|Occupational Pension Schemes(Minimum Funding Requirement and Miscellaneous Amendments) Regulations 2002
Mr. Boswell: Does the Minister hope that the changes will speed up some of the wind-ups, or is there, conversely, a danger that they might slow them down? When I receive correspondence from constituents about private pensions matters, it is almost always in connection with the wind-up of schemes and the delays that perhaps inevitably take place. I am sure that we would all wish to ensure that those are not aggravated.
Maria Eagle: The hon. Gentleman should not go away thinking that the regulations apply to the winding-up of insolvent schemes. They do not. Delays often occur in respect of insolvent companies but the regulations do not apply to such situations. We have recently produced some regulations, which were considered by a different Committee, aimed at speeding up winding-up in the case of insolvency,
Column Number: 015but those regulations are not before us so I will not go into any great detail about them.
The regulations provide important improvements for scheme members when a solvent employer decides to wind up the scheme. In addition to those principal measures, the regulations provide an opportunity to make some minor and consequential amendments and points of clarification. Such tidying up is usual and can be done once the need for it is spotted.
I want to deal with some of the points made during the debate. One was about the Joint Committee on Statutory Instruments, which suggested that the explanatory note was not very explanatory. Its 25th report of the Session refers to education regulations and dairy produce quotas, and one has to plough through the appendices to find anything on our memorandum. We accept that the first note was not as explanatory as it could have been and have provided another, which I think that the hon. Member for Daventry decided was a little more explanatory.
Mr. Boswell: Much better.
Maria Eagle: We put our hands up for that mistake, said, ''Fair enough,'' and tried a different explanation. It is always difficult to pitch notes correctly to give sufficient information, and we accept that we got it wrong.
Having read the regulations, the hon. Gentleman suggested that simplification was necessary in the industry. That view is widely held, and the Government hold it as well. If we are to encourage people to save more for their retirement and join funded pensions, the simpler the better, in terms of the products on offer and the explanations. The more likely people are to find them accessible and think that it is worth saving, the better.
The hon. Gentleman also referred to the Pickering and Sandler reviews. Those will have much to say about whether and how we can achieve the widely desired simplification of the entire range of products, the explanations and the industry generally. We shall have to wait until the summer to see what the reviews say. The Government have said that we will respond in the autumn, so once again I cannot tell the Committee how we will proceed, but the subject is on the agenda.
The hon. Member for Northavon asked about the extension of the time within which pension funds might have to get their MFR back up to 90 or 100 per cent., and about the figures of three and 10 years. Getting matters right on the subject is a science only to the degree that economics is a science. It is a pseudo-science, and we feel our way along. I speak as a former economist, so I hope that other economists understand where I am coming from. Most respondents to the consultation welcomed the provisions as striking the right balance. The current measure does not strike the balance, but we hope that the new one will. There is not an awful lot of science at work, but rather a feel in the industry, which has been welcomed by those who deal with the matter on a day-to-day basis.
Column Number: 016The hon. Gentleman also asked how many schemes were underfunded. He asked for specific figures about which schemes fell between 90 and 100 per cent. funding, and which were between 75 and 90 per cent. I cannot give an answer, as we do not have figures on that, but we think that about one in six is likely to be less than fully funded on an MFR basis.
There was a question about whether the regulations affected endowment on public sector schemes.
Mr. Webb: The Minister is helpfully trying to respond to the questions, which have been thrown at her out of thin air. She says that one in six schemes is underfunded, but I do not have a clear picture of how a scheme gets to be 75 per cent. or 85 per cent. funded. What is the typical history that results in a scheme with that sort of funding level and on which the regulations bite? Would they be new schemes, old schemes, big schemes or small schemes?
Maria Eagle: All I can say is that underfunded schemes will be affected. I am not in a position to tell the hon. Gentleman which particular type is underfunded—if there is a particular type. Schemes are many and varied, and it is dangerous to start putting them into categories. On the issue of the one in six, I am happy to write to the hon. Gentleman if he is not satisfied with my reply, but I am not sure that he will be made any happier by whatever detail I send him.
The hon. Gentleman also asked why we based voluntary wind-up changes on the MFR, which he suggested might not be the right mechanism. The MFR is still the funding test that applies to schemes, so there is consistency in basing the winding-up changes on it. We have signalled that stricter conditions will not be based on it in the longer term, when we hope to have legislation that will change more than just the MFR.
The hon. Member for Daventry made several points about defined-benefit and contribution schemes, on which we have had much debate recently. The number of final salary schemes closing to new members has increased, but that is part of a long-term trend. I do not agree with his comment that the storm clouds gathered last autumn—he is not looking far enough back. Some 8 million people remain in defined-benefit schemes, so we should not overplay the seriousness of what has happened. Reading the newspapers, one might get the impression that schemes are closing every day and that people in schemes that close no longer have pensions, but that is not the case. Most schemes close to new members alone; very few close to existing members, although that has happened.
Defined-benefit schemes are still the most widespread form of private pension and, although some schemes have closed, others have said that they will continue. For example, the John Lewis Partnership scheme will go on, because the company regards it as a way of appealing to good quality staff and providing a bonus for employees, making it an attractive employer. Therefore, the situation is not all doom and gloom.
Defined-contribution schemes can be more flexible and more beneficial for some. The level of contribution
Column Number: 017is often what matters. Although I agree that the closure of such schemes is bad, they are often closing because employers are taking the opportunity to cut contributions in respect of the new schemes that they are setting up. That is more a matter of the level of employer contributions than of the type of scheme.
The hon. Gentleman should recognise that we are not leaving behind a golden age. Many were denied access to good occupational pension schemes in the past. A scheme's accessibility depended on whether the company operated one—some did and some did not. Half the work force did not have access to them. Therefore, we are not leaving some sunny upland to be faced with the storm clouds that he claimed had appeared last autumn, to run into a crisis that will first accelerate and then be over by the end of the year. Pensions constitute a much longer term business than that, so I hope that he accepts that although employers may change the way in which they provide them, the situation cannot be characterised as bad. Of course, the closure of individual schemes is bad, especially when employers take the opportunity to cut the level of contribution.
I do not want to detain the Committee for much longer. In conclusion, the future arrangements for the funding of defined-benefit occupational pension schemes remain crucial for the financial future of today's and tomorrow's pensioners. Our proposals to replace the MFR will put in place a framework for scheme funding, which will encourage continued provision by employers of defined-benefit arrangements and ensure that the interests of scheme members are protected. However, that is not all that we are doing, as I want to make clear.
We want to make it easier for employers to maintain or start a pension scheme. We want to encourage saving and ensure that more money goes into pension pots, rather than into red tape or regulations. We are considering whether we have got the level of regulation right and whether we have the right drivers in the marketplace to encourage choice and competition. That is why we commissioned the reviews to which the Committee has referred; Pickering, Sandler and the Inland Revenue review on simplifying the tax regime for pensions. Once we receive those reports in the summer, we will set out the Government's proposals in the autumn, which will make significant improvements to increase saving of people's income for retirement. In the meantime, the regulations that we have debated today introduce important improvements, as the next stage in our ongoing march towards replacing the MFR with a better system. The regulations form a balanced package, and hon. Members have admitted that they broadly welcome them. That is good for members and providers of occupational pension schemes.
Mr. Boswell: I thank the Minister for her responses. She has done her best to reply to some detailed questions, including some of the fast balls that we have slung at her. That is always welcome, especially considering that this is a serious matter and, as the Minister said at least a couple of times, a long-term matter, which does not lend itself to easy
Column Number: 018grandstanding or scoring political points. We have not done that in our debate, and I am glad about that, but we have, properly, rehearsed some important issues.
I am also glad that the Minister placed on the record her commitment to simplification. The regulations are simplifying, which we welcome. We also recognise that they constitute the first stage in a long process. I urge the Minister to continue that process, and we shall be harassing or harrying her to ensure that she does, because part of the industry's concern is with regulation, as the letter that I read out illustrated. We all want proper regulation to ensure that no one filches pension funds, and that they are funded as they claim to be funded, but we do not want anything to add to costs or deter people from setting up funds.
The regulations demonstrate the readiness of Government to make policy changes based on evidence. As the Minister rightly said, the 1995 Act and the regulations on MFR that flow from it were broadly accepted by the industry as taking the right approach. If that approach did not work, it is right to make some changes after consulting on the issue. I shall not argue intensely that we should move on to the final form of the new arrangements. With regard to public policy, it is generally far better to consult properly and get arrangements right than to make haste and get them wrong, unless, of course, there is an emergency. Therefore, I have no problem with the import of the regulations.
I have reservations about two matters. I appreciate that the Minister is a distinguished chess player, but she elegantly declined the gambits that the hon. Member for Northavon and I offered her on the timing of the move to a scheme-specific basis. I understand the reason for that. We can probably call it a draw, as long as she understands that we would like that to happen as soon as is practicably possible. She also declined the gambit from the hon. Member for Northavon on what might be called the typology of schemes that are in deficit. I understand why she might not have wanted to give the Committee an essay, or even some ruminations, about who is in trouble and who is not. Again, we must remember that we need to look at the sorts of patterns that develop to ensure that regulations work to protect policy and scheme members rather than working against their interests. Certainly, Ministers and regulators need to take such a view.
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