HC Deb 18 May 2004 vol 421 cc889-95

'(1) The trustees or managers of an occupational pension scheme must not accept any contribution to the scheme from a European employer unless all the following conditions are met.

(2) Condition A is that the trustees or managers of the scheme are authorised by the Regulator under section (General authorisation to accept contributions from European employers).

(3) Condition B is that the trustees or managers of the scheme are approved by the Regulator under section (Approval in relation to particular European employer) in relation to the European employer.

(4) Condition C is that either—

  1. (a) the period of 2 months beginning with the date on which the Regulator notified the trustees or managers of the scheme under section (Approval in relation to particular European employer)(2)(a)(ii) has expired, or
  2. (b) before the end of that period, the trustees or managers have in accordance with section (Notification of legal requirements of host member State outside United Kingdom) been provided by the Regulator with information as to the social and labour law of the host member State.

(5) If the trustees or managers of a scheme fail to comply with subsection (1), section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.

(6) In this Part— European employer" means any employer who—

  1. (a) in the case of a body corporate, is incorporated in a member State other than the United Kingdom, and
  2. (b) in any other case, is resident in such a member State;
"host member State", in relation to a European employer, means a member State determined in accordance with regulations.'.—[Mr. Pond.]

Brought up, and read the First time.

Mr. Pond

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

Madam Deputy Speaker

With this it will be convenient to discuss the following:

Government new clause 6—General authorisation to accept contributions from European employers.

Government new clause 7—Approval in relation to particular European employer.

Government new clause 8—Notification of legal requirements of host member State outside United Kingdom.

Government new clause 9—Duty of trustees or managers to act consistently with law of host member State.

Government new clause 10—Functions of Regulator in relation to institutions administered in other member States.

Government new clause 11—Interpretation of Part.

Government amendments Nos. 59 to 61.

Mr. Pond

We are already well into our European journey, and we shall be talking further about the European directive. As the House is aware, we have an obligation to implement the provisions of directive 2003/41/EC, which is known as the occupational pensions directive. As has been said, many of the directive's requirements already exist in UK law or are being incorporated through our own domestic agenda for pension reform. However, new clause 5 is the first of seven new clauses that implement an area of the occupational pensions directive not previously covered to date: cross-border activity, which has already been discussed to some extent this afternoon.

Cross-border activity occurs where an occupational pension scheme administered in one EU member state—described as the home member state—accepts contributions from employers located in another member state, which is described as the host member state. The directive's cross-border provisions are important because they represent a first step towards a single market for occupational retirement provision. New clause 5 sets out the conditions that a scheme must meet before it can start to operate on a cross-border basis. To summarise, a scheme must be authorised to operate on a cross-border basis by the pensions regulator, and it must have exchanged specific information with the regulator, in the form of a notice of intention to operate on a cross-border basis with a specified European employer from a host member state.

The scheme must then have secured the regulator's approval to its accepting contributions from that employer on a cross border basis.

New clause 6 concerns the first general stage of authorisation that an occupational pension scheme will need to obtain from the pensions regulator before it can begin operating on a cross-border basis. To obtain that authorisation, a scheme will need to demonstrate compliance with all the provisions of the directive.

New clause 7 deals with the additional approval required under the directive by a UK pension scheme provider that wants to operate cross border, once it has chosen a specified member state employer for its proposed cross-border activities. That will involve the regulator assessing the scheme's proposed operations for its compatibility with the legal requirements of the member state in which it proposes to do business.

The regulator will already have liaised with its European counterparts through the formal European regulator network to determine the broad legal requirements of each member state's pensions legislation—known in the directive as "social and labour law". A cross-border pension scheme will need to submit a notice of intention to the regulator and subsequently receive approval in respect of each new sponsoring member state employer with which it wishes to do cross-border business.

New clause 8 places a duty on the pensions regulator to pass on to the prospective UK cross-border pension scheme the details of the social and labour laws of the host member state in which it intends to operate.

New clause 9 places an important duty on cross-border scheme trustees or managers to operate in a manner that complies with the relevant social and labour law of the member state from which employer contributions are being paid. Failure to comply with another member state's social and labour law will, under the terms of section 10 of the Pensions Act 1995, be a sanctionable offence. The pensions regulator will also have the power to revoke authorisation to operate cross border.

I should explain that although the pensions regulator will have the power to take action in such cases, it is not a function of the UK regulator actually to police the social and labour laws of another host member state. That is the responsibility of the regulatory authority of that host member state. Where such a breach is detected, article 20(9) of the directive allows the regulatory body concerned to notify the UK regulator of any irregularity, and it will then be for the UK regulator to act in co-ordination with the host member state regulator to put a stop to that breach of law.

New clause 10 places duties on the UK pensions regulator when acting in a host member state capacity. It applies where the cross-border pension scheme is based in another member state and it is accepting contributions from a UK employer. There are three basic obligations placed on the regulator in those circumstances. The first obligation arises when it receives a notice of intention from the regulatory authority of another member state that a scheme in that member state intends to accept contributions from a UK employer. In such a case, the regulator is required to forward to that regulatory authority details of any relevant UK law that the cross-border pension scheme will need to comply with in its UK operations—over and above the scheme's domestic pension laws.

Secondly, the regulator is required to notify the pension scheme's domestic regulatory authority of any significant changes in relevant UK pensions law. Thirdly, the regulator is to be responsible for monitoring the cross-border scheme's compliance with relevant UK law. Where an irregularity is detected, the regulator is to notify the scheme's domestic regulatory authority, so that action can be taken to rectify the situation. In addition, where the cross-border scheme is breaching the relevant UK social and labour law, subsections (5) to (7) permit the regulator to take action in respect of a UK employer sponsoring a cross-border scheme in another member state.

New clause 11 simply defines a number of terms used in this part of the Bill.

Consequential amendments Nos 59 to 61 concern the role of the pensions regulator it supervising cross-border pension schemes. The pensions regulator, acting as the UK's "competent authority" will have a vital role to play in supervising such schemes. The amendments will enhance the functions of the regulator to take account of certain cross-border provisions of the directive. Put briefly, they collectively empower the regulator to carry out the two-stage authorisation and approval set out in new clauses 6 and 7 for UK pension schemes wishing to operate cross border. They also add, as a function of the regulator, the power to revoke either the general authorisation for cross-border activity or the specific approval for cross-border activity with a specified European employer.

The amendments also make it a function of the regulator to issue notices directing UK employers that they must take steps specified in the notice in order to remedy a situation where a non-UK EU member state pension scheme, sponsored by the UK employer in question, has breached UK pensions law. They also make it a function of the regulator to issue notices directing UK employers to cease to make contributions to such schemes where there is, or has been, a breach of relevant UK pensions law. The amendments also ensure that the regulator's standard procedures apply to those decisions, and that they may be delegated to the regulator's determinations panel.

The House will note that we are taking regulation-making powers in a number of areas to do with cross-border activity. I make no apology for that. If a single, cross-border market is to develop, implementing this directive will very much be a co-operative process. However, member states are currently proceeding with implementation at different rates. In view of that, we wish to take advantage of the greater flexibility offered by secondary legislation, which will enable us to react appropriately to developments in other member states, if and when required.

Mr. George Osborne

The Minister has made quite a defence of secondary legislation, both in his most recent contribution and in the wind-up to the previous debate. He said that it provides the Government with more flexibility, and allows them to consult more widely than would be the case if a provision were introduced by means of primary legislation brought before Parliament. Unfortunately, that says a lot about the Government's attitude to the Bill. The Minister for Pensions said that it was a work in progress, and we are seeing that unfold before our eyes.

It is fair to say that we have talked, in connection with recent new clauses, about the potential costs and red tape associated with the EU directive. I accused the Minister of gold-plating in the previous debate, but it is right for us to acknowledge that significant benefits could accrue to the UK financial services industry if we get this matter right. The UK industry is the most developed and sophisticated in Europe, and one would hope that it would be best placed to take advantage of a genuine cross-border market in financial services.

The document produced by the European Federation for Retirement Provision has, of course, been my bedtime reading for some time. [Interruption.] I am glad that that news has woken up the House of Commons. The federation is chaired by the familiar figure of Alan Pickering, who has estimated that the directive, if it works and achieves what he hopes it will achieve, could benefit European pensions by an extra €10 billion. That would be a boon to pension scheme members and to the UK financial services industry, but we must get the details right.

I make no apology for repeating my complaint that it is extraordinary that we have had to wait until now to see the detail of how the Government will implement the directive. The Minister gave the excuse a few minutes ago that the text was produced only in September, but that is eight months ago. The Government have had a long time to consult on it.

Mr. Pond

We have been consulting on it.

Mr. Osborne

The Minister says that the Government have been consulting on the directive, but they have not undertaken active consultation with the industry on the specific detail of legislation. Industry representatives have told me over the past few days that they have not had time to study the new clauses, so it is not true that there has been active consultation.

Indeed, the directive was adopted by the Council of Ministers more than a year ago. I shall not begin a lengthy debate about how the Council of Ministers could agree something three or four months before being given the final text. I have some limited experience of working with bodies such as the Council of Ministers, and such behaviour is unfortunately somewhat familiar. Nevertheless, the Government have had many months to consult on the final text—or the negotiating position that was agreed at the Council of Ministers.

4 15 pm

As far as I can understand this group of new clauses, they place certain obligations on the regulator—we are talking mainly about the UK regulator, although of course similar obligations are placed on the regulators of other member states—to keep schemes informed as to the social and labour laws of host member states. Will the regulator be able to rely on the Governments of other member states to keep us informed of changes to their social and labour laws? Obviously, with so many members of the EU now, those laws will be changing all the time in many different countries. Is it the regulator's job to keep on top of that and monitor developments, or is it the duty of member states to keep the regulator informed of changes? Who is liable for the accuracy of the information that the regulator passes on to UK schemes?

Is it the pensions regulator's job to say, "Hold on, the Hungarian Parliament has just changed its employment law"? Can he rely on the letter from the Hungarian embassy and simply pass that on to UK schemes, or will he have to check that that was exactly what was agreed? We know from experience in this place that we pass laws assuming that they will be interpreted in a certain way. They then get to the courts and are interpreted in another way. So whose job is it to keep on top of developments as they unfold in member states? Is it an ongoing requirement to keep schemes informed of the changes as they happen, or is it just a requirement when they are set up? Will the regulator be expected to produce a bulletin saying, "Look at the new law in Slovakia. Look at what has happened in Cyprus. Look at the Finnish Parliament's decision on this social law"? The point that I am making is that it will be a huge amount of work. Is the regulator up to it and who will be responsible for the accuracy of the information?

The directive refers to social and labour laws, but what about tax laws? If, for example, a large American company has its European headquarters in Frankfurt and opens a cross-border scheme based in Britain for all its European employees, do our tax laws apply or do they apply only to individuals working in the United Kingdom? I am talking about the new lifetime allowances, annual allowances and so on. Does UK tax law apply to an employee working in the UK for a Greek company that has a cross-border scheme based in Luxembourg? How will it work in practice? These are complicated issues. The directive refers only to social and labour laws, but what about tax laws? As we have discovered this afternoon, much of the pensions legislation here is biting driven by changes to the laws governing the taxation of pensions.

I began by saying that the directive offers great potential to the financial services industry in this country. but it is important that we can implement it without being overly bureaucratic and without asking too much of the regulator.

Mr. Pond

I thank the hon. Member for Tatton (Mr. Osborne) for his acknowledgement of the importance of the provisions to ensure that we build effectively a single market in occupational pensions in such a way not only that we allow the development of that aspect of the European financial services market but that citizens from different member states are given opportunities to have their pension rights protected.

The definitive text was not available to us until September last year, but I said that we had consulted on the directive, not that we had consulted on these clauses, which are based on that consultation. Of course, in bringing forward the regulations, we will consult further, so that people have an opportunity to show how the proposals will work in practice.

The hon. Gentleman asked specifically whether it would be the regulator's job to keep abreast of changes in social and labour laws in other member states. It is, of course, a requirement on the regulator in the host member state to keep us informed of what is happening in that state. The regulator will likewise have to inform those schemes operating in those states. That must be based on co-operation between regulators in the various member states, and—as the hon. Gentleman will be aware—there are proposals to establish a committee of regulators across Europe to consider just those practical issues. I am sure that hon. Members will be eager to find out how they might join that cross-European committee.

The hon. Gentleman also asked how the cross-border proposals will work with the tax simplification proposals, and I can tell him that we have debated clauses dealing with the new rules simplifying the taxation of pension schemes and we will debate further such clauses. Under those rules, a pension scheme with either a UK or an EEA-based administrator will be able to register with the Inland Revenue as long as the scheme meets UK legislative requirements. The scheme may include members who are not resident in the UK. That means that contributions paid to it will attract UK tax relief against earnings that are charged to UK tax. The Government are considering the situation and will produce proposals for those who come to the UK and wish to claim UK tax relief on contributions to overseas pensions schemes of which they are already members. I hope that that clarifies the two specific points that the hon. Gentleman raised.

Question put and agreed to.

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

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