Pension Schemes Bill [HL]

Lord Balfe Excerpts

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

Moved by

[Lord Balfe]

80: After Clause 125, insert the following new Clause—
“Compensation payments under Pension Protection Fund
In Schedule 7 to the Pensions Act 2004 omit paragraphs 26, 26A and 27 (compensation cap).”

[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.

--- Later in debate ---

[Lord Balfe]

I thank noble Lords for this short, but interesting, debate. An interesting part of my role is that when David Cameron said, “Try to be helpful to as many trade unions as you can”, I seem to have collected some of the higher paid trade unions such as those for hospital consultants, British airline pilots and one or two others in the TUC. It is always great fun to go down to the TUC Congress, meet them there and hear them muttering away. I take the points that have been made. The feeling arose largely out of the Monarch situation in which a number of people had paid a considerable amount in yet they were not getting what they saw as fair recompense. The point made to me, which I am sure will be made again, was that if they were in the public sector, there would be no case for them going into the Pension Protection Fund because public sector funds do not go there, but because they were in the private sector—

[Lord McKenzie of Luton]

The point the noble Lord makes about public sector funds is right, but in trying to make comparisons between somebody with a public sector pension and people who are not in that position, all sorts of differentials come into play, such as general levels of remuneration. With great respect, I do not think the noble Lord’s argument stands up in that respect.

[Lord Balfe]

Perhaps I mix with rather affluent members of the medical profession. I had a session recently with a hospital consultant staff association, which made some very firm points about how high earners were being discriminated against. I am not making the hospital consultants’ point here. I am making the point that the public sector basically has a system of protection so that when a Permanent Secretary or a member of the First Division Association retires, there is no case that the FDA pension will ever go into the lifeboat. I was making the point that was made to me, which was that members were paying into a fund that they were not receiving benefit from and that if they had been in the public sector they would. I am very pleased that the Minister has offered to discuss this, although having heard the response I am not sure that the discussion is going to lead very far. I am pleased that we have had this constructive debate and on the basis of what has been said, I beg leave to withdraw the amendment.

Amendment 80 withdrawn.