- '.—(1) The trustees or managers of an occupational pension scheme or a personal pension scheme must secure that investments held for the purposes of the scheme are held in accordance with an agreement made between the trustees or managers and an appropriate authorised person ("the custodian") which contains the provisions mentioned in subsection (2).
- (2) Those provisions are—
- (a) that the investments are held in the custodian's name and he maintains adequate records for identifying them as belonging to the scheme and not to himself or any other person,
- (b) that the custodian is required to safeguard the investments,
- (c) that all documents of title relating to the investments are kept in the custodian's possession and may not be delivered to any other person except—
- (i) to another appropriate authorised person with whom the trustee or managers have made an agreement within this section or in accordance with instructions from the scheme's fund manager, and
- (ii) upon a request which is signified in the manner specified in the agreement,
- (d) that all arrangements and transactions relating to the investments are conducted and recorded in the manner and within the period so specified,
- (e) that adequate arrangements are made for the deposit or investment of money received by the custodian in pursuance of the agreement and for the payment by him of money required for the purposes of the scheme,
- (f) that the custodian is responsible for securing that the trustees and managers are fully informed of all matters relating to the investments within a period which is reasonable having regard to the importance of the information,
- (g) that, in any case where the custodian is also a person to whom any discretion to make any decision about investments has been delegated under section 38, the functions exercisable by him as custodian are adequately differentiated from those exercisable by him by virtue of that delegation,
- (h) that the custodian is liable for any reduction in value in the assets of the scheme arising from any breach of his obligations under the agreement, and
- (i) such other provisions as the trustees or managers consider appropriate for securing the safeguarding of the investments of the scheme.
755 - (3) Where an agreement in relation to the investment held for the purposes of a scheme has been made with a custodian in accordance with this section—
- (a) except in prescribed circumstances, the custodian shall not be regarded as a trustee or manager of the scheme by virtue only of complying with such provisions of the agreement as are mentioned in subsection (2), and
- (b) the trustees or managers of the scheme are not responsible for any act or default of the custodian in the course of exercising his functions as such if they have taken all reasonable steps to satisfy themselves—
- (i) that he is an appropriate person to appoint as custodian, and
- (ii) that he performs his functions under the agreement competently.
- (4) Subject to any restriction imposed by the scheme, an agreement under this section may include provision enabling the custodian to make arrangements with another person for him to exercise any of the custodian's functions under the agreement; and where the custodian makes such arrangements this section shall, except in prescribed circumstances, apply in relation to the other person as it applies to the custodian.
- (5) Regulations may—
- (a) provide that this section does not apply, or
- (b) modify it in its application,
§ Brought up, and read the First time.
§ Mr. ButterfillI beg to move, That the clause be read a Second time.
Mr. Deputy SpeakerWith this it will be convenient to discuss the following: New clause 31—Supplementary provisions concerning custodianship—
New clause 34—Company takeovers: trustees rights—
- '.—(1) In section (Custodianship of investments) references to an appropriate authorised person are to a person who—
- (a) is regulated in the carrying on of business consisting of the holding of pension scheme investments in accordance with such agreements as are mentioned in that section by a body which is a recognised self-regulating organisation for the purpose of the Financial Services Act 1986, and
- (b) subject to subsection (2), is not connected with the person who is the employer in relation to the scheme in question.
- (2) Paragraph (1)(b) does not apply—
- (a) where the employer is an institution authorised under the Banking Act 1987 or a prescribed person and the arrangements made under this section comply with such further requirements as may be prescribed, or
- (b) in prescribed circumstances.
- (3) Section 2(1) of the Financial Services Act 1986 (power to extend or restrict the meaning of "investment" and "investment business" for the purposes of all or any provisions of that Act) shall apply in relation to the provisions of section (Custodianship of investments) and this section as it applies in relation to the provisions of that Act.'.
'.—In circumstances where the employer changes the trustees will be consulted by the existing employer on any issue that would have any impact upon the pension fund or monies due to it, prior to the transfer.'.Amendment No. 83, in schedule 5, page 105, line 9, at end insert—Minimum funding requirement—. In section 56 of the 1995 Act (minimum funding requirement) subsection (4) shall be omitted.'.
§ Mr. ButterfillI rise to speak briefly to new clauses 30 and 31. They are not new clauses, in that they are not new to the House: they were first debated during consideration of the Pensions Act 1995. Their author was the National Association of Pensions Funds, and they were first proposed by the right hon. Member for Glasgow, Anniesland (Mr. Dewar), now First Minister in the Scottish Parliament. He was absolutely right to propose the provisions, because the issue of custodianship of assets is a vital one.
The 1995 Bill was, in many ways, a reaction to the Maxwell pensions scandal. The only reason why Mr. Maxwell could get away with his nefarious deeds was that he could get his hands on the securities that were held by the pension fund, and falsely pledge them to the bank as being assets of his company. If he had not been able to do that, none of the Maxwell scandal could have occurred. It would have been much more difficult for him to do that if he and his co-trustees had been required to have an independent custodian holding those securities—a custodian who would have asked why Mr. Maxwell personally needed his hands on those documents.
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If we proceed with the two related new clauses in my name, it will make it very much more difficult—not impossible, but very much more difficult—for a future Maxwell to behave in that way. Of course, even an independent custodian must hand over securities if required but, given the responsibilities that custodians 757 now have under legislation, and given the responsibilities that would be placed on them by the new clauses, they would be required to ask pertinent questions before they gave in to any unusual requests of that nature. Under the new clauses, they would also have responsibility if they did not behave with due discretion in these matters. Such clauses are the only way of preventing a future Maxwell.
The previous Government argued, and the present Government are arguing, that the new clauses are unnecessary for a number of reasons. One is that custodians are now adequately regulated. They are indeed regulated under the Pensions Act and under the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996.
The second reason given is cost. That was dealt with last time. The National Association of Pension Funds estimates that, for the average scheme, the cost of independent custodianship would be one twentieth of 1 per cent. of the total of the assets. That is not an exorbitant amount. It is an amount that any reasonable scheme could bear for the security that would be given to its members.
The third reason given by the Government when the matter was last considered was that there was no legislation in place to regulate the operation of the custodians themselves. The Government said that we would have to wait until the relevant legislation determined how they would be regulated. If the custodians could be regulated, perhaps such a proposal would work.
Well, the custodians are now regulated. The legislation has done its job. The Occupational Pensions Schemes (Scheme Administration) Regulations 1996 have done their job in regulating the activities of custodians, as the Minister confirmed to me. This is the only way in which we can prevent someone from acting as Maxwell acted. There is now no reason why that should not be done. All the pieces of the jigsaw are in place.
It is no use the Minister or others saying that most schemes already have independent custodians—of course they have—and that only small schemes do not have them. In my constituency, small firms have gone bust. The entrepreneur who was running them had appointed his cronies as trustees of the pension fund, and ran off with the money. That can still happen even today, regrettably. Only a measure such as the new clauses can prevent it.
I apologise for detaining the House, but these are important subjects. Amendment No. 83 would amend section 56 of the 1995 Act in a way that would change the operation of the minimum funding requirement.
The amendment's intention is to permit fund trustees to take into account the total return on their assets rather than simply to consider the income that derives from them to match the fund's future liabilities. I admit that the amendment that I tabled is incompetent and does not achieve the effect that I intended. People who are more expert than me have pointed that out. Nevertheless, it is important to debate the subject.
I declare an interest on behalf of all hon. Members: I am a trustee of the parliamentary contributory pension fund. I also acknowledge the assistance that I received from the National Association of Pension Funds, the Institute of Actuaries and especially from Mr. Graham Bishop of Salomon Smith Barney. His research paper "Understanding Bond Markets" has been an invaluable source of statistical information.
758 I have already emphasised the importance of the 1995 Act in response to the Maxwell scandal. It ensured that funds were maintained at a sufficient level to meet future requirements. The Act authorised the Secretary of State to issue regulations to govern such activities, especially the Occupational Pension Schemes (Minimum Funding Requirement and Actuarial Valuations) Regulations 1996.
Paragraph 7 of the regulations causes particular anxiety. It is headed "Determination and Valuation of Liabilities". Sub-paragraph 3 provides that there is an assumption that all liabilities will be met through investment in gilt-edged securities. That is the crux of the problem. If liabilities have to be met through such investment, and gilt-edged securities are continually decreasing, the yield to the fund will steadily diminish.
I first raised the matter when the original legislation was made. My right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) wrote me a letter—now known in the industry as the Butterfill letter—which relaxed the regulations to permit large funds to invest a specific proportion of their matching in equities rather than gilts.
However, the requirement to match a significant proportion of a scheme's future liabilities by investment in long-term gilts remains. It has created the problems that I now want to tackle. Of course, I know that the Government recognise that a problem exists and that they are conducting a review of the operation of the minimum funding requirement. However, I am worried by rumours that the outcome of the review may consist of little more than proposing an extension of the requirement to invest in gilts to allowing additional investment in high-quality corporate bonds. Unfortunately, that would be a palliative. It would do little more than apply sticking plaster to a gaping wound in the whole system of pension provision; a wound that is getting wider and deeper with every month that passes.
The problem arises not from one factor but from a series, which interact cumulatively to produce a most alarming problem. I shall outline those factors. The first is increasing life expectancy. We all live much longer. Secondly, there is an increase in the demand for gilt-edged securities not merely by pension funds but by insurance companies, which are required by regulation to match their liabilities in their reserving regime. Thirdly, there is a reduction in the supply of long-dated gilts due to an improved inflow of funds to the Treasury as a result of increasing economic activity and significant increases in taxation by the Government as a percentage of gross domestic product.
The last factor may be alleviated. The Red Book shows that the Government may move from a surplus to a growing deficit over the next few years. That factor may therefore be less serious than we anticipate. However, the first two factors are likely to become much more serious for the foreseeable future.
The improved health in our nation is likely further to extend life expectancy and thus the long-term liabilities of funds for such funds will require them to hold a rising proportion of gilts as their members age. That has been exacerbated by the Government's decision in 1997 to remove the ability of pension funds to reclaim advance corporation tax on dividends.
759 Gilt yields have halved in the past few years and that trend accelerated following the rush for valuations ahead of the 1997 deadline, with the resultant sharp rise in long gilt purchases as the funds decided to strengthen their position. As a result, the 15-year gilt yield fell by more than 30 per cent.—from 7.6 to 4.9 per cent.—in the two years between 1997 and October 1999. The inexorable movement in that direction is exacerbated by the fact that the actuaries to the funds are allowed no discretion in their valuations.
The problem that we face is that the current system forces funds to switch from equities to gilts. That in turn drives down the yield on gilts, which in turn creates a need to purchase still more gilts to match the future liabilities. Thus we are creating an inexorable downward spiral of gilt yields, fed by itself. That is an investment black hole into which an increasing proportion of funds is sucked with calamitous potential results for purchasers, equity investment and our national well-being.
The Government have stated that they are keen to encourage savings for retirement and that an increasing proportion of those savings should be invested in the productive economy, particularly the newly emerging high-tech sector. However, if a fund chooses an investment policy with a higher equity content, which the Government say that they want, rather than matching the equity-gilt balance used in calculating the liability and if gilt yields then decline relative to equity yields, the current value of the "pensions in payment" and the "approaching requirement" segments of that liability, subject to the equity easement to which I referred earlier, will rise relative to the equity-based assets. Thus, the minimum funding requirement ratio of assets to liabilities will deteriorate.
Unless the Government take immediate action to remedy that situation, the results will be disastrous. First, they will not be able to achieve their ambition to persuade UK funds to invest in the productive sector of the economy. That is already apparent as the overwhelming bulk of funds flowing into British venture capital companies arises from investments in those companies by United States pension funds. The Government of that country have created more enlightened rules for investment by pension fund trustees.
Secondly, the yield on long-dated gilts will continue to fall. That creates huge distortions in our funding system where the yield on long gilts is massively lower than that for short-term interest rates. Indeed, although UK short-term interest rates are double those prevailing in the rest of the European Community, yields for 10-year bonds are three percentage points less than those of their German counterparts. Incredibly, we are approaching a position where the Government could find it to their advantage to repay the notorious 3.5 per cent. war loan.
The impact of falling gilt rates on annuities has been disastrous for those who have reached retirement age and who had prudently saved for their retirement through personal pension schemes. As The Sunday Times pointed out on 26 March, after the Budget, in 1990 a man of 65 could have bought a pension of about £1,500 a year for every £10,000 that he had saved in his pension fund. Today, he would get about £900 a year—almost half—and the figure continues to fall. Our system betrays all 760 those who have saved through personal pensions, particularly as most would have achieved a far better and more flexible result had they saved through one of the alternative investment vehicles, which I pointed out in the previous debate.
Thirdly, the rules do not operate for the benefit of future pensions. Funds invested in pension schemes, whether personal or occupational, have been so successful because of the rising rate of equities and the benign overall economic climate created by increasing investment. Perversely, the minimum funding requirement as presently constituted will transfer the amount invested in the productive sector of the economy to the far less productive fixed interest investment sector. It is therefore extremely unlikely that the value of pension funds will grow as it has in the past and there could be serious implications for the future well-being of those making pension savings today.
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The answer to the problem will not be to allow limited and highly regulated investment in high-quality commercial bonds. The yield on those bonds will fall, and the contribution that they can make to investment requirements is of necessity limited. Such a move would have only a temporary palliative effect. The answer is to move away from mechanistic actuarial calculations based solely on income flow and towards a system that realistically and conservatively assesses total investment returns. That policy is now being adopted by the trustees of many institutions other than pension funds.
I serve on the council of management of the People's Dispensary for Sick Animals. As that charity has substantial on-going liabilities for the monthly payment of the salaries of veterinary and other staff, the investment policies that we dictated to our fund managers were, until recently, income constrained. We realised that it did not matter whether the money coming into the charity was income or from capital gains, so long as we got in enough money. We decided that, provided that our calculations were prudent and likely to produce sufficient funds, we could change the whole basis of our investments. So it should be with pension funds.
If the present trend continues, we could arrive at a situation in which funds have capital values that massively exceed any reasonable calculation of future liability, but their income is so poor as a result of declining gilt yields that they are constantly forced to add to their capital funds. We have surely created a regulatory madhouse, which the Government must reform without delay.
§ Mr. Andrew Miller (Ellesmere Port and Neston)I never thought that the day would come when I would find myself agreeing with a significant part of what the hon. Member for Bournemouth, West (Mr. Butterfill) has said, especially in his earlier contribution. I profess a certain ignorance on the latter points that he made, but I am pleased that he is looking after our pension fund in the House.
The hon. Gentleman raises some important points. I shall refer to new clause 34 and the question of takeovers. It was interesting to hear the exchange last week and again today between the hon. Member for Solihull (Mr. Taylor) and the Secretary of State for Trade 761 and Industry on the position of Rover. The hon. Member for Bournemouth, West raised a particularly important point about smaller companies.
I sought to introduce a private Member's Bill on this point in the previous Parliament, but I was persuaded by the then Government that the issues that I was raising would be covered by the Pensions Act 1995. To be fair, a significant number of improvements were made at that time. Sadly, the collapse of H. H. Robertson's in my constituency early in 1997 shows that the 1995 Act may need strengthening further.
In commenting on that case, I should like to pay tribute to a number of colleagues. 1 mentioned the hon. Member for Solihull, who in his position in the previous Government referred this case to the Serious Fraud Office. His successors have also been extremely helpful. The noble Lord Harrison of Chester and the noble Lord Hunt of Wirral have made positive contributions in this area. My right hon. Friend the Member for Birkenhead (Mr. Field) is still working with me on this case, as are other local colleagues. Many of them, including the Under-Secretary, my hon. Friend the Member for Wallasey (Angela Eagle), have constituents who are affected by this terrible tragedy. The Minister of State, Cabinet Office and the Deputy Prime Minister have consistently taken an interest in this case.
This collapse came about after an asset-stripping operation by Mr. Ric Wharton, who bought the company for £1. He made a pretence of reviving the company, but in reality he made a lot of money at the expense of the company's creditors. Sadly, and perhaps wrongly, pension funds are unsecured creditors, so when the company was refinanced by a conventional bank loan, the fund fell further down the pecking order of creditors. The net effect was that, when the company collapsed, the pension fund had a shortfall of about £5 million. Now, pensioners are surviving on about 25 per cent. of their pension entitlement, while Mr. Wharton lives in the lap of luxury.
Many of the people who lost their jobs would have been far better off had they chosen to retire, rather than taking a pay cut—at Mr. Wharton's behest, and having had no real choice, and no knowledge of how to handle the situation. Had they done so, the state would, ironically, have saved money, because the amount now being paid in benefits is astronomical. At that point, the company's assets would have largely covered its debts, including those of the pension fund. The trouble is that those concerned were not entitled to the key information, and had to rely on the word of someone who has since proved to be less than straightforward. The new clause would put a little power back into the hands of pension funds in similar circumstances.
I realise that, in its present form, my proposal would have serious implications for company legislation, but I hope that the plight of my constituents will persuade the House to ensure that what I have described never happens again. I accept that the whistleblowing and other provisions of the 1995 Act help, but they do not entirely deal with the problem.
I know that the new clause does nothing to help my constituents, but all to whom I have spoken agree that no one else should suffer what they have suffered. I urge my right hon. Friend to do all that he can to protect funds at the point of takeover, by agreeing to look at the practical effects of this dreadful case on real people and legislating accordingly.
§ Mr. FieldLike the hon. Member for Bournemouth, West (Mr. Butterfill), I will speak briefly.
I support the campaign spearheaded by my hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) on behalf of his constituents, and people in surrounding constituencies. Many worked hard for what was, they thought, a full working life, expecting to retire on a decent pension; they now find that their pensions are so reduced that they will not even be able to claim the minimum income guarantee, because they will be just above the qualifying level for income support. This is a very important issue, and I hope that those in the other place will be able to examine it again.
The hon. Member for Bournemouth, West, citing the Maxwell effect on pension funds, asked whether all the checks that we could put in place were there to protect pension funds. In the other place is the person who recovered most of the funds for the Maxwell pensioners. Perhaps when the Bill moves there, he will be the appropriate person to look at not only new clause 30, but new clauses 31 and 34.
§ Mr. RookerI almost feel tempted to say, "Let's call it a day and send the Bill to the other place." I am sure that those in the other place will find a more civilised and conducive time for discussion. However, we plod on.
That is not a complaint, by the way. It is not a complaint about the new clauses and amendments that have been tabled, or about the debate—far from it. A vital part of life in this country is the protection of the interests of pensioners. However, I do not think we are in a position to do the subject justice here at five minutes to midnight. I have no problem with the idea that we may look at the matter again in the summer.
The hon. Member for Bournemouth, West (Mr. Butterfill) was good enough to warn me that he intended to table the new clauses. We have engaged in correspondence, but I may not have convinced him fully in that, and I think it useful to present the Government's views again.
As the hon. Gentleman knows, new clauses 30 and 31 are identical to those tabled in Committee in June 1995, during consideration of the Pensions Act 1995, by my right hon. Friend the Member for Glasgow, Anniesland (Mr. Dewar), who then represented Glasgow, Garscadden and who is now Scotland's First Minister.
The Government of the day rejected those new clauses—I hate to have to read this out, but it is true—for reasons that I find as persuasive today as they were in 1995. [HON. MEMBERS: "Hear, hear."] I am being as honest and open as I possibly can. However, the fact is that when one is in opposition, one does not always have access to all the necessary information on the arguments. When one crosses over to the other side of the Chamber, one sometimes discovers that the arguments are not quite as one thought that they were.
§ Mr. Kevin Hughes (Doncaster, North)That works both ways.
§ Mr. RookerYes, but I prefer crossing the Chamber in this direction.
The use of custodians in occupational pension schemes is as widespread today as it was in 1995—it is more or less universal. A very small minority of schemes do not 763 make use of custodians, but most schemes regard the use of custodians both as good practice and as a prerequisite for carrying on investment in certain overseas markets.
There are, therefore, two issues to be considered in relation to new clauses 30 and 31. The first is whether the use of custodians significantly increases the security of scheme assets and should be made mandatory for all occupational pension schemes. The second is whether—and, if so, in what manner—the conduct of custody business should be regulated. New clause 30 deals with the first issue, and new clause 31 with the second.
In 1995, the predecessor to new clause 30 was rejected because both the Government of the day and the then hon. Member for Garscadden recognised that the Pensions Law Reform Committee, under the chairmanship of Professor Goode, had taken the view that the appointment of a custodian could give only the illusion of security. The appointment of a custodian does not in itself increase the security of scheme assets, as the custodian is required under the terms of the custody contract to release the assets in question provided that the instructions to do so are issued in the manner stated in the contract.
§ Mr. ButterfillI had anticipated that the Minister would make that argument, which has been made before. However, the situation has now changed. When that argument was first made, we did not have the regulation of custodians that we now have under the pensions regulations and the Financial Services Act 1986. The onus on custodians is, therefore, now much greater. However, even if that were not the case, the onus imposed on custodians by the new clauses would deal with that point.
§ Mr. RookerI am grateful for that intervention, as it gave me time to find the note that I was looking for. I have already partly dealt with the point, but I also accept the hon. Gentleman's comments on the changes, which I shall deal with in a moment. However, he made the point that the use of custodians would have stopped Maxwell and prevented other people from raiding pension fund assets. That is not strictly true. Some of the assets misappropriated by Maxwell were placed with independent custodians, but that did not stop him. Independent custodians also would not necessarily deter another Maxwell. The custodians are bound to release the assets that they hold in accordance with their contracts.
The man was a crook, and a determined one. It is very difficult to guarantee that we can prevent all future problems caused by determined fraudsters, although we can erect the best barriers possible—and considerable barriers have been erected since 1995. However, appointment of a custodian offers no significant protection against a determined fraud. That holds true today.
The Government therefore consider that the voluntary use of custodians by occupational pension schemes recognises both the advantages of custodianship and its inherent limitations. Making use of custodians mandatory might well convey the impression to scheme members that the assets of their schemes are secure, when in fact they are no more secure than they would be if no custodian were used.
Additionally, for the small number of schemes which for reasons of their own do not make use of custodians, making their use mandatory might place additional and 764 unnecessary financial and administrative burdens on schemes whose arrangements for security of scheme assets serve them perfectly well and have done so for many years.
The only point that I need to make on new clause 31 is that, since June 1997, as the hon. Member for Bournemouth, West said, the investment activity of custodians has been regulated under the Financial Services Act 1986. There is no need to set up a new regulatory body to oversee custody business.
On amendment No. 83, as hon. Members are aware, the Pensions Act 1995 introduced various measures aimed at—
§ 12 midnight
§ Mr. ButterfillWill the Minister address the fact that even the latest legislation does not require arm's-length appointment of trustees, as the new clause would?
§ Mr. RookerI am not seeking to give the impression in my response, inadequate though it may be, that the position is perfect and everything is locked down. No doubt we shall return to the issue in due course.
A number of measures were introduced in the 1995 Act with the aim of promoting security for members of pension schemes, including the minimum funding requirement. It is important to protect members and the benefits that they are promised. There can be no objection to that.
Amendment No. 83 would undermine the minimum funding requirement for some schemes, which would be considered as meeting the requirement even if there were insufficient funds to meet the rights of members on the basis on which they were accrued. If a scheme was not funded to the minimum requirement, the liabilities—the members' pension rights—could be reduced to the level of the assets available in the scheme rather than increasing contributions.
The minimum funding requirement is not a guarantee of solvency. I freely admit that as a lay person I had thought it was. In the past eight months, since I have been at the Department of Social Security, I have looked at the issue in more detail. The lay person can get a false impression from the minimum funding requirement. It is not intended to force employers to contribute at a higher rate than is needed in the long term to meet the benefits promised.
A wide-ranging review of the minimum funding requirement is being carried out by the Institute of Actuaries and the Faculty of Actuaries in Scotland, in partnership with the Department of Social Security. It has been a significant and detailed review, with different groups looking at seven different papers and sub-groups set up. The report is due this spring. There will be full consultation on any changes that we propose. We have to strike the right balance. This can be a sensitive issue, because of the differences in pension funds. In the light of what I have said, I hope that the hon. Gentleman will withdraw the motion, on the promise that the issue will be raised in the other House.
I pay tribute to my hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller), who raised the issue behind new clause 34 with me a few weeks ago in respect of the former members of the H. H. Robertson pension scheme. He has been a tireless campaigner and 765 has a good record for raising the issue with Ministers in my Department and the Department of Trade and Industry. The sale of a business by one employer to another is a common occurrence. There are provisions in pensions legislation to protect the funding of pension schemes. I freely accept that those provisions were not in place when the relevant events at H. H. Robertson occurred, but I hope that my hon. Friend accepts that they are in place now and are worthwhile additions to the protection afforded to scheme members.
My hon. Friend alluded to the situation at Rover. In that case, one company has been sold to two other companies, with a bit of it being retained by the current owner, as I understand it. Occupational pensions are voluntary. There is no requirement to run a scheme and I have no information on Alchemy's proposals. Ford is a responsible employer of many thousands of people in this country with occupational pension schemes. We can assure Rover employees who are members of the existing occupational pension scheme that the pension rights that they have already earned are protected. It is crucial that that is understood. The trust arrangements are irrevocable.
I do not know the details of the Rover scheme, but it is true that surpluses sometimes accrue. It is a moot point who owns the surplus. The legal authority is such that the surplus is not in the members' ownership: as long as the money is there and the pensions are being paid, it seems to be in the ownership of the employer. That is a not unimportant point: especially when large companies break up other companies and sell them as though they were a row of cans on a supermarket shelf, it is crucial to ensure that the protections put in place after 1995 are thoroughly explored and the schemes are secure for current pensioners as well as those who are paying in for the future.
Trustees have a role in seeking to ensure that debts due from an employer are paid promptly, including any debts created by ceasing to participate in the scheme, if the scheme is underfunded or if no contributions, or the incorrect contributions, are paid. My hon. Friend the Member for Ellesmere Port and Neston spoke about the Serious Fraud Office being called in. I have no information on that aspect of the specific case, and it would be improper for me to speculate on it.
The minimum funding requirement should lessen the risk that a scheme is underfunded through, for instance, an over-extended contributions holiday. There are many home-grown blue-chip companies in this country that have not paid a penny into their pension funds for years. Many of my constituents who are members of the Lucas pension fund have often had cause to speak to me about that situation.
The MFR is an on-going requirement on schemes to monitor their funding position and to have in place a contributions plan to ensure that the appropriate funding level is maintained. The Occupational Pensions Regulatory Authority must be told if employers fail to stick to the contributions plan and to pay contributions on time.
We are aware of the importance of protecting members' rights. That is the bottom line. If we cannot do that, they have no one else to look to. Where there are gaps in the legislation, we must block them. There is no evidence of major difficulties. Reviews are going on and we will report the results to the House as early as we possibly can. 766 There will be full consultation on any changes that we propose, and one can assume from that that there will be further debate on the issue.
§ Mr. ButterfillI am grateful to the Minister for that response, but I do not accept his arguments on custody. Of course, some of the Maxwell funds were held by custodians, but custodians were not regulated at that time, so that argument does not hold water. They are now properly regulated, although I think that the regulations could have been improved, and the need for custodianship remains.
Of course, nothing that we can do will prevent a determined fraudster from getting his way—we cannot stop crime—but we can make it a darn sight more difficult for such a fraudster, and that is what we ought to do. I do not understand the argument advanced by both the previous and the present Government, that investors would be lulled into a false sense of security. How would that change their behaviour? Would they not then belong to their company's pension scheme? The argument is a non sequitur. We need to give investors as much security as we can.
The argument on cost does not stand up either. Anybody would be prepared to pay one twentieth of 1 per cent. for the benefit of that security. Does the Minister really think that custodians, who are now properly regulated, would hand over the assets, just like that, to a company boss who happened to ask for them, because he was a trustee of the scheme? Does he think that the trustees of the parliamentary contributory pension scheme would hand over to me or to other trustees all the securities that we hold on behalf of Members of Parliament? Of course they would not. The matter should properly be considered in another place, so I will not seek to press the matter to a Division. I am grateful to the Minister for his assurances on the minimum funding requirement. I hope that the review is thorough and that what I have said contributes in some small way towards it, but I beg to ask leave to withdraw the motion.
§ Motion and clause, by leave, withdrawn.