Pensions Regulator (Contribution Notices) (Sum Specified following Transfer) Regulations 2010

Lord German Excerpts

Wednesday 21st July 2010 Grand Committee

Is that right?

[Lord German]

My Lords, I, too, intend not to keep the Committee long. I shall raise a few further questions on both these orders, particularly on the levies order, just for explanation purposes.

I declare an interest: my daughter works for BT and is a member of its pension fund. I recognise that this set of regulations on the levy is still subject to legal actions, and those have not been exhausted. I also note, of course, that the regulations themselves apply more universally to the Crown guarantee, and those who would be affected are not exclusively in the name of that one company. Could we have some indication of the existing companies that may already be entrapped or changed by this regulation? I am particularly interested to note that there are former railway pension schemes that may be caught in this regulation, but it would be useful to know who else would be affected and whether they would be affected in both the partial and the full sense.

I recognise that these regulations affect only the administration levy and that the House has already dealt with the regulations in respect of the levy as a whole. The state aid recommendation, as expressed by the European Commission, applied only in respect of BT. I note the Government’s comments that they expect other bodies in the same field that have been caught by this change to be encompassed in the regulation. I wonder whether and how the Government are going to move with the other companies who will be affected by it, and whether they will be expected to pay a backdated administration charge, because the impact on the pension schemes is important—especially as that is a contemporary issue for occupational pension schemes. Have the Government made any assessment of the impact that these regulations and the preceding regulations that affected the whole of the levy payments will have on those schemes? Will that make a substantial difference to the benefits that they can offer within those occupational schemes?

Can my noble friend indicate how other bodies that are currently in receipt of the Crown guarantee, and which then move into a situation whereby they would not naturally receive that under the European direction that we have been given, would be affected? What tests would be applied to determine whether the regulations would kick in? Would such a test be whether they are privatised, to use an old-fashioned word, or whether they are in a competitive situation? Or do both tests apply? It is probably the case that the determination will have to be based on one or both of those tests and I should be grateful if the Minister could tell me which of those apply.

In respect of the regulations on contribution notices, there is only one area on which I should like to ask my noble friend a question—in relation to paragraph 7.3 of the Explanatory Memorandum, which states:

“The policy intention … is to provide a calculation which offers equivalent protection”.

Does that mean, in effect, that if there was a move from one scheme to another, the benefits that would be received by members of that pension scheme would therefore be the same? Or is there a different definition of equivalence which I perhaps do not understand?

On that basis, the Government are absolutely right to pursue both sets of regulations.

[Lord Freud]

My Lords, I thank noble Lords for their contributions and I am glad that we were able to take the noble Lord, Lord McKenzie, on such a romantic trip down memory lane, although I sensed a little bitterness in his observation.

The first set of regulations addresses a fairly narrow issue relating to state aid. They are intended to address the rare situation where a reduction in the PPF levy for a pension scheme with a Crown guarantee, sponsored by a commercial entity, provides an unfair advantage. The regulations will ensure that the UK Government have complied with the European Commission’s decision and met their obligations. The second set of regulations provides the means for the regulator to calculate the amount of a contribution notice in certain cases, but only where the grounds for the use of this power have been met.

I turn to the points raised in the debate, and first to those made by the noble Lord, Lord McKenzie. He asked whether insurance contracts can be used. They may indeed qualify as contingent assets for the purposes of calculating the PPF levy, although there have been no recent representations on this matter and no changes in the law are currently planned.

The noble Lord asked what the experience of the Act had been in practice. As he said, these are early days, but I have pleasure in assuring him that, so far, the Act, which I acknowledge he was responsible for, appears to be working well. The noble Lord asked about activity in terms of emerging avoidance schemes. There are none that the Government are currently aware of. As he will know, the department and the Pensions Regulator work together closely in order to monitor the effectiveness of the legislation and ensure that it remains robust. He also drew our attention to paragraph 7.2 of the Explanatory Memorandum and the phrase,

“and only pay an administration levy in respect of the non-guaranteed part”.

I have pleasure in confirming for him that he has not found a flaw in the regulations because that is exactly—