§ Mr. George OsborneI beg to move amendment No. 205, in page 137, line 28, after 'on', insert 'material'.
This is a relatively small amendment—in fact, it would insert one word—but it relates to an important part of the Bill. Part 3 will get rid of the minimum funding requirement and replace it with a statutory funding objective. We had a debate earlier about the funding of pensions and so on. The key requirements in part 3 are that schemes must produce a statement of funding principles and that trustees must provide an actuarial valuation of the scheme assets and the technical provisions—to use a phrase from the EU pensions directive. Trustees must provide an actuarial valuation only every three years if they provide an actuarial report in the intervening years. Indeed, such reports, as defined in the Bill, would cover developments affecting the scheme' technical provisions since the last actuarial valuation was prepared.
Amendment No. 205 would merely insert the word "material". In other words, there would be a requirement to report on material developments that affect the scheme's technical provisions. My hon. Friends and I propose that change because we want to reduce any unnecessary bureaucracy and the burdens on schemes. There is a requirement to produce an annual report as well as the three-yearly valuation only because that is a requirement of the European directive.
I understand that the Government were originally perfectly content just to require a three-yearly valuation, rather than also requiring an annual report. If they are dissatisfied with that. I understand their requirement to 931 implement the European directive, but we should do so with as light a touch as possible and keep the requirement as least onerous as possible—to use a clumsy phrase. That is why we wiser to insert the word "material". Actuarial reports would then not need to go into every dot and comma of the changes during the previous year. Of course, the reports would also therefore be cheaper to produce.
The regulatory impact assessment suggests that the annual administrative cost of maintaining scheme-specific funding—compiling annual reports and three-yearly valuations—will outweigh the cost of producing MFR valuations by £16.75 million: a considerable sum. The Government assume that that sum will be more than offset by the savings that come from schemes switching 5 per cent. of their investments from gilts to equities and that that will yield an additional rate of return of 2 per cent., or about £100 million extra for schemes. That is very dodgy accounting. What we know for certain is that a significant extra regulatory burden will be imposed on schemes as a result of that arrangement, and the industry is concerned about that as well.
I wish to mention in passing that the industry has a broader concern that when the Bill becomes law, in effect, the PPF's risk-adjusted premiums will become the de facto benchmark for schemes, replacing the MFR and outweighing the scheme-specific funding in the minds of trustees and others, but that is for another debate.
§ Mr. PondI wonder whether we are witnessing a small element of parliamentary or legislative history: hon. Members will have noticed the coincidence that we are debating amendment No. 205 to clause 205. That must be worth mentioning.
I do not think that the hon. Gentleman and I will detain the House long, as we agree in principle on the issue, but I will ask him in a few moments to withdraw the amendment—that comes as no surprise to him—because it is not necessary and would not necessarily secure the objectives that we both want to achieve.
Clause 205 requires the trustees or managers of a scheme to obtain regular valuations from the scheme actuary that compare the scheme's assets with its technical provisions. I should explain that the term "technical provisions" is used in the European pensions directive. It broadly means the amount of assets a scheme needs to hold now, on the basis of the actuarial methods and assumptions used, in order to pay its accrued pensions commitments at they fall due in the future.
Valuations are necessary to check the funding position of a scheme and to provide a basis for determining an appropriate level of contributions for the future. However, they are time consuming and expensive. The clause seeks to strike a balance between ensuring sufficiently frequent funding checks and adjustments, and minimising unnecessary administrative costs. The hon. Gentleman and I take the same position on that.
Full actuarial valuations will be required either annually, or every three years when the trustees obtain interim actuarial reports for the intervening years. The provision in clause 205 for interim reports on 932 developments affecting the scheme's technical provisions since the last full valuation reflects a requirement of the European pensions directive. Amendment No. 205 would mean that the actuary would be required to report only on "material" developments since the last valuation—"material" being the single word that the hon. Gentleman's amendment would insert. We are with him in principle, but think that the amendment is unnecessary. Clause 205 sets out the broad framework for obtaining actuarial valuations and reports, but using the power set out in subsection (6), we intend to specify in regulations the detail of what they must contain.
We intend to consult interested parties as we develop those detailed requirements. That will allow us to work closely with the pensions industry and other interested parties to ensure that we get the details right and that the regulations are workable and effective. It will also enable us to ensure that we implement the requirements of the directive in a proportionate way that does not impose undue burdens on business.
For those reasons, and with the proviso that we shall consult on the way in which we meet the objectives that we and the hon. Gentleman share, I ask him to withdraw the amendment.
§ Mr. OsborneI thought that the Minister imbued the moment with more historical significance than it probably merited. The fact that it is amendment No. 205 to clause 205 is not really up there alongside the arrest of five Members by Charles I, Cromwell trying to remove the Mace or Churchill's rousing speeches. However, I suppose it is a small piece of parliamentary history.
As often happened in Committee, the Minister says that he agrees with me in principle, but he is not prepared to support me in practice. Sadly, I have become all too familiar with that, but I held out hope because he said the same about the proposed measure that he is to introduce as new clause 23. There is always the possibility that my amendment will resurface.
It is good to have on the record assurances from the Minister that the Government will attempt to keep the burden on schemes as light as possible while compliant with EU law. On the basis of those assurances, I beg to ask leave to withdraw the amendment.
§ Amendment, by leave, withdrawn.