HC Deb 18 May 2004 vol 421 cc853-61

'(1) Section 1 of the Pension Schemes Act 1993 (c. 48) (categories of pension scheme) is amended as follows.

(2) The provisions of the section shall become subsection (1) of the section.

(3) In that subsection, for the definitions of "occupational pension scheme" and "personal pension scheme" substitute- "occupational pension scheme" means a pension scheme— (a) that—

  1. (i) for the purpose of providing benefits to, or in respect of, people with service in employments of a description, or
  2. (ii) for that purpose and also for the purpose of providing benefits to, or in respect of, other people,
is established by, or by persons who include, a person to whom subsection (2) applies, and

(b) that has its main administration in the United Kingdom or outside the member States; personal pension scheme" means a pension scheme that—

  1. (a) is not an occupational pension scheme, and
  2. (b) is established by a person within any of the paragraphs of section 141(1) of the Finance Act 2004;".

After that subsection insert—

"(2) This subsection applies—

  1. (a) where people in employments of the description concerned are employed by someone, to a person who employs such people,
  2. (b) to a person in an employment of that description, and
  3. (c) to a person representing interests of a description framed so as to include—
    1. (i) interests of persons who employ people in employments of the description mentioned in paragraph (a), or
    2. (ii) interest of people in employments of that description.

(3) For the purposes of subsection (2), if a person is in an employment of the description concerned by reason of holding an office (including an elective office) and is entitled to remuneration for holding it, the person responsible for paying the remuneration shall be taken to employ the office-holder.

In the definition in subsection (1) of "occupational pension scheme", the reference to a description includes a description framed by reference to an employment being of any of two or more kinds.

(5) In subsection (1) "pension scheme" (except in the phrases "occupational pension scheme", "personal pension scheme" and "public service pension scheme") means a scheme or other arrangements, comprised in one or more instruments or agreements, having or capable of having effect so as to provide benefits to or in respect of people—

  1. (a) on retirement
  2. (b) on having reached a particular age, or
  3. (c) on termination of service in an employment.

(6) The power of the Treasury under section 144(4) of the Finance Act 2004 (power to amend sections 144 and 145) includes power consequentially to amend—

  1. (a) paragraph (a) of the definition in subsection (1) of "personal pension scheme", and
  2. (b) any provision in force in Northern Ireland corresponding to that paragraph.".'—[Mr. Pond.]

Brought up, and read the First time.

The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond)

I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Michael Lord)

With this it will be convenient to discuss Government amendments Nos. 76, 132, 169, 170 and 172.

Mr. Pond

New clause 25 introduces new definitions of the occupational pension scheme and personal pension scheme in section 1 of the Pension Schemes Act 1993. The changes are a consequence of the tax simplification provisions in the Finance Bill, and they also ensure that the UK is compliant with the European Union directive on institutions for occupational retirement pensions. I shall also deal with Government amendments Nos. 76 132, 169, 170 and 172, which are directly consequential to the changes to the definitions.

The current definition of "occupational pension scheme" is very similar to that for "personal pension scheme". If we had had to rely on those definitions alone, it could have proved difficult to decide how some schemes should be classified. In practice, that has not proved to be a problem until now, because the Inland Revenue system has always made it clear within its eight categories for determining tax approval whether a scheme is given tax approval as an occupational pension scheme or as a personal pension scheme. However, that will change under the simplified tax, regime introduced in the Finance Bill. In future, schemes will register for tax purposes, rather than having to obtain approval.

Clause 143 of the Finance Bill will introduce a single simplified regime that will apply the same registration treatment to all schemes, no longer distinguishing between occupational and personal pension schemes. The definitions in the Pension Schemes Act 1993 will therefore become critical in determining to which regulatory regime a scheme will be subject—the pensions regulator for occupational pension schemes or the Financial Services Authority for personal pension schemes.

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The new definitions in the new clause will ensure that pension schemes are correctly classified. For example, the group personal pension scheme is properly classified as a personal pension scheme, not as an occupational scheme. Subsection (3) provides that an occupational pension scheme is a scheme that provides benefits to, or in respect of, employees and ex-employees in a particular employment, as described in the scheme documentation. It may be a single-employer scheme or a multi-employer scheme. It further Provides that, for the purposes of definition, an "occupational pension scheme" is one that has its main administration in the UK or outside the EU. The definition of personal pension scheme is in line with that in the Finance Bill, but includes the words is not an occupational pension scheme". That is to ensure that, where a company—an insurance company, for example—is authorised under clause 144(1) of the Finance Bill to establish a personal pension scheme and it has an occupational pension scheme for its own employees, that scheme is correctly classified as an occupational scheme.

Subsection (4) makes it clear that an occupational pension scheme can be established by a single employer, a group of employers or by a person representing such employers or their employees. It further defines a pension scheme as a scheme or arrangement that provides benefits "on retirement", at "a particular age" or "on termination of service". It does not include arrangements that provide only death benefits. As now, those will be excluded from the scope of the Pensions Act.

Government amendments Nos. 76, 132, 169, 170 and 172 are directly consequential on the new definitions of occupational pension scheme and personal pension scheme introduced by new clause 25.

Mr. Webb

Before the Minister moves on to the consequential amendments, I refer him to subsection (3) of the new clause. According to our helpful notes, the subsection is needed for particular schemes, such as MPs' schemes—that obviously caught our eye—or those for the police. Will he clarify what is so special about those schemes that they require a separate subsection, because I do not understand what makes them so different?

Mr. Pond

The schemes are in respect of those employees or former employees in a particular employment, as described in the scheme documentation. It could be a single-employer or a multi-employer scheme. We were seeking to clarify definitions in the new clause, so it was important to show where those schemes fitted within the structure of classifications.

The consequential Government amendments Nos. 132, 169, 170 and 172 amend the definition of "employer" in clause 275 of the Bill and in section 124 of the Pensions Act 1995. Clause 275 provides definitions of the terms used in the Bill, and section 124 does the same for part 1 of the Pensions Act 1995, which deals with occupational pensions. The amendments will ensure that the definition of employer is consistent with the new definition of an occupational pension scheme. The amendments are clarifications, which ensure that occupational pension schemes and personal pension schemes are correctly identified and that, as a result, they fall to be regulated by the appropriate authority—the pensions regulator for occupational pension schemes and the Financial Services Authority for personal pension schemes.

Mr. George Osborne

It seems strange that, after ploughing through a Bill of 282 clauses and 13 schedules, which were debated in 22 sittings in Committee, at the end of the process, the Government suddenly decide that they need to include some definitions of what is being talked about. At times, while listening to the Minister, I felt that I was attending one of the lectures about pension schemes provided by the hon. Member for Northavon (Mr. Webb)—[Interruption.] That is probably a fate worse than death, when I think about it.

I have no fundamental criticism of the new clause, but I do want to ask about the extent of joined-up thinking involved in it. As I understand it, the new clause will define all pension schemes as either occupational or personal. That sounds like a pretty good thing, but if we study the Bill, we find that it is littered with other terminology. For example, when I looked at the Bill this morning, I opened it at clause 113, which deals with money purchase schemes. We know that such schemes are personal pension schemes, but why is the terminology used in that clause different from that used in the definitional new clause? If we want simplification and if the point of the new clause is to create common terminology, should not the same terminology apply throughout the Bill? One of the problems that the wider public have with understanding pensions is the fact that different forms of words are often used to describe pretty much the same product.

That brings me to the Finance Bill. When I have finished on the Pensions Bill, my joy on Tuesday next week will be to embark in Committee for five weeks or so on consideration of the pensions tax provisions of the Finance Bill, shadowing for much of the time the Financial Secretary. I have already started to mug up on the Finance Bill, and I am sure that the Minister knows that clause 142 of it has its own set of definitions for pensions. Indeed, it has four definitions—dividing pensions into four different categories. The first is occupational, though it also calls them defined benefit schemes—another example of the use of different terminology. Secondly, the Finance Bill refers to money purchase schemes, using the words "money purchase" instead of "personal" as in this Bill. It introduces a third new category called "cash balance schemes". They do not appear in Department for Work and Pensions legislation, but in Inland Revenue legislation they do so. Finally, there are hybrid schemes. Leaving them aside—they explain themselves—we have three definitions: occupational, money purchase and cash balance. Only one—the occupational—uses the terminology in new clause 25.

There is no evidence of joined-up thinking, and it is genuinely confusing for outsiders reading the legislation to come across a whole series of different definitions and to encounter phrases used in one piece of legislation that do not appear in another. Even in the same Bill, as in the one before us, different terms are used to describe exactly the same scheme. I am all in favour of definitions. Personally, I am attracted to those set out in the new clause, which defines all pensions as either personal or occupational. When the Minister responds, will he explain why the Government have used a multitude of different phrases in different legislation and in different parts of the same legislation?

Mr. Webb

To paraphrase the Minister loosely, the purpose of new clause 25 is to deal with the complications arising from tax simplification. In the past, pensions legislation has relied on tax legislation, but that has now changed, so we have to do something to ensure that pensions legislation still works.

One matter of concern is the distinction in the new clause between occupational pensions and personal pensions, which is not as clear cut as it appears at first sight. As far as a worker in a company that runs a group personal pension is concerned, his pension is the works pension. It is the pension arranged through the employer, who may make an employer contribution, and the provider may come into the workplace to explain the scheme. As far as the worker is concerned, it is a company pension. However, the new clause states that it is not an occupational pension, but a personal pension. The practical significance of that distinction is that complaints about the different pensions must be directed to different regulators.

I have some sympathy for employees who do not understand the first thing about pensions, but they will be asked to understand that pensions can be arranged through the workplace and involve employer contributions and so on, and yet not be occupational schemes. It is possible for such pensions to be group personal schemes, in which case people must go to the FSA and not the pensions regulator when they are unhappy with the pension or when something goes wrong.

I do not want to go beyond the scope of the new clause, so I shall merely observe in passing that that is another reason why new confusion will be created by having one set of pensions regulated by the pensions regulator and another by the FSA. New clause 25 makes a clear distinction be been two sorts of pensions in order to send people down different regulatory tracks, but should not both be regulated by a single pensions regulator? We are talking only about different types of pension, after all. New clause 25 perpetuates a distinction whereas the process of simplification suggests that all pensions should fall under one regulatory regime. Why do we want people to have recourse to two different regulators, when their view is the same as Alan Pickering's—that a pension is a pension is a pension' Clearly, that is not the view of the Department for Work and Pensions or, as the hon. Member for Tatton (Mr. Osborne) noted, the Treasury.

I have two specific and detailed questions about new clause 25. First, I intervened on the Minister in relation to proposed new subsection 3(a)(ii), which deals with pensions for MPs, police officers and so on. I am still not 100 per cent. clear as to what makes those schemes different. I suppose that Members of Parliament are employed by the Fees Office, as that is what pays our salaries. Police officers are employed by police authorities, but what makes those schemes different from an occupational scheme run by Wiggins Widgets, for example? Why does the Bill need a separate provision for those schemes?

Secondly, I do not understand why subsection 3(b) of the new clause states that an occupational pension scheme is a pension scheme which has its main administration in the United Kingdom or outside the EU. If I belong to the occupational scheme of, say, a French company, why would that scheme not be regarded as an occupational pension scheme under new clause 25? Not being a personal pension, the scheme would not be regulated by the pensions regulator, but neither would a scheme outside the EU. Why does the new clause have that rather bizarre scope? It provides that the only occupational schemes that count are ones in the UK or outside the EU. Surely the pensions regulator has no jurisdiction outside the EU, for goodness' sake? What on earth is that provision about? I am bewildered by that bit. I am sure that there is a good reason for it; there usually is, but the point of the provision is completely lost on me.

To sum up, I should prefer it if the Bill did not distinguish between the different types of pensions. We have tax simplification, so could we not also have pensions simplification? Could we not have one regulator for pensions, and not send people down different regulatory tracks? What is special about the schemes that I have mentioned, and what is the point of the provision in respect of the country in which a scheme's main administration takes place? Why do we have the two categories, with some sort of gap in between them? I am sure that clarification of those points by the Minister would be helpful for the House.

Mr. Pond

The hon. Member for Tatton (Mr. Osborne) sought to make us all jealous by telling us what his diary looks like for the next few weeks, given his involvement with the Finance Bill as well as this Pensions Bill. He asked why we were proposing a new clause that deals with definitions, given that we spent a long time discussing the Bill in Committee. I can tell him that new clause 25 and other new clauses that we are putting forward are consequential on the Finance Bill.

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The hon. Member for Northavon (Mr. Webb) said that the Government were going in for extra complication because of the simplification being introduced in the Finance Bill. I do not go along with that characterisation, but the Inland Revenue is simplifying its procedures for exempting pension schemes and is moving away from the eight different sets of rules that currently apply to a process of registration. I think that the House will agree that that is sensible if we want to ensure that the system is more straightforward and simple, but it gives us a problem when it comes to classifying pension schemes as either occupational or personal.

The hon. Member for Northavon also said that schemes had been described in different ways throughout the Bill and our discussions, and he referred to money purchase schemes, direct contribution schemes, and so on. The important point is that those terms are descriptions of different types of pension scheme, but that we need to know whether they are classified as occupational or personal pensions. For instance, DC and DB schemes are both occupational pension schemes, but it is important to distinguish between them, as their provisions could be rather different. That is why the changes that we propose are necessary.

David Winnick (Walsall, North) (Lab)

My immediate diary commitment is that I must go to the Select Committee on Home Affairs very shortly, but I want to take up the point made by both the Conservative and the Liberal Democrat spokesmen. I do not know whether this matter is the subject of some other amendment, but how much information is given to employees to ensure that they understand their pension schemes and how they differ from others? Are trade unions able to give detailed information so that their members can know whether their pensions are personal or occupational, what their rights are, and how to pursue complaints?

Mr. Pond

When my hon. Friend goes to the Home Affairs Committee, I hope that he remembers to take his identity card with him, or he might not gain entry.

David Winnick:

Not if I have anything to do with it.

Mr. Pond

That is precisely why I made that point.

A very important component—of this Bill and of the Government's agenda on pensions—is that people should be able to make an informed choice. We must make sure that people fully understand their responsibilities and entitlements under the various schemes. We want to make sure that the various stakeholders involved, including the trade unions and representatives of scheme members, are given as much information as possible. That is a very important part of what we are trying to achieve, with this Bill and through the wider agenda of informed choice.

The hon. Member for Tatton also asked why the Government have adopted the different approaches evident in the Bill. I can tell him that it is because we need to make sure that the appropriate mechanism for regulation—the pensions regulator or the FSA—is used.

The hon. Member for Northavon asked why all pension schemes should not be regulated by a single organisation. We discussed that matter in Committee, as he will recall. The regulator will be concerned not with the sale or conditions of sale of products such as personal pension schemes, but with making sure that occupational schemes are properly administered. Those are two quite different functions, and we feel that it is sensible to provide that they be carried out separately by separate organisations.

Mr. Webb

I accept that the sale of pension schemes is a separate matter, but what about schemes that are up and running? I think that I am right in saying that the Government intend that, in future, an employer can require an employee to join an employer-sponsored group personal pension scheme as a condition of employment. So an employer will make an employee join a scheme and will put money into it, and the scheme will be delivered through the workplace, but the employee, if he is not happy with how the money in a scheme is managed, is supposed to know that that is nothing to do with the pensions regulator. If the scheme were a defined benefit final salary scheme or something similar, the employee would have recourse to a different regulator. Does not that seem an unnecessary confusion for the employee?

Mr. Pond

We went round this course a number of times in Committee. Of course a number of provisions in the Bill will give protection to people in whatever sort of scheme that is operated, but our feeling is that it is important to have specific forms of regulation for the different types of scheme. When talking about the definition of schemes—whether they are occupational or personal—what is important is the focus of that regulation and trying to disentangle it from Inland Revenue arrangements for the tax exemption of schemes.

I think that I have—

Mr. Webb


Mr. Pond

Oh, there is one further point to address before the hon. Gentleman rises to speak. He gave a hypothetical example of the French scheme and an occupational pension scheme based in another member state—a cross-border scheme. We will apply elements of pensions legislation under the provisions that we shall discuss in a few minutes when we deal with cross-border arrangements. Perhaps we could defer my response to the hon. Gentleman's point until then.

Mr. Webb

I am grateful for the Minister's response on the specific example that I gave, but the new clause refers to schemes outside member states. If the point of the new clause is to direct people to the right regulator, what dominion does the pensions regulator have over schemes based outside member states? Why is there reference to anything to do with schemes outside member states?

Mr. Pond

As I shall explain in a few moments, the regulator will have a role in relation to schemes that have a host member state, if we are talking in EU terms, from which the contributions flow. That is what I hope I shall be able to clarify when we talk in a few moments about some of the cross-border and multinational issues.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

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