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3 Jul 2001 : Column 60WH

Employee Pension Schemes

1.29 pm

Mr. David Watts (St. Helens, North): I am grateful for the opportunity to raise an important matter on behalf of many of my constituents. I congratulate the Minister on her appointment, as I have not had a chance to do so before. I raised the closure of the Ravenhead Glass plant in an earlier Adjournment debate, but I should like to spend some time explaining the background to the problem and how it affects my constituents.

Ravenhead Glass went into administration in December after a long history of producing first-class tableware in St. Helens, where the factory had been for more than 150 years. In its heyday, it employed more than 5,000 people, but when it closed in December, it had fewer than 350 employees. Nevertheless, that is a significant number of jobs in my constituency.

Those 350 Ravenhead employees are not numbers but people, such as Dave Rotherham, a constituent of mine who worked at the plant for 30 years. His father had previously worked in the plant for 50 years. Dave Rotherham has lost his job and now found that he has a 20 per cent. shortfall in his pension. In a matter of months, his life has been turned upside down.

Ravenhead Glass was not a two-bit operation. It was owned by Durabor, which was owned by the Belgian regional government. My hon. Friend the Member for St. Helens, South (Mr. Woodward) and I have already contacted the Department of Trade and Industry and the Belgian Government about the closure and how the pension scheme was managed, and we await a DTI report on the issue. We have also met Belgian Ministers, who have promised to consider a claim for compensation for the 20 per cent. shortfall in pensions. We will continue to put pressure on the DTI and the Belgian regional government to see how we can help our constituents.

Most of the Ravenhead workers had worked there for 25 to 30 years and intended to retire from the company in the next 10 years. They would have hoped for gold watches and presentations after 25 years' service, good pensions and the opportunity to finish their working lives with good pay and working conditions. That was not to be the case, so they want answers to some questions. They want to know why the company was placed into receivership and what happened to their pension scheme. Why did the company take the decision to have a contributions holiday, and why was it allowed to do so? How was the company pension scheme managed?

I want to thank the DTI Ministers for the help and assistance that they have given so far. However, after a series of disasters in the pension world, I am concerned that things still do not seem to be right. I understand that the Government have initiated Paul Myners' report, which is about changing the legislation on protection for employment pension schemes. I welcome that review. It important that the pensions of loyal workers who have worked in companies for 25 to 30 years be protected. The Government should give them statutory protection.

British workers need better protection in employment and pensions, and I hope that the Government will take the opportunity of that review to consider the

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Ravenhead scheme and others. My hon. Friend the Member for Wirral, South (Mr. Chapman) also wants to raise issues that affect some of his constituents. I hope that we will take the opportunity to change the system for the better. The Maxwell scandal and the situation at Ravenhead Glass are merely two examples of what can go wrong.

The review seems to have been dominated by the Treasury and the pension industry, and I understand the need for both to take a view on the issues. However, they may have been driven by the need to improve economic performance and to maximise long-term support for the markets. While those two matters are important, the No. 1 priority of any review should be to ensure that employees' pensions are protected in the future.

I should like the Minister to answer a number of questions that my constituents have raised during the course of their problems with Ravenhead. I am aware that some of the questions are technical and complex and if the Minister does not feel that they can be answered today, I shall be happy for her to write to me later to clarify her and the Government's view.

Do the Government believe, as the Trades Union Congress does, that defined benefit schemes offer the best deal for working people? If so, what action will they take within the review to encourage employees to move along that road? I believe that those schemes offer the best protection and value for money to employees. I should like the Government to widen the scope of the Occupational Pensions Regulatory Authority so that pension protection plans can be assessed. That would allow pension plans to be examined and ensure that protection plans that are put forward by the pension schemes give adequate protection to employees.

Will the Government consider setting up a pension protection fund, so that the liabilities from pension schemes that are discontinued would pass to a mutual company that would protect the funds of affected pensioners? There is an argument for ensuring that all pension schemes have a mutual insurance scheme, so that they all protect the liabilities of each other and ensure that employees are also protected.

Is the Minister considering examining whether pension schemes should be allowed to take contribution holidays? Employers should not be allowed to take a contribution holiday until a buffer zone has been built into the pension scheme and there are enough resources in the scheme to cover any deficit that might occur between valuations.

Is it right that company trustees should play a role in pension schemes? I can see no reason why companies should have representatives as trustees. Once the agreement has been made on a pension scheme, the company should be removed from the trustees' reviews. I should also like annual appraisals of pension schemes. Some pension schemes appraise annually, but many leave it for three or four years. The movement of the markets—as in my case—can make such a difference to a pension scheme that it may move from a surplus to a deficit.

I am aware that the Labour Government have done a great deal in recent years to strengthen pension and employee protection. However, the cases of Ravenhead and others, demonstrate that there is a lot more to do.

1.38 pm

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Mr. Ben Chapman (Wirral, South): I thank my hon. Friend the Member for St. Helens, North (Mr. Watts) for allowing me to encroach on some of his time and make complementary points to his, which have been raised by my constituents and cause them concern. I also thank the Minister for agreeing to allow me to make the points to her at immensely short notice and I fulsomely congratulate her on her well-deserved appointment. I also thank you, Mr. Benton, for allowing me to catch your eye.

My hon. Friend made his points particularly, although not exclusively, in the context of Ravenhead Glass. It may be thought from the presence of hon. Members today that this is exclusively a Merseyside issue, but it goes wider than that. My constituents have expressed many concerns about employee pension schemes and occupational schemes. They do not believe that the balance of interest between the employee and the fund is right.

There have been concerns about the absence, as my constituents see it, of sufficient constraints on the way in which trustees may act. Pension schemes may, for example, contain discretionary provisions that are exercised exclusively by the trustees. Moreover, those of my constituents who have corresponded with me—of which there are many—consider that the representation of pensioners on trustee boards can be inadequate. They do not believe that, because employers provide occupational pension schemes, it is up to them alone to decide the nature of the scheme and its benefits. They do not consider that that in itself is enough to secure the common good.

My constituents are not content that members are not always obliged to consent when their accrued pension rights are transferred when, for example, employers are taken over, merge or restructure their pension provision. There are particular concerns, for example, that occupational schemes are not required to provide pension benefits before the normal retirement age in cases of ill health. When such provision does exist, it is discretionary and in the hands of the trustees, and there is no reason to provide reasons for refusal.

There are also worries about how pension funds handle grievances and the fact that the first stage of a complaint is handled entirely unilaterally by one of the parties to the scheme. My constituents are concerned about the way in which pension schemes can appear to be administered secretively. They do not believe that it is equitable that schemes seem to be administered as though the funds have been contributed by one party alone. As in the case of Ravenhead Glass, to which my hon. Friend referred, pensioners contribute much over many years and must find a life after the demise of the company. In some cases, the pension scheme has disappeared. They also worry about the management of funds that can cost the pensioner money. There are well-publicised examples, but a constituent of mine, who is a clergy pensioner, believes that he has also suffered in that regard. Another constituent believes that his union pension fund was transferred because it was regarded as voluntary, so his rights were not protected.

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There are a range of other issues, but I shall not bore the Chamber with all of them. However, one fund removed the corporate trustee without consultation apparently simply to streamline expense and reduce administration, and one of my constituents feels, rightly or wrongly, that such action removed some of his protection. Overall, my constituents believe that trustees should not act without prior notice to members and that there is insufficient consultation and a lack of independent scrutiny. There is a limit to what the Government can do. It may be a notion of big government, but we must look at the provision of occupational pension schemes to see what, if any, role the Government can have. The worries that have been expressed to me seem to be sufficiently widespread to require some consideration. I hope that that will happen. I merely wanted to raise certain points. I do not seek an answer to them from the Minister today, but I hope that, in the fullness of time, such matters can be examined.

1.43 pm

The Parliamentary Under-Secretary of State for Work and Pensions (Maria Eagle) : It is a pleasure to be replying to my first Westminster Hall debate with you in the Chair, Mr. Benton, and I congratulate my hon. Friend the Member for St. Helens, North (Mr. Watts) on initiating the debate. As a fellow Merseyside Member of Parliament, I am aware of the matter that he has raised. He has raised it before in the House, and I have particular sympathy with those of his constituents who have found themselves in the position that they do as a result of the insolvency of Ravenhead Glass. St. Helens has long been identified with glassmaking and it was a blow to the town's morale for such a closure to occur.

The firm itself is of long standing and has been in existence for more than 150 years, as my hon. Friend reminded us. Many of those affected are long-standing employees of more than 30 years who will suffer the double blow of not only losing their jobs and being reduced to statutory redundancy pay, but finding a hole in the pensions in a defined benefits scheme that they had every right to expect would provide them with a well known, fixed amount when they retired. It is a double blow for them and for the town, and I understand why my hon. Friend has brought the matter to the attention of the House.

If time allows, I shall respond to some of my hon. Friend's points. I am grateful to him for giving me some notice of them. Doing so always helps me give hon. Members clearer answers. I shall respond to his points in the context of the more general law. Pensions law is tremendously complex, and issues that might seem to hon. Members, outsiders and members of pension schemes to be relatively straightforward and simple can be devilishly complex because of the law and how the schemes work. I shall explain the background before dealing with my hon. Friend's points.

The Government want all pensioners to have a decent and secure income in retirement and to share fairly in the nation's rising prosperity. We are determined to protect the long-term security of pensioners and other pension scheme members in occupational pension schemes. We

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all know that that security will be guaranteed not simply by the basic state pension but in large part by occupational schemes and funded arrangements. It is therefore in the interests of us all to ensure that they are as secure as possible.

We want to ensure that schemes are properly run, that contributions are properly paid in a timely fashion and that schemes are adequately funded. We believe that schemes should have investment policies that are appropriate to the circumstances of the employer providing them and that if something goes wrong measures should be in place to protect members.

Private pensions should be attractive to members and scheme providers. We must bear in mind that employers do not have to provide pension schemes but do so voluntarily. We need to ensure that as many of them as possible do so. We are taking steps to simplify the private pensions system while safeguarding the security of scheme members.

The vast majority of United Kingdom pension schemes are set up under trust law, which is at the heart of pension law. It is often said that trustees are secretive. Trustees have an exacting legal obligation to beneficiaries to ensure that they behave properly, and we must consider how to deal with trustees and pension schemes in the light of trust law. The duty to run a pension scheme lies with the trustees rather than the employer. Although employers may have members who are trustees, they have the same obligations to beneficiaries regardless of their status. They must ensure that the rules of the pension scheme are followed and comply with the law. They hold the scheme's financial assets for the benefit of members and have a fundamental duty to act prudently, conscientiously and honestly.

The framework of trust law was reinforced by the Pensions Act 1995, which introduced measures to protect members of pension schemes. It placed extra duties on trustees and established the Occupational Pensions Regulatory Authority. As my hon. Friend said, we have been actively monitoring and reviewing the provisions of the Pensions Act to build on and improve existing measures.

OPRA is the independent pensions regulator. It investigates complaints about occupational pension schemes not complying with the 1995 Act. It has powers to impose financial penalties, bring criminal prosecutions, disqualify trustees if they do not fulfil their obligations, and refer cases to the police or the special fraud office. However, OPRA's role has limitations. It can investigate only matters relating to the Pensions Act 1995. Many schemes were established under previous legislation.

Professionals such as actuaries have a duty to the scheme. Anybody can report a pension scheme to OPRA if they think that it is not being run properly, but the scheme's auditor and actuary have a statutory duty to blow the whistle when they have reasonable cause to believe that the Pensions Act 1995 is not being complied with. Therefore, there are some safeguards.

The Pensions Act 1995 also introduced legislation to give scheme members the opportunity to have member-nominated trustees. Members' trustees help to give trustee boards a better balance of outlooks and experience; they also help to give members confidence,

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and they encourage schemes to look carefully at how they are run. While I was listening to the points that were raised by both of my hon. Friends, I was struck by the fact that many of them arise out of suspicion that the trustees are acting secretively and are not acting for the benefit of members, and I think that getting more member-nominated trustees would go a long way towards reassuring members of schemes that are well run that they are well run, and towards ensuring that schemes that are beginning to be badly run, or are beginning to fall short of the law or their obligations, can be pulled up more quickly. Therefore, member-nominated trustees are a good way forward with regard to trying to reassure members of occupational schemes.

The presence of member trustees would help avoid some of the difficulties that have been raised and which are faced by some well publicised schemes that have gone wrong. That is why the Government want every scheme to have member-nominated trustees on the trust board. We will introduce measures to ensure that it is compulsory for schemes to appoint member-nominated trustees, and to simplify the procedure under which that is done. We have already taken the power in primary legislation—in the Child Support, Pensions and Social Security Act 2000—and we will consult regarding a package of regulations before the end of the summer, so that we can start to introduce the new requirements before the end of the year. The intention is to ensure that a third of all trustees are member nominated. That would be a step forward.

One of the central features of the Pensions Act 1995 was the introduction of the minimum funding requirement. It was designed to promote security for scheme members. It requires defined benefit schemes to hold the minimum level of assets to meet their liabilities. The aim of the minimum funding requirement is to ensure that a scheme that is funded to at least the level of that requirement will, in the event of the employer becoming insolvent, be able to provide pensions. It is also intended to provide younger members with a fair value of their accrued rights, which they can then transfer to another occupational pension scheme, or to a personal pension.

The minimum funding requirement came into effect in April 1997. If a scheme is underfunded on a minimum funding requirement basis—I understand that that was the case with regard to the Ravenhead pension plan—it must make good any underfunding within time scales laid down in regulations.

The matter of contributions was also raised by my hon. Friend, and they should be paid promptly and at the correct level. Under the minimum funding requirement rules, there must be a schedule of contributions, so that the difficulties of trying to find out if and when contributions were paid never have to be faced. Schedules show the contributions that must be paid by the employee and the employer, and the dates by which they must be paid. They will also include any additional contributions required to meet any shortfall in funding. Schedules must also be certified by actuaries, who should be content that they are sufficient to maintain the funding level of the schemes, or to restore them to the recommended levels, if they have fallen below that level. Trustees monitor the payment of contributions on the scheme's payment schedule and must tell OPRA and scheme members when contributions have been paid late, or not at all.

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With regard to the Ravenhead Glass case, I understand that pension contributions were paid on time until two months before the company's insolvency. I also understand that that has been reported to OPRA, and that an independent trustee has made a claim for the outstanding contributions to the DTI's redundancy payment fund. When an employer becomes insolvent, the legislation requires that an independent trustee be appointed, and I understand that that has happened. The role of the independent trustee is to ensure that the interests of the members are represented in insolvency proceedings, and to make any necessary decisions about winding up the scheme. In this case, I understand that Berry, Birch and Noble Trustees Ltd. is the independent trustee that has been appointed by the administrators to deal with the issues that have arisen out of the case in my hon. Friend's constituency.

It is right that measures should be in place to protect the interests of members of a scheme whose funding has gone wrong. If a scheme is not fully funded on a minimum funding requirement basis when it winds up—which has happened in this case—the outstanding amount becomes a debt on the employer, and the independent trustee is responsible for pursuing recovery. The debts amount to the sum required to bring the scheme back to full funding on the minimum funding requirement basis. That is all very well if the employer is solvent, but it does not help if the employer is insolvent, as in the case under discussion. The provisions will not guarantee that the money owing to the scheme can be recovered. They are directed a fairly long way down the list of creditors as are the other obligations that the firm may have had.

The redundancy payments scheme was set up to protect members who were victims of their employer's insolvency, as happened in the Ravenhead case. When an insolvent employer has failed to pay contributions into the scheme, the scheme may be able to recover some of the missing contributions from the national insurance fund via the scheme. The contributions that may be recoverable are the employer's contributions as well as employee contributions that the employer has deducted from wages, but not paid over to the scheme. A claim has been submitted to the Department of Trade and Industry's redundancy payment fund for the contributions that were outstanding to the Ravenhead company pension trustees and I see no reason why they should not be fully recoverable.

Scheme members should be protected as far as possible if there is fraud or dishonesty, but it is not possible to say at this stage whether any such actions were involved in the case under discussion. Provisions for financial compensation were introduced under the Pensions Act 1995 and those provisions are administered by the Pensions Compensation Board. The board pays compensation to an occupational pension scheme if it has suffered a reduction in its assets because of dishonesty and if the sponsoring employer were insolvent. We introduced improvements to the pensions compensation scheme under the Welfare Reform and Pensions Act 1999 and they came into effect in April. Schemes will now be able to claim compensation if their assets fall below a new protection level.

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I understand that the trustees of the Ravenhead pension scheme decided to trigger the winding up of the scheme with effect from the end of April this year. I am aware that several concerns have been expressed about the length of time that it can take to finalise arrangements when a scheme winds up. That is often not a matter of bureaucracy, but of trying to trace some members of the scheme with deferred benefits. It is not always as easy as it looks to find out where everyone is and to make sure that they receive the fair value of their contributions.

We shall shortly be consulting on a package of measures aimed at speeding up the winding up of occupational pension schemes. OPRA will have a more proactive role in facilitating the winding up of schemes and supporting the trustees. The new rules will make those involved in the day-to-day administration of the scheme more accountable for unreasonable delays, but, as I said, delays are not always unreasonable. When the provisions become law and have had time to bed in, members of the scheme in wind-up should receive their benefit entitlements more quickly.

We are constantly reviewing the pensions regulatory framework and on 3 March this year we published the paper entitled "Security for Occupational Pensions". My hon. Friend the Member for Wirral, South (Mr. Chapman) may have read it. If he has not, I suggest that he does and that he takes part in furthering the Government's work in that regard.

I cannot deal with all the points raised by my hon. Friend the Member for St. Helens, North, so I shall write to him about them, and that applies to my hon. Friend the Member for Wirral, South, too. My hon. Friend the Member for St. Helens, North asked if the Government would consider giving powers to OPRA to assess pension plans. We are placing a statutory duty on the scheme actuary directly to the scheme members. Currently, he has an obligation to the trustees, but it is

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important that he also sees his obligation to the members. That may help him in clarifying and enhancing his whistleblowing role—a statutory role if something goes wrong.

My hon. Friend also asked if I would consider setting up a pension protection fund that could take on the liabilities of discontinued pension schemes. When we consulted on such an issue, it received little support although my hon. Friend was right in that many of those who responded to the consultation were from the industry. There is nothing to stop anyone else answering the consultation and letting us know their views. The difficulty with such an approach is that often good occupational pension schemes do not become insolvent, but provide good benefits to their members. We must bear in mind the difficulty of good schemes having to pay up for bad schemes. There is a matter of balance to be considered, although I understand my hon. Friend's concern in that regard.

My hon. Friend asked whether I would consider requiring all pension schemes to take out a form of mutual insurance that was financed by a levy. The same balance of views must also be considered. If we have to put costs on the good schemes to support the bad schemes, we must take fully on board the implications for pension levels under the good schemes before saying that such action will be taken.

My hon. Friend asked me for an assurance that no pension scheme would be allowed to take a contribution holiday until there was a buffer zone. The current situation is that contribution holidays can be taken only if the scheme has a statutory surplus. I am sure that he will understand that transparency and member-nominated trustees may help to provide information to the members about contributions payments. I am conscious that I am running out of time. I shall, of course, write to my hon. Friend about the other matters that he raised.

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