to carry out a comprehensive review into how best to fix this complex issue. The Government believe this review is the right way to move forward, and Treasury colleagues will make announcements on the next steps in due course. My noble friend is always very supportive and constructive in her approach to policy issues. I hope she will therefore help us to fulfil our intention of identifying how best to address the operation of pensions tax relief, both as we proceed with the comprehensive review and, in the first instance, if I may suggest, by withdrawing this amendment.

[Baroness Altmann]

I thank my noble friend for his response. I welcomed, very much, the commitment in the manifesto to look at this issue. However, I hope he will forgive me if I suggest that this is not necessarily a matter just for the Treasury. Tax relief is, of course, a matter for the Treasury but the duties of schemes, trustees, IGCs and employers is a matter for the Pensions Regulator. Also, auto-enrolment falls under the Department for Work and Pensions. Might it therefore be possible—I humbly request this of my noble friend—to go back to the department to consider whether this issue of suitability could go broader than just tax relief? It could include all sorts of other areas: for example, an employer might choose a scheme that the majority of the workforce might not like to be in, but there is no mechanism for them not to be put into it.

If that is considered too difficult, I certainly take the point on low earners. This is a probing amendment and I would, for example, be happy to specify those earning below the personal tax threshold—that is really what we are talking about and it could be addressed. I understand and recognise that there is guidance for employers on the Pensions Regulator’s website but the requirements for master trust authorisation, or the requirements put on IGCs and trustees of these pension schemes, do not include taking any concern for the extra costs imposed on those earning below the personal tax threshold. One wonders how value for money could be confirmed by those running pension schemes if many people in those schemes pay 25% more than they would if they were in an alternative scheme. There is a requirement for a value-for-money assessment but it does not seem to take account of these low-earning women.

I would be delighted to help the Government fulfil their aim of addressing this issue. Notwithstanding that, I would be grateful if my noble friend might consider whether there should be some extra duty. If it is not just on employers—I take that point and I mentioned it in moving the amendment—at the very least the trustees, the IGCs and the regulator know what is going on, even if in most cases the small employer does not. I have seen the wording on the Pensions Regulator’s website; it is not really clear, if you are someone who does not know what this is all about, that actually it means that because of the scheme you have chosen, your low earners will pay 25% more than they otherwise would.

Whether or not we can address this in the Bill—I hope that maybe we can—I am grateful to noble Lords who have supported the amendment. I am also grateful to my noble friends the Ministers, and the department, for having taken the time to continue to discuss the issue. I beg leave to withdraw the amendment.

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Moved by

[Baroness Altmann]

94: After Clause 128, insert the following new Clause—
“Multi-employer pensions scheme
The trustees of a multi-employer pension scheme may cancel a debt which became due from a departing employer before the coming into force of this section in relation to the scheme under section 75 of the Pensions Act 1995 if—(a) failure to pay the debt would not materially reduce the scheme’s assets relative to the estimated debt in relation to the scheme,(b) the majority of the debt relates to liabilities in respect of members working for employers no longer participating in the scheme,(c) the employer has not done an act or engaged in a course of conduct that detrimentally affected in a material way the likelihood of accrued scheme benefits being received (whether the benefits are to be received as benefits under the scheme or otherwise),(d) at the time of the cessation of the employer’s participation in the scheme, the scheme was estimated to have sufficient and appropriate assets to cover its technical provisions and the employer had no reason to believe there was a significant scheme deficit,(e) the employer has been operating as an unincorporated business and the owner would face personal bankruptcy, or the employer has been operating as a small business which would become insolvent, if required to pay the debt,(f) the debt is below a de minimis threshold in relation to the size of the overall scheme liabilities, as estimated by the trustees or managers on advice of the scheme actuary as if the whole scheme had been winding up at the time the debt was treated as becoming due, and(g) the employer has always taken all reasonable steps to fund the scheme as demanded by the trustees before the employer cessation event.”

[Baroness Altmann]

My Lords, perhaps I should apologise for taking the Committee’s time on issues that I feel have an opportunity to be resolved in the Bill. I hope that noble Lords will understand that I am doing this because I want to see pensions work better, and I care passionately about a system which I believe works really well in general. but there are areas that are causing significant problems which we may be able to address.

The issue at hand in this amendment is directly relevant to the Bill. It is about multi-employer pension schemes, where the current legislation has unintended consequences and causes significant damage in ways that it was never designed to do. There may be a way in which we can try to address that. I am not claiming that the wording of this probing amendment will fit the bill, as it were. However, in the plumbing multi-employer pension scheme—the one I have most experience of, but by no means the only one; there are a number of charity schemes as well—the trustees seem to be trying to force good employers into personal insolvency and homelessness to pay into the scheme the cost of buying annuities for workers who never worked for them. This is in a scheme which has always been said to be fully funded, with enough money to pay all its pensions: in the December 2019 employer update it was reported to be funded to 108%. It had an 8% surplus at its last measure. The scheme will not buy the annuities that these people’s homes will be taken away to pay for, while the employers have paid every penny of the contribution ever requested by its trustees.

In this pensions Bill we are dealing, quite rightly, with new measures for the Pensions Regulator to deal with recalcitrant employers, who may have deliberately decided—or the regulator may believe have deliberately decided—not to put enough money into the pension scheme. We are introducing measures which I have tried to build upon in my amendment, which gives reasons why the regulator may not impose a contribution notice, for example, on such a recalcitrant employer. I am trying to look at the conditions we might able to introduce in multi-employer schemes, which go back some time—for example, the ones I have looked at go back to the 1970s—and used to have 4,000 employers. Many of them have been allowed to leave or have failed. Now there are around 400 left. These are responsible for all the people who worked for those thousands of other employers, as well as the very few who worked for them.

I wonder whether we can find ways that mimic the easements for recalcitrant employers to salvage the situation for these often unincorporated businesses, such as partnerships which have been in a family for decades or very small companies. If the owner or the individual retires, they crystallise the Section 75 debt. If they try to pass the business to their son, they trigger the Section 75 debt. If they incorporated from a partnership to a company, they triggered the Section 75 debt but nobody ever told them. The size of the debt they owe is immaterial to the survival of the scheme. I am trying to see whether we can use a materiality test, a solvency test or a reasonableness test to deal with this unintended consequence of Section 75 debt, which had a strong and right purpose: if an employer was to walk away from a pension scheme, it needed to make sure that it had put enough money in to meet its promises to all its staff.

I have tried to introduce conditions through this amendment which would permit trustees not to collect the Section 75 debt. They are: if failing

“to pay the debt would not materially reduce the scheme’s assets relative to the estimated debt”;

if

“the majority of the debt”

owed by the employer is for orphan assets—workers who never worked for that employer, so the main employer could not try to use this provision; if the employer has never tried to avoid the debt or to damage funding; if

“at the time of the cessation”—

the Section 75 crystallisation—the scheme was fully funded on technical provisions; if the employer is unincorporated or a small business, and we may need to add partnerships, and faces personal bankruptcy or insolvency; and if the employer has always paid all the contributions asked for, then the trustees would explicitly be permitted not to collect the debt.

The total debt for the employers which I have seen suffering particularly from this is £7.2 million. That may sound a lot of money, but this scheme is worth well over £2 billion, so whether it collects that extra few million pounds will not make a difference to its solvency and survival in the long term. We seem to have lost sight of reasonableness. I hope we might define the circumstances tightly so that other employers cannot use this provision as a precedent. I completely understand concerns that we do not want it to be used as a precedent. The size of the debt is immaterial, relative to the solvency of the scheme.

I have deliberately worded Amendment 94 so that it follows new Section 58B(2) on page 91 of the Bill. Under that provision, the Section 75 debt or contribution notice will not have to be imposed. It says:

“A person commits an offence only if (a) the person does an act or engages in a course of conduct that detrimentally affects in a material way the likelihood of accrued scheme benefits being received”.


Clearly, in the case I described, in multi-employer schemes that test would not be met for imposition of the debt. The new section continues:

“(b) the person knew or ought to have known that the act or course of conduct would have that effect”.

These employers have paid everything that they were ever asked for and were always told that the scheme was fully funded, so they would never have known that there was a problem. The trustees of the scheme did not even try to collect Section 75 debt between 2005 and the past couple of years. The new section then says:

“(c) the person did not have a reasonable excuse for doing the act or engaging in the course of conduct”.

Again, if someone is paying everything that is due, the size of the debt is not material to the solvency of the scheme and the scheme is not buying annuities anyway, can we not inject some reasonableness? There are already easements but they do not meet these circumstances.

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[Baroness Stedman-Scott]

I thank my noble friend Lady Altmann for tabling this amendment and congratulate her on her tenacity in continuing her campaign to resolve this situation. If we were giving awards for tenacity, she would win, I am sure.

The Government understand the difficulties facing employers in these situations, especially where, in the past, they have taken all reasonable steps to fund the scheme as requested by the trustees. The amendment seeks to amend Section 75 of the Pensions Act 1995 to allow trustees further discretion to cancel a departing employer’s debt in certain circumstances. It raises a number of issues that I will address.

The effect of this amendment would be that every time it is applied, the employer covenant would be weakened, increasing the risk of thousands of members not getting their benefits in full. It is hard to envisage a scenario where trustees could agree to such an arrangement and still be compliant with their fiduciary duty to act in the best interests of scheme members. In particular, the proposals for a new de minimis threshold raise significant issues. Even if the threshold is set at a very low level, it could enable a large number of small employers to depart schemes without payment. The aggregate impact of this could be significant. Passing this level of debt on to employers who remain could make them insolvent.

It is worth noting that some flexibility already exists for trustees to collect reduced employer debts as long as the scheme is funded above a Pension Protection Fund level basis. It is set at this level to ensure that schemes do not place an additional burden on the Pension Protection Fund and, ultimately, the levy payers.

The amendment also proposes that debts could be compromised if the majority of the debt relates to orphan members whose employers no longer remain in the scheme. This would be very difficult for the scheme trustees, who have a duty to ensure that orphaned members’ rights are protected and that their scheme is properly funded. Removing orphan debts from the employer debt calculation would ultimately worsen the scheme’s funding position, putting thousands of members’ pensions at risk.

Further, this amendment would impose different statutory requirements on unincorporated and small employers, creating a number of challenges. For example, if all or the majority of the scheme’s employers were either unincorporated or small, it could mean that none, or very few, employer debts would ever be collected; in the long term, that could create a severe underfunding situation, with all the risks that entails.

The Government’s Green Paper and subsequent White Paper, which was published in March 2018, on defined benefit pension schemes looked very closely at this issue and considered carefully what could be done to relieve the pressure that some employers face from their obligation to pay an employer debt. The White Paper concluded that the existing arrangements in legislation, along with the deferred debt arrangement introduced in April 2018, provide enough flexibility for employers to manage their employer debts. Further, the current full buyout calculation method is the most secure and effective way of protecting members and remaining employers in a multi-employer scheme.

While the Government recognise the difficulty facing companies in managing this debt, they cannot, at this time, offer any easements beyond those already provided for in legislation. However, recognising the many representations that the Government have received supporting a change that would assist employers in this difficult position, we will keep this under review and continue the dialogue.

My noble friend Lady Altmann raised the issue of retired employers triggering a debt and being unable to pass it on. Flexibility in the rules enables retired employers to pass their scheme on to another employer without triggering an employer debt. The scheme has a streamlined, flexible apportionment arrangement, which could help employers in this situation.

My noble friend also made the point that some people find themselves in extreme difficulties, with the potential to lose their home. The employer debt regime is designed to protect employers who remain in a multi-employer scheme. It would be unfair to burden remaining employers with additional unplanned costs to cover the shortfall that would be created by relaxing requirements for one group of employers. The flexible apportionment arrangement currently available in legislation can be used to help unincorporated employers who wish to incorporate.

My noble friend Lady Altmann also asked whether the scheme is fully funded. My noble friend the Minister mentioned that the scheme is fully funded on a technical provision basis. However, I understand that the scheme is underfunded on both a budget basis and a PPF basis. The next scheme valuation is due in April 2020, which will give us a clearer picture of the scheme’s funding position.

I thank my noble friend and other noble Lords for their contributions to the debate on this amendment. I know how important it is to my noble friend, but, on the basis of my response, I respectfully ask her to withdraw the amendment.

[Baroness Altmann]

I thank my noble friend for her response, but I confess to being extremely disappointed with the robust refusal to address the issue. The current easements are not working, otherwise I would not be trying to press this amendment. The deferred debt arrangement does not remove the debt; it just pushes it into the future, so the person will still be made destitute at some point. Trustees are refusing a flexible apportionment arrangement, so clearly that is not an option.

We seem to have lost sight of the materiality issue and of what we are trying to do with the bigger employers. There are already some ways in which trustees can not collect Section 75 debt. I am just trying to extend those very slightly; it will not apply to the majority of employers in the scheme and it will not materially impact on the solvency and survival of the scheme.

I beg leave to withdraw the amendment, but I urge my noble friend to go back to the department to see whether there are any ways in which we might be able to inject some further easement for multi-employer, non-associated schemes, which were never designed to do this to good employers.

Amendment 94 withdrawn.

--- Later in debate ---

[Baroness Bowles of Berkhamsted]

My Lords, in Committee there has been broad resistance by the Government to positive amendments suggesting what could be put in the Bill to give reassurance about many of the issues raised. The Government claim that that needs to be the case to preserve flexibility, but that does not get over the fact that there are very broad delegated powers in the Bill, as pointed out by my noble friend Lord Sharkey on the first day in Committee and by the Delegated Powers Committee. There is no certainty about how far those broad powers will be used. They are not called Henry VIII clauses for nothing, although delegated powers nowadays put Henry VIII in the shade. I believe the noble and learned Lord, Lord Judge, elaborated on that last year.

This amendment goes the other way. Instead of making suggestions to clarify what needs to be done, it clarifies five things that the Government may not do under the delegated powers. It is, of course, a probing amendment. I could have made a longer or different list, and a couple of matters are in it specifically to enable further discussion. However, despite the probing nature of the amendment, its form is not novel. It has appeared in other legislation, and I believe it appears several times in the withdrawal Act. It is a known way of addressing issues of concern in skeleton legislation. I may have helped it into a few pieces of legislation, but I consider that such a clause should always exist.

I shall take each of my points in turn. Proposed paragraph (a) states:

“Regulations under this Act may not … create a new criminal offence”.


That provision has been used before to constrain broad powers in legislation. A new criminal offence should always come to Parliament in such a way that it can be amended or rejected. I believe there are examples of finding a new criminal offence within a set of regulations with no amendment possibilities; indeed, I have been on one of the Secondary Legislation Scrutiny Committees, and there were examples. That should not happen. It would be a disproportionate use of delegated power—that has been suggested when I have run such a proposed clause—yet it has been used and therefore it is reasonable to suggest that it should not be. In the instance of pensions, and despite the fact that I have argued on this Bill that the criminal offences are not drawn wide enough, so I am certainly not a dud with regard to them, I do not believe that it would be reasonable to make new ones by regulation. The relevant clauses in the Bill are easily wide enough to do that.

Proposed paragraph (b) is about not creating a regulator. There appears to be a strong danger of that here because the wording that enables powers to be conferred on any person could enable the creation of a regulator. I think the wording is “discretion”, but my noble friend Lord Sharkey inquired as to what it meant and the reply came back that it could be any powers to any body, therefore it would enable the creation of a regulator. There is an example of that in Clause 51. If the person who is designated is already a regulator which has been set up under primary legislation, it is not a problem to expand its powers appropriately, but if a new regulator is created, that would be wrong. So why are there clauses in the Bill that are wide enough and of a description that would enable that? My wording here does not capture all the wrongs that could happen under any power to any person provisions, but at least it draws a line.

Proposed new paragraph (c) prohibits the creation of a multi-employer collective money purchase scheme through regulations. I refer back to issues that have already been discussed with regard to problems in the plumber pension scheme. There are other examples of difficulties caused by withdrawals from collective DB schemes. It can come around in particular when large and small employers are put together. Our discussions with regard to collective money purchase schemes have already made it clear that there are issues on which we are still uncomfortable in the context of the employee risk, even in a single CDC scheme. The Post Office scheme is not an everyday case; they will start out with some advantages. There will be even more unknowns in the multi-employer scheme. For example, the pool for risk-sharing is larger, which might seem attractive, but the risk of a larger group leaving is then an awfully large matter for the remaining pensioners to take on board.

Proposed new paragraph (d) is not to

“significantly restrict the powers of trustees”.

I do not mean to override the powers the regulator has to sanction trustees for improper behaviour. I put this point in because there has already been discussion as to whether some of this Bill’s provisions are encroaching on the day-to-day decision-making of trustees—for example, with regard to investment policies. There are noble Lords here who have far more experience of pension trustees than I do, and I particularly value thoughts on the usefulness of this provision. I want to be clear: I am not suggesting that this is anything to do with preventing regulators having the right balance of powers to do things. It is where they would intervene on day-to-day matters.

Proposed new paragraph (e) prevents amendment of primary legislation. I am aware that this is in conflict with the powers the Government have given themselves in Clause 47(5). It is a matter of principle. Pensions are a highly sensitive policy area, and it would be wrong if a Government could selectively change or revoke significant consumer protection provisions without scrutiny at the level of primary legislation. The clause says:

“Regulations under this section may among other things … amend, repeal or revoke a provision of this Part or any other enactment.”


A short while ago, when we were discussing one of the amendments from the noble Baroness, Lady Altmann, I think I heard that the Minister did not think there was the power to do certain things. Actually, the Government jolly well have it here, because they can “amend, repeal or revoke” anything they like—any enactment—so I think that was not a valid excuse, if I can put it that way.

Of course, the real problem here is that parliamentary procedures are deficient in that departments have to enter into a bidding process to get Bills and, because of time constraints, they do not come around superabundantly. The only other option, regulations, is not really democratic on the level on which they have become used. It is possible for the Government to do something about that, but it is my view that, until it is done, restraints must be placed on powers in the manner I propose—all the more so when there is lack of policy guidance.

I know we have had exchanges before on whether there is adequate policy guidance. Some of us think there is not, and the noble Earl has said it is all about implementation and the policy is there. I cited Clause 47(5), and Clause 51(3) says:

“Regulations under this Part may … confer a discretion on a person”.


When that was discussed—when the noble Lord, Lord Sharkey, raised the clause stand part debate on Clause 51—my immediate scribble was “may not create a regulator”, which was directly in response to what could be covered under “discretion”. That, therefore, is the reasoning. I could give more reasons and find many more examples of where discretion is conferred: a failure to really tie it down to the policies. Given that where helpful suggestions have been put forward that would perhaps have given more reassurance on the true nature and scope have been resisted, there is no alternative but to outline what may not be done. I beg to move.

[Baroness Altmann]

My Lords, I add my support to many aspects of the amendment from the noble Baroness, Lady Bowles. She is trying to do something very helpful for the Committee and the Bill. We have all expressed concerns about the wide-ranging powers in this Bill, which seem to go a lot further than normal for such Bills. I recognise that pensions Bills tend to have wide powers added to them, but it makes sense to identify areas where we would not wish the legislation to allow a Minister to do things that would normally come back to Parliament for our scrutiny or further legislation.

[Baroness Sherlock]

My Lords, I, too, share the aspiration of the noble Baroness, Lady Bowles, to constrain somewhat the use of the extensive powers that the Government are blessing themselves through this Bill. I will not, however, reopen that debate in any great detail, although there is a temptation to say “We have another whole hour of Committee, we can debate this at great length”. The danger of a list is that some noble Lords will have concerns about particular aspects, such as constraining trustee power, while some will be in favour of multi-employer collective money purchase schemes. Most of us, however, would have reservations about the ability to amend primary legislation.

Although it may not feel as though Bills come along in super abundance, in the field of pensions it feels like they come along all the time like the number 19 bus, but I take the point. In fact, if we are going to have a list I would like to add to it: I would start with not allowing dashboards to do transactions without covering that in primary legislation. I have a long list in my notes which I will develop at length should we return to this. What might be helpful is if the Minister, in replying, would tell Committee whether the Government intend to do any of these things.