HC Deb 28 June 1995 vol 262 cc849-56

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Mr. Peter L. Pike (Burnley)

I am glad of the opportunity to raise an issue that has been of considerable concern to me for some time—one that I have raised in the Chamber, in written questions and in correspondence with the Minister who is to reply. I have a substantial file on the case, and many of my constituents stand to lose a great deal of money.

You, Mr. Deputy Speaker, kindly advised me that one aspect to which I wanted to refer is sub judice, so I will respect that advice and tread carefully. I had a quick rethink in preparing for this speech, so I hope that you will not have to call me to order.

Many of my constituents stand to lose money that they have rightly earned from pension contributions. As a trustee of two pension funds before entering the House, I have always believed that such a fund, whether it be a parliamentary scheme, the Belling scheme or any other, belongs to its members—part of deferred earnings that are taken into account in the overall employment package and terms and conditions. It is not only sad but wrong if employees do not receive the pension they expect.

Earlier this week, the Radio 4 programme "Money Box" presented in a sensible and balanced way the issues that I want to raise. If the Under-Secretary of State for Social Security did not hear that broadcast, I will be pleased to send him a transcript. In this debate, I want to stress the importance of preventing another Belling fiasco, ensuring that other workers do not encounter similar problems, and ensuring a fair deal for Belling pension fund members.

As the Pensions Bill is likely to reach Report stage and Third Reading next week or the week after, the Government have a final chance to address the issues involved in the Bellings case and to tighten up that Bill. The Goode report published in September 1993 was followed by a White Paper that formed the basis of the Pensions Bill, but it does not provide the protection we want. If the Minister could put his hand on his heart and say that the Bill will, with 100 per cent. certainty, prevent another Belling fiasco, I would be glad. In fact, he cannot give such a guarantee.

There are three ways in which the Government could tighten up the Pensions Bill. One is to ensure that pension funds have at least two employee-nominated trustees, as the Bill provides. However, another clause provides that, in certain circumstances, that requirement can be circumvented if an existing method of appointing trustees exists or is proposed. That is not acceptable. We must insist on two employee-nominated trustees.

Secondly, the regulator needs more power and teeth—all too often lacking in legislation. Thirdly, transactions between a pension fund and the parent company must be tightly controlled. The Bill addresses loans, but in the Belling case, one strange transaction was considered not a loan but an investment. If the Belling trustees and directors could call such a transaction an investment, I am not convinced that the Pensions Bill will prevent something similar happening in future.

Belling came to Burnley in the 1950s. It was one of the new industries that replaced cotton and mining, on which we had been so dependent. Burnley welcomed the company with open arms. It was a nationally known name—a well-respected family firm. Later, the company operated under the name Compound Engineering. Suddenly, on 29 May 1992, the company hit financial difficulties and went into receivership. I remember that day well. It was the last day of the spring bank holiday recess. When I returned from holiday, I learned that an employer of importance in my constituency was in serious difficulties.

That development has created problems for three classes of Belling pension fund members. When the scheme started to be wound up on 12 February 1993, existing pensioners continued to receive their pensions in full. A question arises regarding future increases—whether they will be 3 per cent., 5 per cent., or according to the retail price index—because of certain agreements made prior to the winding up. The point is, the more that existing pensioners receive, the less money remains for deferred pensioners with an interest in the same scheme. A conflict of interest could arise between different categories of pensioners.

The second category of pensioners are those who have reached retirement age since 12 February 1993 and have become eligible for a pension. The question arises of how much money is available for them. At present, they are receiving a reduced pension on account—nothing like the full amount that they expected.

Thirdly, there are employees who expect to receive a pension when they reach retirement at 60 or 65. Within those categories, one must consider also the guaranteed minimum pension, the scheme's change of status in 1988 and pensions acquired by additional voluntary contributions. The issue is far from straightforward. Some members believe that they will receive only the guaranteed pension, which may be a mere 30 per cent. of their previous expectations. Others think that the figure will be 60 per cent. There are different good and worst case forecasts of the money that can be recovered, and of the range of payments that employees will ultimately receive.

In the Minister's most recent letter to me, dated 20 June, he stated: I appreciate that both you and Mr. Wignall"— Mr. Wignall is a representative of the local work force and is pursuing the issue with the strong support of the former workers on that site— feel strongly about the position of Belling Pension Fund members. I have already set out in my letter of 10 March, reasons why we feel it would not be appropriate for the Government to extend the exceptional assistance provided to the Maxwell Pension Fund members to the Belling Pension Fund members. In his letter of 10 March, the Minister stated: The sheer scale of the Maxwell crisis and the large number of parties involved, including four different sets of scheme trustees, justified the exceptional action taken by the Government in establishing the Maxwell Pensions Unit and the Maxwell Pensioners Trust and it is not a model we consider suitable for general application. I say to the Minister, in all honesty and with considerable conviction, that I would not be concerned whether my pension came from the Maxwell pension fund or the Belling pension fund, the parliamentary fund, the Philips pension fund or the British Coal pension fund. I have the same right to expect my full pension wherever it comes from.

It is of no concern to me to be told that other schemes are much bigger, and that, because of that and media involvement and Robert Maxwell, their pensioners should receive more favourable treatment. If I stand to lose 30 to 70 per cent. of my pension, the loss is the same to me as it would be to anybody else. I am entitled to the same treatment as anybody else.

At no stage have the Government described the exceptional assistance. Some people think that it is a waiving of the payment that should be made by the existing pension fund to restore the guaranteed minimum pension level. I do not know whether the Minister is prepared to outline the exceptional assistance and state the cost to the Government of helping to ensure that the Maxwell people get fair treatment. I stress that I am not in any way opposed to the Maxwell people getting the assistance that they want. I merely say that people in a similar position, whether with Belling or in any other scheme, should get the same help.

I should like to refer to the second Select Committee report of 1991–92 on the operation of the pension fund. Paragraph 4.10.11 states: Belling went into receivership in May 1992. It was discovered that in May 1991, £3.5 million had been withdrawn from the pension scheme and paid to a solicitor to secure a refinancing arrangement for the company. The refinancing did not take place, and the money paid is irrecoverable. As the report is available in the House, I shall not go into the detail of exactly what happened. I have already mentioned the Minister's restriction because of the sub judice rule.

The £3.5 million referred to in the report should be $3.5 million, which translates to £2.1 million. The matter is being pursued. The Law Society made some compensation and issued a press statement, but I shall go no further along that line, because I accept that court cases are pending on the matter. In that context, Mr. Deputy Speaker, I shall relieve the pressure on you right away.

The Select Committee report also states: In November 1991, the trustees of the pension scheme purchased one of the company's subsidiaries for £5.5 million, which at the time represented 20 per cent. of the scheme's assets. A significant part of the subsidiary's trade was with the parent company, and a substantial loss is expected on the sale of the investment. That purchase raises questions about whether Belling was solvent at the time of the purchase and whether the sale should have been declared illegal and null and void. That explains why I say that the Department of Trade and Industry should be concerned about what happened. Should the directors, especially Richard Belling and Michael Stewart, have been allowed to be directors?

I shall give one or two other examples of what happened in the past. In 1989 Michael Stewart, who, as I say, was one of the directors, took a loan of £1 million from the fund without members' knowledge or any declaration in the annual accounts. In September 1990, the same director took a £3 million loan from the fund, without security or legal approval and without the knowledge of the actuary, the third trustee or the members.

The solicitors Barlow, Lyde and Gilbert and counsel told him unequivocally that he was not empowered to take such money from the fund. The directors were repeatedly advised that, to say the least, some of their actions were highly questionable. Time after time they were warned of the dangers.

When I put a question to the Prime Minister on the matter, I said that fraud and abuse was involved in the total concept of the Belling pension fund. That is why the fund is not able to deliver what the pensioners rightly expect. I accept that the directors may have been misguided and believed that they would be able to save the company, but that judgment is generous in the extreme, because I do not think that that was the case.

Clearly, there have been major problems. The money that people were entitled to expect to be in the fund was not there, and people will not receive the pensions and the security to which they are entitled. I do not know what the liquidator's report to the Department of Trade and Industry said, and I appreciate that the Minister may not be able to speak about that, because such reports are not published. People need to know at what stage it was known that the Belling group faced major difficulties and that money from the pension fund was being used to try to keep the group afloat.

For the people employed by the company, those details should have come to light much earlier. Why did not reports by the auditors or by chartered accountants or others ring loud and clear alarm bells and set off flashing lights showing that something was going wrong?

We must be absolutely certain that people in pension funds are sure that, when they retire, they will get the pensions to which they are entitled. I welcome the broad concept of the Pensions Bill, because I know it will bring about tremendous improvements and go a long way towards meeting problems. However, I do not think that it goes far enough. If the Minister was in the same position as the Belling pensioners, he would not be concerned whether his pension was paid from that fund or from the Maxwell fund. Those pensioners want a fair deal, and in their retirement they want what they are entitled to.

1.17 pm
The Parliamentary Under-Secretary of State for Social Security (Mr. James Arbuthnot)

I am grateful to the hon. Member for Burnley (Mr. Pike) for raising the matter of the members of the Belling pension fund. To his great credit, the hon. Gentleman has been assiduous in his support in the House, and in correspondence and elsewhere, for the members of that scheme. He asked whether I had heard the "Money Box" programme on the Belling scheme. I did hear it, and I found it extremely interesting. It obviously raises matters of considerable concern.

It must be the case that, the more interest that is taken in pension schemes in future, the more secure they will become. Backing up that security will be the measures in the Pensions Bill, which left Committee yesterday and to which the hon. Gentleman referred.

The hon. Gentleman is eager to see that all possible gaps in legislation are plugged, so that problems with pension funds do not occur in future. He said that he hopes that, in the years ahead—I think I quote him correctly—no hon. Member should need to tell the House that a pension fund is not able to honour its commitments to its pensioners. In an imperfect world, such a hope can never be completely achievable. The hon. Gentleman asked for 100 per cent. certainty that such a hope could be realised, but that is not possible, as I think, in his heart of hearts, the hon. Gentleman would accept. The measures that we are introducing in the Pensions Bill should greatly improve the security of occupational pension schemes.

I intend to speak in detail about some of those measures, but, first, I should deal with the hon. Gentleman's suggestion, which he has made before, that the help that has been given to Maxwell pension scheme members should be extended to the Belling scheme and to other schemes in difficulties.

I should make it plain that it is the Government's view that the Maxwell pension crisis was exceptional. The hon. Gentleman refers to my letters to him, in which I have referred to the scale of the Maxwell crisis.

The large number of parties involved—more than 30,000 Maxwell pension scheme members were under threat—and the complexity of the problems faced—about 50 major legal disputes took place—justified the exceptional action taken at the time to help to unravel and resolve the problems. Because of those exceptional factors, it needed a different mechanism from the ordinary legal procedures that are available to, and which are being pursued by, the independent trustee of the Belling pension scheme.

Mr. Pike

Will the Minister accept that the independent trustee who is pursuing those procedures must, on every occasion, weigh up whether the amount that is recoverable will exceed the recovery cost, because that cost and the legal remedies are extremely expensive?

Mr. Arbuthnot

Of course I accept that the independent trustee will have to bear closely in mind the recovery cost in relation to matters outstanding, but, in this case, the question is whether there should be a different procedure from the legal procedures that are and should be available to pension schemes to recover assets that should not have been taken from them. That is not the case in the Belling scheme, whereas it was in the Maxwell scheme, because of the scale of the crisis and the complexity of the problems involved.

There is another difference. It is also plain that, although the Government were as eager as anyone that the Maxwell pension crisis should be resolved, they did not feel that they should assume responsibilities that rightly belonged to others. That was also the view of the Select Committee on Social Security, and of the Secretary of State for Social Security's adviser on Maxwell matters, who in March this year successfully concluded a major settlement worth more than £275 million to Maxwell schemes. As chairman of the Maxwell Pensioners Trust, Lord Cuckney, as he now deservedly is, raised some £6 million for the support of Maxwell pensioners.

Both those were remarkable achievements. It must be worth noting that the complexities of the March settlement were such that it took the parties involved the best part of an hour each simply to sign the complex series of agreements that were needed.

We have obviously learnt some helpful and useful lessons from the activities of the Maxwell pensions unit, which was set up to help the parties to resolve their problems. That practical experience has fed into the proposals in the Pensions Bill, not least those on compensation, but we do not consider that the setting up of a specific unit for each specific problem as it arises is a model that should be generally applied.

On the Belling pension scheme, I understand that the independent trustee has settled a number of actions, including one against the Law Society, and is continuing to pursue various claims to rebuild the fund in full. I understand also that the Belling pension fund has been able to continue to pay pensions from the scheme's own resources. That too is different from the position of individual Maxwell pension schemes, some of which, in the early days of the problem, were without resources to make any pension payments. Of course I hope that the actions being pursued by the independent trustee of the Belling pension fund will bring further recoveries to that fund, to rebuild its assets.

One of the major results of the Maxwell crisis was the setting up of the pension law review committee, which led directly to the Pensions Bill. Many of the Bill's provisions directly deal with concerns that have been expressed about the operation of the Belling pension scheme.

Four major principles underlie that legislation. They deal with equal pension rights for men and women, the equalisation of state pension age, making personal pensions attractive across a broader age range, and, most important for this debate, restoring the security of occupational pension schemes. Obviously, confidence in the security of those schemes was considerably undermined by the Maxwell affair. We intend to restore that confidence by improving that security.

A number of measures would have proved helpful in preventing the difficulties that have been faced by the Belling scheme. The trustees of the Belling scheme were all company appointments. The Pensions Bill provides that scheme members have a right to select at least one third of their scheme trustees. That is a statutory minimum that schemes are free to build on. We have gone further than the recommendation of the Goode committee, by insisting that that requirement should apply even to schemes with fewer than 50 members. Those member-nominated trustees are an important part of the package of security and of pension reform offered by the Bill.

I am in no doubt that the vast majority of employers who sponsor occupational pension schemes, and of the trustees who operate them, do so with great integrity, but the small minority who do not will know that they have a member-nominated trustee looking over their shoulder. All trustees will be backed up by the Occupational Pensions Regulatory Authority, to which they can turn if there is any hint of trouble.

The hon. Gentleman suggested that it was possible to get around that member-nominated trustee requirement, but it is not. Many members may be happy with their existing pension scheme arrangements, and in those cases, employers may propose to keep those arrangements or to adopt an alternative, but, before they do, they must first gain the approval of active and pensioner members under the statutory consultation procedure. I assure the hon. Gentleman that that procedure will leave members in no doubt of their rights and of the options that are open to them.

It would not be right for the Government to upset arrangements with which everyone is contented, but, for the first time, scheme members will be able to insist that schemes should have at least some trustees whose perspective differs from that of the employer, or that there should be other arrangements that are equally acceptable to members.

In March 1992, legislation came into effect that limited to 5 per cent. the amount that schemes could invest in the sponsoring company. We intend to retain that limit. In addition, the Pensions Bill provides for sanctions to be taken against trustees who breach the self-investment limit. For serious cases, sanctions include, on conviction on indictment, an unlimited fine, up to two years' imprisonment, or both.

I have referred briefly to the Occupational Pensions Regulatory Authority. An important part of the Bill is the creation of that new regulatory body. We intend that that authority should oversee pension schemes and enforce compliance with statutory provisions. The authority will be able to act quickly on reports and complaints about the management of schemes. It will have powers to conduct wide-ranging investigations, including on-site inspections, irrespective of whether a complaint or report has been made.

The Bill will place scheme actuaries and auditors under a statutory duty to report irregularities discovered to the authority. That will enable it to receive information about schemes with problems at a relatively early stage. That means that it will be able to act far more quickly and incisively than might otherwise have been the case.

The Government firmly believe that the establishment of the regulatory authority, taken together with the comprehensive range of provisions aimed at improving scheme administration and security, will represent a formidable barrier against dishonest or negligent administration of pension schemes.

I have described in some detail some of the measures that we are introducing in the Pensions Bill to provide a strengthened legal and regulatory framework for occupational pension schemes. Those measures will improve the security of members' pensions, but we are also introducing a compensation scheme as a longstop, because, in spite of the robust safeguards in the Bill, there can be no absolute guarantees against a determined criminal.

Because of the limited time available, the measures that I have mentioned today are only a sample of those introduced by the Bill to enhance the security of scheme members. We have great sympathy for the position of Belling pensioners, and I pay tribute to those, including the hon. Gentleman, who are working so hard on their behalf. We can, should and—

Mr. Deputy Speaker (Sir Geoffrey Lofthouse)

Order. We must move on to the next debate.