Pension Protection Fund (Moratorium and Arrangements and Reconstructions for Companies in Financial Difficulty) Regulations 2020

Baroness Drake Excerpts

Monday 14th September 2020 Grand Committee

[Baroness Drake (Lab) [V]]

My Lords, I welcome these urgently needed regulations so that the PPF can exercise creditor rights as the trustee of a defined benefit pension scheme in the event of a moratorium or restructuring proposal. The regulations allow the PPF involvement in discussions, processes and court access with significant implications not only for the members of a particular scheme but for all existing and potential members of the PPF lifeboat and employer levy payers.

The exercising of creditor rights by the PPF in consultation with trustees reflects what happens now in other relevant insolvency and restructuring events. They evolved from the Pensions Act 2004, and the Government have rightly recognised the moral hazard in leaving powers to exercise creditor rights wholly with the trustees. The trustees may not have the resources and power that the PPF can bring to bear. The PPF considers the interests of a scheme and the wider interests of all DB scheme members. There will be anxious pension scheme members at this very moment who are taking comfort from the PPF’s very existence. The trustees could, for example, sign up for a high-risk deal on the basis that it failed the PPF would ensure a minimum level of protection for scheme members and leave the lifeboat to inherit a greater deficit. Giving these powers to the PPF allows it to balance all interests—a good outcome for scheme members, mitigating subsequent large claims on the PPF or perverse attempts to dump pension liabilities.

I refer again to the Arcadia case. The original CVA proposed to cut deficit reduction contributions by half. The PPF, exercising creditor rights, influenced a better outcome, including security over group assets, £100 million in cash and increases in deficit contributions after three years. While welcoming these regulations, they do not close off all concerns proposed by the new moratorium arrangements, such as the incidence of gaming by current or future lenders wanting access to super-priority status; avoidance of pension liabilities and incentivising insolvency over rescue for certain creditors; the non-triggering of a scheme Section 75 debt impacting its creditors’ standing and voting rights; and the imposition of a payment holiday on a scheme’s deficit contributions but exempting finance debt payments from that holiday.

The Government made amendments to the Corporate Insolvency and Governance Bill which, they argued, sought to address these risks. The noble Lord, Lord Callanan, said,

“the Government believe that these amendments remove the risk of gaming the system … but we appreciate that the financial services industry … changes over time. For this reason, my amendments include a power to make regulations … to change the definitions of moratorium debt and priority pre-moratorium debt … As these are the debts that receive super-priority or additional protection, the Government will be able to react quickly and decisively to any changes in market behaviour.”—[Official Report, 23/6/20; col. 154.]

Although real concerns remain, these were welcome concessions in so far as they allow the Government, if they so choose, to respond quickly to gaming and perverse behaviours. The Government also committed to monitor closely how the implications of the new moratorium and restructuring provisions unfold in practice. I appreciate that the Act has only recently come into effect so there has been only a limited period to see how these provisions pan out in practice, but what arrangements have the Government put in place to monitor the implications of the moratorium and restructuring provisions, including the emergence of gaming and perverse behaviours for DB pension liabilities? How will they consult and report on the emergence of such behaviours? What plans do the Government have to lay regulations to allow them to act immediately when such instances occur?