Postal Services Bill

Baroness Drake Excerpts

Wednesday 6th April 2011 Lords Chamber

Moved by

[Baroness Drake]

24EB: Clause 16, page 10, line 3, at end insert—
“( ) On making an order under subsection (2), and prior to the transfer of qualifying accrued rights, the Secretary of State must inform—
(a) all members affected that they are to be transferred to the new scheme;(b) all active and deferred members of their accrued rights in the new scheme;(c) all pension members of the details of payments from the new scheme and when they will commence; and(d) all members of the details of the new scheme.”

[Baroness Drake]

My Lords, Amendment 24EB seeks to place a duty on the Secretary of State to provide certain information to Royal Mail pension plan scheme members before their accrued pension rights are transferred to a new public scheme.

Clause 16 allows the Secretary of State to create by order a new public scheme and to make provision to transfer members’ qualifying accrued rights under the Royal Mail pension plan on a date still to be specified into that new scheme, thereby allowing the Government to take responsibility for those liabilities. The pension rights that members of the Royal Mail pension plan have accrued up to that date will be covered by that government support. Pension rights accrued after that date will remain with the Royal Mail pension plan. I am sure that scheme members will be reassured by the additional security for the funding of accrued benefits which the new scheme provides because it will be backed by the covenant of the Government, but these members will still be looking for reassurances as to the protection of their individual rights and interests. I am sure that there is much detailed consultation between the trustees and employee representatives still to take place.

All the privatisations of public corporations and utilities over the past 20 years have had carefully to address the issue of accrued defined benefit pension rights. The solution taken has not been the same in each instance. In the case of the sale of BT, a Crown guarantee was given. On the privatisation of the railway, the Government assumed responsibility for pensioner liabilities which existed up to the point of privatisation. Other privatisations have taken other approaches.

The pension arrangements proposed in this Bill, on the sale of Royal Mail, which are intended to facilitate privatisation and give greater security to members given the current level of deficit, are quite complex. They cover all categories of scheme members, active, deferred and pensioner, in respect of their pension rights accrued up to the specified date, which is yet to be determined. Some conditionalities continue between the new public scheme and the Royal Mail pension plan post privatisation. I am not arguing against that complexity where it enhances the protection afforded to scheme members, but it goes to support my amendment that members should know prior to the transfer to a new public scheme what their accrued rights are that are to be transferred to that scheme.

There are three concepts in this Bill which will need to acquire flesh: a qualifying member, qualifying accrued rights, and qualifying time before members of the Royal Mail pension plan definitively know who is affected, what the rights are and what the cut-off date is for determining the accrued rights that are to be transferred. The members will be anxious to know. It is human nature, given the importance of this matter, that they will be so anxious.

The other conditionalities relate to such matters as the increases in the value of pensions which occur after the qualifying date where they are linked, for example, to a final salary, and who bears the cost for this. The Bill reserves powers for the Secretary of State to amend the rules of the Royal Mail pension plan to address these matters. Complexity can carry ambiguity over the long term unless it is made very clear and people know precisely what their rights are and what the arrangements mean. Time moves on, key players go and memories fade. The BT Crown guarantee has had to be clarified at judicial review and the statutory framework of pension protection in the rail industry has from time to time required the assistance of legal opinion and clarification.

It is very important that members of the Royal Mail pension plan affected by this transfer of their accrued rights to the new scheme are personally informed before the transfer takes place so that they know who they are, what their accrued rights being transferred are and details of the arrangements and procedures applying in the new scheme. The amendment seeks to ensure that that happens. It would be totally unreasonable for them not to be so informed before the transfer of their rights to a new scheme.

I have absolutely no doubt that the Secretary of State will be motivated to treat people well, but people will be anxious. They need the confidence of knowing what is to be done to them before it is actually done. This will give them peace of mind. Clause 16(7) makes provision for an order to have retrospective effect; for example, where the effective date for the purpose of the transfer of pension liabilities has been agreed as a part of a wider arrangement with a third party and precedes the date of any order to set up the new pension scheme. The amendment does not prevent such a provision, but in the same way as the implementation of a retrospective date would be after the order had been made, so, too, the transfer of people’s accrued rights should not be implemented until after the individual scheme members have been provided with the relevant information about the treatment of their pension benefits.

--- Later in debate ---

[Lord De Mauley]

My Lords, my noble friend makes an extremely important point. The terminology is confusing but I think that he is talking about the RMPP scheme, the old liabilities and assets having been transferred out into what is rather confusingly called the new scheme. Therefore, he is concerned about the ongoing liabilities in the RMPP scheme. I will write to him, but I can tell him that £1.5 billion of funding will be left in the new scheme specifically to cover what is known as the salary link. However, I had better expand on that in writing, if I may.

[Baroness Drake]

My Lords, I hope that I may respond to some of the points made in the debate, particularly to the comments made by the Minister. Before I deal specifically with my own Amendment 24EB, I wish to comment on Amendment 24EC, which was spoken to by my noble friend Lord Young, as this addresses the Secretary of State exercising powers under Clause 17. As far as I can see, there is no explicit requirement on the Secretary of State to consult the trustees when exercising powers under Clause 17. Clause 17 gives the Secretary of State considerable powers. He can divide up the Royal Mail pension plan—not the new scheme but the Royal Mail pension plan—into different sections and allocate assets and liabilities between them, and he can allow different companies to participate in that scheme. The Secretary of State also has the power to determine what assets go on to the balance sheets of companies in preparing for privatisation or in a post-privatisation world.

These matters are of great importance to the trustees of the Royal Mail pension plan, which is left with accruing liabilities, or existing liabilities, that are not transferred to the new scheme. They will be very interested in the strength of the employer covenant backing any section so created, and what it does to the security of the members left in a particular section so created. In the occupational pension world, if you weaken the employer covenant to a particular section, that is a notifiable event—it is not something that you can breeze over. It is what the regulator exists for, which I suspect is why my noble friend raised the issue of the Pensions Regulator.

Hypothetically, if I were an employee of Post Office Ltd and I had accruing rights in the remaining Royal Mail pension scheme, I would want my trustees to be very alert to what assets were left on the balance sheet of Post Office Ltd, because they are the assets—the covenant—that are backing the future benefits or the benefits that are remaining in the Royal Mail pension plan. These are real issues for the trustees. This will remain an occupational pension scheme because, as I thought, the Minister has not said that Crown guarantee carries on in the Royal Mail pension plan.

I do not think that we have clarity about how the Secretary of State can exercise his power under Clause 16 to split up the Royal Mail pension plan and how at the same time the trustees can exercise their power to protect the employees so that their position as creditors or the strength of the employer covenant is not weakened and the members left in a less favourable position.

On Amendment 24EB, I fully recognise that the proposals in the Bill allow for the deficit to be taken over by the Government; that will clearly give a lot of people in the scheme peace of mind. I welcome the Minister’s comment that members’ protection is of great importance. I think I welcome his statement that there will be a comprehensive communication exercise before, during and after the transfer, which is clearly very positive and on the record. However, we still need clarity about what will happen before the transfer. What communication will there be then? If the Government could clarify that, in writing or in some other way, that might deal with the issue.

The Minister referred to the Royal Mail pension plan trustees having statutory obligations to provide information to pension scheme members, and that is absolutely true. However, we have a complex situation in that there is almost a Secretary of State override to impose certain powers or requirements on the Royal Mail pension scheme. The trustees cannot account for that—they cannot explain that. The Government might choose them as the conduit to do that, but they cannot make those decisions or answer the questions that arise because of powers exercised by the Secretary of State.

I anticipated that the inefficiency of double communication might be raised, but I am not persuaded that that is an argument for not allowing people the maximum information prior to transfer. That is the reason for civil servants and Royal Mail pension plan trustees coming up with an efficient communication plan; it is not really a reason for not giving full and proper information prior to transfer.

It would be helpful to obtain greater clarity about the information that would be provided. However, I recognise that the noble Lord was seeking to improve the assurances given on the importance of protecting members’ information.

[Lord De Mauley]

Before the noble Baroness withdraws her amendment, I am happy to provide some clarification on the points she raised. She asked about the Secretary of State being obliged to consult, and I mentioned Clause 17. I apologise if I was not clear enough. The Government’s position is that under the general provisions in Clause 24 the Secretary of State must consult the trustees on the powers set out in Clause 17. I hope that that is helpful.

The noble Baroness also asked about the Crown guarantee. Perhaps I should clarify the Government’s position, which is that an unfunded public sector scheme is a better option, because providing a Crown guarantee would expose the Government, and therefore taxpayers, to significant risks—for example, investment risk—that are not under government control. With a guarantee, it would not be clear as to what liabilities the Government would be taking on, because although they would assume responsibility for the deficit, the Royal Mail trustees would continue to exercise control over investment policy and discretionary powers in relation to benefits to members. Our proposal to establish a new unfunded scheme is consistent with the majority of existing public service pension schemes. The pay-as-you-go model provides members of the Royal Mail pension plan with certainty that their benefits will be paid, while minimising the taxpayers’ exposure to investment risk and future volatility in the scheme’s funding position.

I should say in answer to the noble Baroness’s second broad point that officials have already started to work very closely with the trustees to implement Part 2, including over asset allocation. These discussions are critical in helping the Government to implement the pension solution.

[Baroness Drake]

I thank the Minister for those further clarifications. They are helpful, although they trigger one or two queries. Any further clarity that can be provided in writing would certainly be helpful. I interpreted what the Minister said as the Government putting on record that if they seek to exercise their powers under Clause 17, they will consult the trustees. That is helpful.

My point about the Crown guarantee was that after the transfer of liabilities or accrued rights to the new pension scheme, there remains a Royal Mail pension scheme with either liabilities or accruing liabilities, and it will remain an occupational pension scheme. I sought to clarify whether the Secretary of State would not exercise any powers over that remaining pension scheme in a way that undermined the protections afforded to the Royal Mail pension scheme under the normal range of occupational regulations. That was a key point.

The Minister’s clarifications have been helpful. Ambiguities remain and I am sure that they will be the subject of further discussion. Any clarity that can be given to my noble friend Lord Young on what happens before the transfer would be helpful. I beg leave to withdraw the amendment.

Amendment 24EB withdrawn.