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Baroness Seear: Before the Minister sits down, I think I understood him to say something that confirms that he accepts that pensions are deferred pay. Am I right in my recollection? It would be useful to have that confirmed.

Lord Mackay of Ardbrecknish: One has to look at what one says in such cases, but my recollection is that we reached one of the issues that we now have to face by way of the European Court which considered that pensions were deferred pay. I do not

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think that I would greatly argue with that. I am not sure what point the noble Baroness is seeking to make, but this is part and parcel—

Baroness Seear: If the Minister reads Hansard tomorrow, I think that he will find that that is what he said.

Lord Mackay of Ardbrecknish: A pension is part and parcel of the remunerative package that someone gets from a firm. The point that I was trying to make—the noble Baroness should take this a bit more on board because she seemed cavalierly to dismiss the employer's position—is that the employer is the person who decides to create a scheme. He stands behind the scheme and has a considerable interest in ensuring that it is properly run. If it is not properly run, he is the person —unless he decides to take drastic measures—who has to put cash into the scheme to make it up.

3.45 p.m.

Lord Desai: Perhaps I may ask the Minister another question before he sits down. I detect a logical flaw in his argument. On the one hand, the Minister has said that trust members do not represent any interest except their fiduciary duty to the trust; but, on the other hand, he seems to be speaking in terms of "employers' interests" and "employees' interests" and saying that unless an employer has at least a majority of members on the trust board, he will not set up a scheme. Are the trustees partisan, playing for one side or the other, or are they all neutral? If it is the case that employers cannot set up schemes unless they have a majority, that changes the logic of the trust. Could the Minister please clarify that point?

Lord Mackay of Ardbrecknish: I have tried to explain where we are on this point. Of course, the trustees have a duty to the whole scheme. They are not there as representatives. That is perfectly clear. However, that does not get away from the fact that if something goes awry with the scheme, it is the employer who stands behind the guarantee. That has to be in the interests of all the members of the scheme. I should not think that anything would divide us on that aspect.

The point that I am making is an important one about how people become trustees. We have clearly gone a long way from the current position by establishing a minimum of one-third. I believe that going further would upset a balance which takes many issues into account. That question of balance includes whether one wants to encourage employers to set up occupational pension schemes and to continue with them. Those are questions of considerable importance which we have to take into account. At the risk of sounding like Members on at least one of the Benches opposite, I think that we must appreciate that there is a balance in all these things.

Viscount Caldecote: I wonder whether my noble friend could clarify his answer to my question about a pensions holiday. Was he saying that it is possible—that it is legal—for an employer to say, "I'm going

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to cease paying contributions because of the over-funding", but to insist that the employees continue to pay their contributions? That seems to have a bearing on the merits of the amendment.

Lord Mackay of Ardbrecknish: We shall come to the problem of a contributions holiday later, but my understanding—I hope that my noble friend will forgive me if I say "my understanding" because this is all pretty complicated—is that under the Bill an employer will be able to take a contributions holiday if that is the way in which it has been agreed to deal with any surplus. I hope that that answers my noble friend's point.

Viscount Caldecote: Can the employees be forced to continue their contributions while the employer is not contributing?

Baroness Hollis of Heigham: Yes.

Lord Mackay of Ardbrecknish: I think that was implicit in what I said. Yes, of course he can. The employees will continue with their contributions at whatever rate has been agreed. The employer may take a contributions holiday in the circumstances that we shall come to if the fund is in surplus. I do not want to go into the debate about why that should be the case, but I want to make the point now that the employer is in that position because, if the opposite happens, it is the employer who has to pick up the tab for the deficit.

The Earl of Buckinghamshire: Perhaps I may answer my noble friend by saying that the question of legality will be covered in the trust deed and rules. The scheme will be run in accordance with the trust deed and rules.

Perhaps I may quickly clarify the position on the issue of deferred pay of which much was made at Second Reading and which has been raised today by the noble Baroness, Lady Dean. The case that we are referring to is the Barber case of May 1990 which reached the European Court, which held that for equal treatment purposes, pension rights were to be treated as pay. That judgment did not hold that the assets guaranteeing the pension rights were pay, except possibly in money-purchase schemes. The ownership of the assets was examined at length by Professor Goode who did not reach a definite conclusion about where the ownership of the assets lay but, on balance, in a balance of cost and defined benefits plan, he came down on the side of the employer.

That is the view of the judiciary also, as we can see in Imperial No. 1, the Hillsdown case, which is based on the view that a pension fund in a final salary scheme acts as a guarantee of the employer's promise to pay a pension on retirement. There is no such need for a guarantee of the employer's promise to pay a pension on retirement in public sector schemes because the Government stand behind them. The reason Civil Service schemes are not funded is that there is that guarantee behind them.

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I wanted to clarify the position of whether a pension is deferred pay. The assets have nothing to do with the issue. The pension rights have. The Committee may not wish that to be so, but it is the actual position.

Baroness Hollis of Heigham: That explanation from the noble Earl is helpful, because it is our understanding of the situation. Some extraordinarily distinguished voices have taken part in the debate. They range from my noble friend Lady Castle who, as Minister, introduced some of the most significant pensions legislation, to the noble Lord, Lord Ezra, a company chairman, and the noble Lord, Lord Allen, who founded the Occupational Pensions Board. They have all given the same message: they support the amendment.

The noble Lord, Lord Dean of Harptree, raised some entirely appropriate points. First, he accepted that 50 per cent. of trustees drawn from scheme members is already good practice in most of this country's major companies. There is no dispute between us. This is not some leap into the dark, some will of the wisp, but is standard practice in this country's best blue chip companies. The point made by the noble Lord—this was supported by the Minister in his reply—is that he fears that such a requirement may deter employers in the future who are considering setting up occupational pensions schemes.

At the moment, as I understand it, about 92 per cent. of scheme members are in final salary schemes. The noble Lord is right: employers are looking increasingly to money and money purchase schemes within the company. But, of course, in a money purchase scheme, Goode recommended that there should be two-thirds member trustees, because the financial weight carried by the scheme members vis o vis employers was that much greater. Given the argument put forward by the noble Lord—if he accepts, as I am sure he does, that companies are moving increasingly to money purchase schemes—then there is a even greater need for the amendment than he might otherwise suggest.

I think the Committee will agree that experience seems to suggest that most companies go into hybrid schemes. People in their late 30s and 40s, when they are making a lifetime commitment to the company, often move on to final salary. Amendment No. 108 meets both those needs. Otherwise, particularly with money purchase schemes—the noble Lord, Lord Dean, is probably right that employers are going that way—those people who are making substantial, significant contributions will be left relatively exposed because there the employer has no such responsibility to pick up the deficit. All that is promised is a defined contribution, not a final benefit. Following the noble Lord's argument, it is even more important that the amendment be accepted.

The Minister emphasised the point about the employer's interest, and called on us to go for an even-handed approach. That is what the amendment does. It is an even-handed approach which is reflected in Boots, ICI, Unilever, Sainsbury, Shell, Courtaulds,

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and Allied Lyons. They think that it is in their companies' interest to have an even-handed—to use the Minister's words—approach to scheme members.

I have asked around whether any company with a 50:50 approach has found any disadvantages. I have not been told of one company. Through the organisations representing employers, not one company has said, "This is a disadvantage". On the contrary, major companies such as Sainsbury have said to the Social Security Select Committee in the other place what an asset it has been to the company to have such an arrangement. It hopes that smaller company schemes will follow suit.


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