HC Deb 18 May 2004 vol 421 cc867-83

For section 37 of the Pensions Act I995 (payment of surplus to employer) substitute—

"37 Payment of surplus to employer

(1) This section applies to a trust scheme if—

  1. (a) apart from this section power is conferred on the employer or any other person to make payments to the employer out of funds held for the purposes of the scheme, and
  2. (b) the scheme is not being wound up.

(2) Where the power referred to in subsection (1)(a) is conferred by the scheme on a person other than the trustees—

  1. (a) it cannot be exercised by that person but may be instead be exercised by the trustees, and
  2. (b) any restriction imposed by the scheme on the exercise of the power shall, so far as capable of doing so, apply to its exercise by the trustees.

(3) The power referred to in subsection (1)(a) may only be exercised if—

  1. (a) the trustees have obtained a written valuation of the scheme's assets and liabilities prepared and signed by a prescribed person;
  2. (b) there is a certificate in forceߞ 868
    1. (i) stating that in the opinion of that person the prescribed requirements are met as at the date by reference to which the assets are valued and the liabilities are calculated, and
    2. (ii) specifying what in the opinion of that person is the maximum amount of payment that may be made to the employer;
  3. (c) the payment does not exceed the maximum amount specified in the certificate;
  4. (d) the trustees are be satisfied that it is in the interests of the members that the power is exercised in the manner proposed;
  5. (e) where the power is conferred by the scheme on the employer, the employer has asked for the power to be exercised, or consented to its being exercised, in the manner proposed,
  6. (f) there is no freezing order in order in force in relation to the scheme under section 20 of the Pensions Act 2004, and
  7. (g) notice of the proposal to exercise the power has been given, in accordance with prescribed requirements, to the members of the scheme.

(4) Provision may be made by regulations as to—

  1. (a) the requirements (which may be alternative requirements) that must be met, in relation to any proposed payment to the employer out of funds held for the purposes of a scheme, with respect to the value of the scheme's assets and the amount of its liabilities;
  2. (b) the assets and liabilities to be taken into account for that purpose and the manner in which their value or amount is to be determined, calculated and verified;
  3. (c) the maximum amount of the payment that may be made to the employer, having regard to the value of the scheme's assets and the amount of its liabilities;
  4. (d) the giving of a certificate as to the matters mentioned in paragraphs (a) and (c); and
  5. (e) the period for which such a certificate is to be in force.

(5) The trustees must also comply with any other prescribed requirements in connection with the making of a payment under this section.

(6) If the trustees—

  1. (a) purport to exercise the power referred to in subsection (1)(a) without complying with the requirements of this section, or
  2. (b) fail to comply with any requirement of regulations under subsection (5),
section 10 applies to any of them who has failed to take all reasonable steps to secure compliance.

(7) If a person other than the trustees purports to exercise the power referred to in subsection (1)(a), section 10 applies to him.

(8) Regulations may provide that in prescribed circumstances this section does not apply, or applies with prescribed modifications, to schemes of a prescribed description.".'.—[Malcolm Wicks.]

Brought up, and read the First time.

Malcolm Wicks

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

Mr. Deputy Speaker

With this it will be convenient to discuss the following:

Government new clause 31—Payments of surplus to employer: transitional power to amend scheme.

Government amendments Nos. 175 to 180.

Malcolm Wicks

The new clauses provide new rules governing occupational pension schemes making payments to an employer from an actuarial surplus in an ongoing scheme.

Section 37 of the Pensions Act 1995 allows pension scheme trustees to make a payment to an employer only where the Inland Revenue has approved the payment as part of a strategy to reduce an excessive actuarial surplus. The Inland Revenue currently requires schemes to take steps to reduce such surpluses. Section 37 also imposes further conditions, for example, by extending limited price indexation to all the rights of members and by requirements on informing members.

The tax simplification measures in the Finance Bill remove the requirement to reduce an excessive surplus, which in turn requires a consequential amendment to section 37 of the Pensions Act. However, simply removing the reference to tax law in the Pensions Act would leave the matter of making payments to the employer entirely dependent on the rules of individual schemes. We do not believe that would provide an adequate safeguard against the inappropriate removal of funds from pension schemes, so we propose to replace section 37 with a provision that allows us to ensure that such payments are not made unless a scheme is sufficiently well funded, to the extent that it can more than cover the accrued rights of a scheme.

New clause 30 provides for the making of regulations, which will be used to ensure that payments to an employer may not be made from a defined benefit scheme unless it is funded to a level sufficient to purchase annuities and deferred annuities securing the rights of all members and beneficiaries. That is known as the full buy-out level. The scheme actuary will be required to carry out a valuation and provide a certificate confirming that those conditions have been met before a payment can be made. Trustees must also be satisfied that such a payment would be in the interests of members.

We believe that the higher threshold for the withdrawal of surplus funds serves members' interests better than the present requirement to enhance members' benefits by the application of limited price indexation to all scheme benefits before a payment to the employer can be made, so that requirement is dropped. However, existing statutory or scheme indexation will of course be reflected in the valuation of the scheme's liabilities carried out by the actuary.

The new clause also allows for rules to be made governing payments to employers from defined contribution schemes. Regulations will define the more limited number of occasions when refunds of an excess of assets over liabilities may take place in defined contribution schemes, such as where, for example, a member of an earmarked scheme takes a refund of his contributions, leaving the employer's contributions as a surplus.

The process for making a payment of surplus will be simplified, but members will have to be notified of the intention to make a payment and given time to make representations on the matter to the regulator, who has powers to intervene if the payment appears to be irregular. The Finance Bill provides that any such payments will continue to be taxed at 35 per cent.

At present, Revenue requirements for tax approval generally require scheme rules to prohibit payments to employers except in accordance with Revenue rules and with Revenue approval. Those scheme rules would be ambiguous given the removal of the Revenue requirements, so new clause 31 contains transitional provisions to allow trustees to amend their scheme rules consequential to the relaxation of Inland Revenue and current section 37 requirements. Where schemes may currently make payments of surplus to the employer, trustees may choose to continue to do so; but if they do not so amend scheme rules within five years of the commencement of the provisions, they will be unable to make such payment.

Amendments Nos 175 to 180 are consequential to the replacement of the existing section 37 and to the requirements under schedule 22 of the Income and Corporation Taxes Act 1988. They also remove the requirement for limited price indexation to be applied to all pensions before an excess of assets over liabilities can be paid to an employer where a scheme is winding up. That is to ensure that the valuation of assets and liabilities in a scheme that is winding up is in line with the new section 37 requirements for ongoing schemes.

2.45 pm
Mr. Webb

I apologise to the Minister for having missed the beginning of his speech. It would inform our discussion if he could clarify how it would ever be in the interests of scheme members that money was taken out of their pension fund and handed back to their employer. How could that ever satisfy the interests of members?

Malcolm Wicks

It is in the interests of members that their full pension rights should be protected, so that in due course their pensions are paid. It would, however, be absurd to argue that a pension scheme should have substantially more than it requires for that purpose. As the hon. Gentleman missed my introductory remarks, he may not realise that we are saying that in the new regime money could be paid back to an employer only when the actuary has substantiated—by signing a certificate and so on—that there is a full buy-out fund in place should that become necessary. Currently, it may seem unlikely that we could return to circumstances where there is more than enough money to meet pension rights, but after so earl tests money could, in those circumstances, be returned to the employer, bearing in mind that the employer is normally—although not always—the major funder of the company pension scheme.

I believe that our proposals strike a fair balance between the legitimate interests of both members and sponsoring employers. Restrictive rules on building up and retaining surplus in pension funds since the 1980s are frequently cited as having played a role in contributing to the funding problems of the last few years. At the same time, there are naturally also concerns that employers should not be able to cream off surplus funds where that could affect the fundamental well-being of the scheme—the point that we have just discussed. The complementary changes in tax and pensions law requirements are aimed at solving both those problems. In future, there will no longer be a restriction on employers who wish and are able to fund their scheme generously, but at the same time they will be able to remove funding only above a level that should not threaten the health of the scheme.

Mr. George Osborne

The new clauses bring in significant changes to the rules governing the disposal of scheme surpluses. I am beginning to sound like a cracked record, but I point out again that it is extraordinary that we have not been accorded a proper process to scrutinise something that will affect every member of an occupational scheme and many employers.

As the Minister acknowledged, the present problem is usually one of deficit rather than of surplus, but it is important to get the rules right and to prepare for a future, perhaps under a Conservative Government, when the stock market recovers and schemes are in surplus. I thus have a direct interest in ensuring that the rules are right.

One of the problems we face is that much of the detail is left to as yet unpublished and unseen regulations. Indeed, we have only just seen the new clause. The regulations will include matters such as the valuation of the assets and liabilities of schemes, which assets and liabilities are to be taken into account, the maximum amount that can be paid, who should carry out the valuation and who should inform the Inland Revenue and the pensions regulator—a very significant detail.

My favourite sentence in the explanatory notes, which I found when I was reading them last night, is: The Government will, as customary, consult extensively on these draft regulations before laying them before Parliament. Very little consultation on any of those proposals is taking place. The Bill is being rushed through on Report in the House of Commons, where a couple of Members are taking part, both of whom only saw these need clauses on Friday. They had not received representations from outside bodies because they have had no chance to examine or comment on such things in detail, and the whole thing goes through on the nod. Indeed, as we heard during the debate on the previous clause, the Minister did not really know what he was putting through Parliament. Perhaps he will say something about what he imagines will be in the regulations.

Certainly, when I asked the National Association of Pension Funds what it thought of the net clause—I stress that it said that it had not had time to reach a formulated viewpoint—its initial observations were: Much of the detail is to be prescribed so it is difficult to comment. From the clause as it stands it is difficult to be sure what level the funding needs to be in order for a surplus payment to kick in. If the main aim is to protect the PPF then one would assume that the funding level would be to full buy-out basis. If that is the case, how useful is this clause? You would also need to get clarification of who owns the surplus and ensure that there are correct powers to pay the money back out of the fund. The Minister said—this is clear in the explanatory notes—that in the great majority of cases, the new rules will be more restrictive than the existing Inland Revenue requirement that those provisions supersede. What assessment has the Minister made of the resulting impact on the scheme and the ability to move surpluses to employers? What consultations has he had with the industry? Will there be any unintended consequences? In Committee, we discussed the unintended consequences of the minimum funding requirement's impact on gilts, for example. Will any unintended consequence be involved in requiring schemes to hold on to surpluses that they would otherwise have disposed of?

May I ask the Minister—perhaps this is the wrong place in our proceedings on the Bill, but I do not think that it is—how these proposals interact with the European pensions directive's requirements on surpluses? I am sure that the Minister will be aware that there is enormous concern in the pensions industry that the EU directive will force company pension schemes to hold sufficient assets so that, at all times, they are able to pay out all the benefits promised to members, whereas the UK rules tend to be more flexible, allowing schemes to take a longer-term view of promised benefits, without being held to the day-to-day movements of the stock market, for example. As a result, UK schemes have not had to hold as many assets as their European counterparts. Of course, that has not only downsides when schemes turn out to be underfunded, but upsides in allowing schemes to pay more generous benefits and encouraging more companies to set up schemes.

The industry says that complying with the EU directive could cost up to £300 billion—a huge sum—and I have no reason to doubt its figures. Interestingly, at the end of last year the chief executive of the NAPF, Christine Famish, said: The UK has to implement this directive. Continuing to provide a defined benefit pension is a hugely costly undertaking for supervising employer. We know a number of firms have closed their schemes to new members but our concern is that greater numbers will also close to future accruals because of these extra costs. It is unquantifiable, and finance directors do not like having that sort of risk on their balance sheets. It is very dangerous and very costly to UK schemes, and because the rules cannot be scheme-specific, will no doubt lead to endless battles in the court. It is ridiculous; it is not the real world. That is what the chief executive of one of the most respected pensions organisations has said.

I mention the EU pensions directive because these proposals relate to scheme funding and the interaction with the disposal of surpluses. Are these new clauses compliant with that directive, or will the Government have to return with further new clauses, perhaps in the other place? How will the Government deal with the industry's concerns on this important point?

Mr. Ken Purchase (Wolverhampton, North-East) (Lab/Co-op)

However much I welcome the announcements on retrospective matters, I do not want that welcome to blunt my critical faculties in relation to these new clauses. To vest in a regulator the right to say whether a surplus can be considered in terms of the employer's benefit is a bridge too far.

I have considered regulators across a range of industries and I have not yet found one from a trade union background. They all seem to come from that group of people who have been involved in the world of the City for many years. I am drawn again to the wisdom of Woody Guthrie, the American folk singer. [Interruption.] Yes, he guides me on so many things.

John Robertson (Glasgow, Anniesland) (Lab)

Here we go.

Mr. Purchase

No, no—my hon. Friend will be interested in this. On occasion, Woody Guthrie said: I've been robbed more times by a man with a fountain pen than I ever have been by a man with a six-gun. I have noticed that the Minister is holding a pen—it may not be a fountain pen—and the complexities of what he was explaining, which I tried desperately hard to follow, leave me a little apprehensive. Again, the conspiracy theory may be coming to the forefront, but who will the regulator be, who will he listen to and what note will he take of the workers' interests? How much will he or she be in hock to his or her colleagues in the City, who, frankly have only one interest in life: to ensure that they and their colleagues benefit to the greatest extent that they possibly can from our hard-earned wages?

We have gone through a recent period in history when, in another way, companies have taken very long pension holidays because the funds have been so much in surplus that it seemed pointless adding any more money to them. Yet we now find, of course, in the changed circumstances of a much reduced stock market valuation of pension funds, that that money could have been usefully put towards ensuring that workers actually got their pensions.

I welcome the announcements about retrospective pension failures because it is natural justice that something should be done, but are we not putting ourselves in the very same position again? Is it not likely that in the not-too-distant future—perhaps just 10 years down the line—a similar set of circumstances will occur where a surplus is paid back to an employer?

I make the point, as an aside, that we are talking about deferred wages. However they might be defined legally, the money is part of people's wages. It is theirs; it is not for someone to take it away from them again, which is what has been happening and to which I imagine these new clauses are designed to put an end. However, by any name we are talking about the employer taking out the money that has been put in by them exclusively, using whatever mechanism—the very dodgy one of a regulator worries me more than enough—when the money involved should be paid to the workers in any event but is taken back from them to pay a bonus, which is all I can call it, to an employer who can convince the regulator, or someone else, that the fund is so much in surplus that it is pointless not to take out that money. I think that I have a legitimate reason to worry.

The Minister will know that probably upwards of 500 people in Wolverhampton will, I hope, benefit from the retrospective provisions. What I do not want to happen is that whoever is standing here in 10, 15 or 20 years' time has to say exactly the same thing because the money that should rightfully be in workers' pockets, or at least in a very safe fund, has found its way back to the employer's pockets at the expense of the workers, who then find themselves with no pension. I hope that the Minister will give us a very convincing reply about why I should have any confidence in a regulator. However, if there must be a regulator, could that regulator have a duty to consult the workers' representatives before deciding to pay back any surplus?

3 pm

Mr. Webb

I was asked by one of the broadcasters about today's deliberations, and I said that this debate was very much one for anoraks. However, this new clause touches on meaty issues relating to pensions, to our concerns about our constituents' pension rights and to the circumstances in which money can be taken out of pension funds. These are practical and important issues. I hope that "Today in Parliament" is listening.

I want to ask the Government to withdraw the new clause because there is a mistake in it. I am sure that the House has read all the texts carefully, but I have a confession to make I have only just read the fine print of new clause 30 which will replace section 37 of the Pensions Act 1995, and I refer the Minister to proposed new subsection (3)(d). It says that the trustees are be satisfied that it is in the interests of the members". The phrase "trustees are be satisfied" is not grammatical.

I will come to the point about pension surpluses in a minute, but I assume that the fact that the grammar is wrong partly reflects the speed with which the new clauses and amendments were tabled. I assume that the Government do not want an ungrammatical sentence to become part of the law of the land, but I do not know what "trustees are be satisfied" means.

Mr. Andrew Miller (Ellesmere Port and Neston) (Lab)

"Are be" sounds like west country to me.

Mr. Webb

Yes, the phrase does have a west country ring to it, but I hope that the Minister will withdraw the new clause and table it again in another place with the grammatical error corrected.

There are other reasons why we should have substantive reservations about the new clause. Let me be sure that I understand what is going on. The Finance Bill and the pension simplification are getting rid of the 105 per cent. rule, and that must be a good thing. I hope that the Minister will stop me if I am wrong, but I understand that that rule—which said that a scheme that gets to 105 per cent. funding is so badly over-funded that we must take money out of it—is going. If I am right, that is a good and welcome change.

Whereas one of the ways in which a surplus could be disposed of hitherto was by providing enhanced benefits, the new clause says that there is no longer a requirement for that to be the first thing that a scheme does. The enhanced benefits that no longer have to be provided are indexation benefits—other than those already in the scheme rules—that relate to pre-1997 service. Post-1997 service must be indexed. Given that we are only in 2004 if someone coming up to pension age has worked in a company all their working life, three quarters or more of their service could be pre-1997 and could have no indexation rights attached to it at all. Surely if there is a surplus in the fund, the first call on that surplus should be to do something about the non-indexation of rights earned pre-1997. Money should not go out of the fund instead. If we are interested in avoiding pensioner poverty, in building up occupational pensions and in increasing funded pension rights, the first call should be pre-1997 indexation. It is surely wrong that the new clause allows an employer to request that money be taken out of the fund to the benefit of the employer when scheme members will receive pensions that will, to all intents and purposes, be frozen because of very limited price indexation. That worries me greatly.

The Government's goal is to raise from 40 per cent. to 60 per cent. the proportion of income in retirement that comes from funded pension schemes. Although the new clause might be an own goal, the Government can further their objectives by saying that before so-called surplus money can be taken out of a pension fund, it must be spent on the bare minimum of indexation of pre-1997 entitlements. That surely should have the first call. Although I welcome the abolition of the 105 per cent. rule—I never understood why we had to have it in the first place—I am unhappy about the suggestion that firms can simply take the money.

The Minister said that there would be a certification process and that the change would be in members' interests. However, I do not understand how it can ever be in members' interests for money to be taken out of a fund when their pre-1997 rights have not been indexed. When I intervened on the Minister, he said that the scheme has to provide buy-out rights. In other words, before a surplus comes out of a fund, the scheme must prove that it has enough money to meet the buy-out equivalent rights of some of the scheme members. However, those buy-outs presumably do not cover indexation for pre-1997, so there is no guarantee that the interests of the scheme's members will be looked after in respect of their pre-1997 rights, which, as I said, could be the majority of the accrued rights.

Although there must be certification that a change must be in the interests of the members, the test does not appear to be very strong. Therefore the Minister should revisit the new clause not only because the grammar is wrong, but because it does not boost occupational pensions. It potentially undermines them.

The past few years have shown us that the valuation of funds is hugely volatile and that a certification at a point in time that there is enough money in the fund may prove to be wrong some years down the track. Given that stock markets can fall by half in three years, a certificate on a particular day that the valuation is enough to meet future liabilities is far from the same as saying that that will always be the case. One cannot certify that a scheme will always have enough money to meet the liabilities. One can only say at a point in time that it is one's best guess that there is enough money. That is not sufficient protection for scheme members.

I am simply not convinced that the new clause will protect the best interests of scheme members. When there is surplus, the requirement first to provide for indexation has been explicitly abolished, so I do not think that the interests of members will be served. This is a substantive issue and I am worried. I hope that the Minister can reassure us that scheme members' interests really will be served by the change.

Mr. Miller

Thank you for calling me, Madam Deputy Speaker. You missed an interesting exchange with my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase), who quoted Woody Guthrie. I thought that he was about to burst into song, but he made pertinent points about the circumstances in which surpluses arise. You will be aware that, in a previous life, I used to negotiate with large companies about the distribution of their surpluses for the benefit of fund members.

I wish to make two points. First, I welcome the fact that the proposal will be subject to consultation. During the consultation, a couple of important points need to be examined. The courts in this country have long accepted that, when there is a massive surplus, employers are entitled to seek the recovery of some of that on the grounds that they took risks in bad times and are therefore entitled to some of the money back in good times.

If that principle remains—we should examine that point with care—a separate set of circumstances applies when a takeover takes place. The courts frequently fail pension funds if, in a takeover, an incoming employer takes none of the risks but seeks to take a significant part of the gains. Many of the trade unions that now form Amicus used that argument against Lord Weinstock when GEC took over Plessey, and it became an important piece of case law. However, now that the Minister is developing the regulations, he has the opportunity to protect the members of funds that may be in surplus by preventing an incoming employer from distributing those funds. I firmly believe that those funds should be distributed only in the interests of existing fund members.

Secondly, prior to the granting of certificate and any attempt to recover surpluses, it is incumbent on good employers to seek to maximise the benefits of the scheme up to the Inland Revenue maximums. I hope that both those points are taken on board in the consultation and the development of the regulations.

Paul Holmes (Chesterfield) (LD)

I wish to pick up a point made in an intervention by my hon. Friend the Member for Northavon (Mr. Webb), which was later elaborated by the hon. Members for Wolverhampton, North-East (Mr. Purchase) and for Ellesmere Port and Neston (Mr. Miller). When I return to my constituency on Friday I will talk to people previously employed by two or three firms in Chesterfield who have lost their pensions, and I hope that the Minister can help me to answer questions about the removal of excess money in a pension scheme, which they have been asking for the past three years.

Chesterfield Cylinders was one of the six firms that were part of United Engineering Forgings, which lost much of its pension fund in 2001—an issue that I have raised both in letters to the Minister and in the Chamber. In the intervening period, members of the pension fund have raised something that I have been unable to explain fully, although the contribution of the hon. Member for Ellesmere Port and Neston will help me to do so in future.

In the past, employers took pension holidays, as legislation required them to do, because the pension fund was doing extremely well and had "excessive surpluses". In the bad times, however, they were not required to make up all the difference. From next year, with the establishment of the pension protection fund and so on, some of those problems will not arise, but I still struggle with the concept, discussed by other hon. Members, of having an excessive amount of money in a pension fund. If it is doing well, perhaps because the stock market is strong, why is it not worth keeping that surplus as a hedge against future years when the stock market does less well? In Committee we discussed the American protection fund, which did extremely well for 30 years. Pension funds overall did very well, and there was no significant challenge to the protection fund. Recently, however, it has experienced a few bad years. Why cannot excesses in pension funds from earlier years, when the stock market and companies did extremely well, be banked and hedged against future bad years?

The members of the work force at Chesterfield Cylinders or, more recently, at Coalite near Chesterfield, cannot understand why, given that their employers took pension holidays in the past, they have been told that there is no money to meet their deferred wages or investment in their future pension. They have lost out, but only a few years ago the surplus money was there.

Mr. Bill Tynan (Hamilton, South) (Lab)

I, too, welcome the abolition of the 105 per cent. rule, which is detrimental to many companies and schemes. I speak from personal experience, as Hoover in Cambuslang, which also had factories in Merthyr and Perivale, was the subject of a takeover. It was bought by Chicago Pacific because it had a surplus of more than £270 million in its pension scheme. There is a danger that the new clause would allow other employers a similar opportunity. If we took a snapshot of the stock market at any time we might find that there was a surplus in funds, but that surplus might not exist six months or a year later.

3.15 pm

I accept the point about index linking and percentages before 1997, but I do not accept that surpluses in pension schemes are a problem. I only wish that there had been such surpluses in the past few years, as we would not need the pension protection fund that we are establishing. Workers always believed that trustees were appointed to look after the best interests of scheme members and that the scheme was separate from their employer's finances so it would always be protected. However, over the past few years that has proved not to be the case. While I welcome the consultation and the abolition of the 105 per cent. rule, I would prefer us to see a healthy surplus in a pension scheme than find ourselves in the position of having to fund a scheme such as the PPF, even though that is a welcome innovation. I would prefer schemes to be properly funded, and the best way to encourage good occupational pension schemes is to ensure that the legislation is correct. We have an opportunity in the Bill to look carefully at what we are doing, so that, hopefully, we can encourage employers and employees to make a contribution to saving for the future.

Malcolm Wicks

Members have made a useful scrutiny of the proposals, enlivened by a question about the use of English and reference to the great Woody Guthrie, an inspiration to many of us, including Mr. Dylan, the great US poet. We will take a number of issues on board in the consultation, including matters raised in the final few speeches on the new clause. My hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) made an important point on which we shall reflect when developing our consultation plans.

John Robertson

Does my hon. Friend not accept that the Government do not have to take on board points made in the consultation? Something more than consultation is needed.

Malcolm Wicks

Indeed. I hope to cover that later.

My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) and I are glad to focus on the weighty matter of pensions, given the sad circumstances in which the team that we both passionately support finds itself. We have no reason to prevent employers from seeking a refund from a scheme that is genuinely over funded, and we believe that the full buy-out standard provides a safeguard against the inappropriate reduction of scheme funds.

Mr. Webb

Will the Minister give way?

Malcolm Wicks

I am happy to do so in a moment, but first I should like to make progress on an issue raised by several hon. Members. As I set out in my opening remarks, the tax regime does not allow schemes to hold funds 5 per cent. above their requirements, but that will soon change. It is therefore important that we look at circumstances surrounding a possible surplus. I reiterate that this is not about exercising a light touch and allowing trustees to give money back to employers in various circumstances. The requirements for a full buyout are extremely tough indeed. As I have said, new clause 30 provides for the making of regulations, which will ensure that payments to an employer may not be made from a defined benefit scheme unless it is funded to a level sufficient to purchase annuities and deferred annuities securing the rights of all members and beneficiaries—the "full buy-out" level. That is a very tough level. The full buy-out standard provides a significantly higher margin of error for stock market fluctuations, for example, than other possible methods of valuation do. I went on to make the point that that would have to be certified by the scheme actuary before anything of the kind was possible.

Mr. Webb

On the meaning of "full buy-out", can the Minister confirm that full buy-out does not include pre-1997 indexation?

Malcolm Wicks

No, it does not require that. Notwithstanding the situation where a surplus may go back to the employer, going into pre-1997 indexation may store up serious trouble for the future. It might seem a useful thing to do, but in terms of the costs over the longer term, there may be serious financial implications, probably way above the amount that may be returned to the employer.

One of the things that has not come out in the debate is that we are not talking about a situation or an era in which the employer's contribution or the employer's need to make occupational pension provision is compulsory. We are not in that position. All of us are concerned about companies that have made judgments in recent times to end or down-ran their occupational pension provision. We should be mindful that there is always the danger that some employers will start to walk away if we put more and more obligations on them.

I reiterate what I said earlier: the crucial point—it is almost a simplistic point to make about pension schemes—is that a scheme should be adequate to provide pensions now and in the future. That is its purpose. It is not the purpose of a pension scheme to become a reserve that is well above what might be required. In the Bill we are putting new obligations on pension schemes, not least the obligations relating to the regulator and the pension protection fund. We are telling schemes that they must contribute to a new pension protection fund. Some call that a burden. I call it a proper obligation in the 21st century, but we must be sensible. If a very significant surplus is built up, way above what is necessary for the pension requirement, in the tough circumstances specified it might be reasonable for that to be returned to the employer. I cannot see the difficulty about that.

Mr. Purchase

My hon. Friend used the words "now and in the future". Does he agree that the future has never been accurately defined? The whole of financial history shows that it is almost impossible to predict the future over any great length of time. Does my hon. Friend accept that the new clause, which he presents to us as a way of offering greater protection to employees, still provides the opportunity for money to be taken out of the fund, whereas if it were left in, it would provide greater certainty against an uncertain future?

Malcolm Wicks

I understand where my hon. Friend is coming from and I take his warning that none of us can predict the future in that sense, but surely the sensible approach and the obligation is to ensure that pension schemes have sufficient money for the purpose. We are saying—this is quite a high requirement—that there should be sufficient money for full buy-out, should that prove necessary. For us to say that it is an obligation on schemes, and therefore on employers, to have funds way above that level would put an onus on employers that may put some off from continuing their final salary pension schemes. That is a real danger.

We do not want to so over-egg the pension pudding that it could lead to the demise of decent occupational pension schemes. That is our concern. I say that at a time when many Opposition Members accuse us of putting new burdens on employers. We are happy to defend that. The hon. Member for Tatton (Mr. Osborne) is nodding because the Opposition declined to give the Bill a Second Reading. They declined to allow us to introduce a Bill providing for the pension protection fund. That is where they are coming from.

My hon. Friend the Member for Wolverhampton, North-East is coming from a more respectable position. I am arguing that we need to get the balance right between the costs on schemes and therefore on employers, and proper protection for future pensioners.

Mr. Tynan


Mr. Webb


Malcolm Wicks

I shall give way first to my hon. Friend the Member for Hamilton. South (Mr. Tynan) and then to my honourable opponent, the hon. Member for Northavon (Mr. Webb).

Mr. Tynan

I thank my hon. Friend for giving way. Does he accept that previously, when pension schemes had a surplus, there was considerable regulation on those schemes and on the employer to prevent surpluses being taken out, which would endanger the scheme? It was only because of the level of the stock market at that time that a surplus accrued to schemes. Once the surplus had been taken from the scheme and the stock market fell, there was no surplus and the scheme was in real difficulty. We could be in the same position in the future. In the circumstances, I caution my hon. Friend to look seriously—I understand that it is consultation—at what is being proposed. I still believe that a viable pension scheme could become unviable a year down the line, if the surplus had been taken from the scheme.

Malcolm Wicks

That is a perfectly reasonable argument, but I hope my hon. Friend will take on hoard what I am saying. We are not proposing that in a light touch way, willy-nilly, surpluses can be given back to employers. We are stipulating a tough requirement and that the actuary must be satisfied. If he is not satisfied, the regulator can move in. Full buy-out is a very high requirement.

Some decent employers are perfectly properly putting significant amounts of shareholders' money into pension schemes to improve their finances. I do not think it is so unreasonable—I am repeating myself—that if they are in surplus, subject to the safeguards that I presented, that should be allowed.

We have had a useful debate and perhaps we should shortly wind it up. There was an interesting exchange about language and the phrase "trustees are be satisfied". We thought for a moment that the hon. Member for Northavon used to be the professor of English literature at Bath university. Someone, but I had better not say who it was in case he is accused of regionalism, thought that that was how people spoke in the hon. Gentleman's constituency. I was outraged by the very suggestion. The phrase is not an example of English usage in that part of the country, but rather more mundanely, an error. I wonder, Madam Deputy Speaker, whether it may be treated as an evident printing error, rather than something that requires amendment. I hope that might be possible.

Madam Deputy Speaker (Sylvia Heal)

I should say that the Chair is prepared to treat the superfluous word "be" in section 37(3)(d) of the inserted text as an obvious printing error, which will be corrected.

Malcolm Wicks

I am very grateful. That will save all of us time.

I ask the House to support the new clause. I was touched by the reminder of Woody Guthrie. As I recall, he was responsible for that great patriotic song—patriotic in the proper sense—"This Land is Your Land". The purpose of the Bill is to ensure that pensions belong to people—"this pension is our pension". It is very much what we are about. On that lyrical note, I hope that the House are be satisfied with the amendments.

Question put, That the clause be read a Second time:—

The House divided: Ayes 317, Noes 48.

Division No. 180] [3;29 pm
Abbott, Ms Diane Cunningham, rh Dr. Jack


Adams, Irene(Paisley N)
Ainger, Nick Cunningham, Jim(Coventry S)
Ainsworth, Bob(Cov'try NE) Cunningham, Tony(Workington)
Anderson, rh Donald(Swansea E) Curtis-Thomas, Mrs Claire
Anderson, Janet(Rossendale &


Dalyell, Tam
Darling, rh Alistair
Armstrong, rh Ms Hilary Davey, Valerie(Bristol W)
Bailey, Adrian David, Wayne
Baird, Vera Davidson, Ian
Banks, Tony Davies, Geraint(Croydon C)
Barnes, Harry Dawson, Hilton
Barron, rh Kevin Denham, rh John
Battle, John Dhanda, Parmjit
Bayley, Hugh Dismore, Andrew
Beard, Nigel Dobbin, Jim(Heywood)
Beckett, rh Margaret Dobson, rh Frank
Begg, Miss Anne Donohoe, Brian H.
Bell, Sir Stuart Doran, Frank
Bennett, Andrew Drew, David(Stroud)
Benton, Joe(Bootle) Dunwoody, Mrs Gwyneth
Berry, Roger Eagle, Angela(Wallasey)
Betts, Clive Efford, Clive
Blackman, Liz Ellman, Mrs Louise
Boateng, rh Paul Ennis, Jeff(Barnsley E)
Borrow, David Etherington, Bill
Bradley, rh Keith(Withington) Farrelly, Paul
Bradley, Peter(The Wrekin) Field, rh Frank(Birkenhead)
Bradshaw, Ben Fisher, Mark
Brennan, Kevin Fitzpatrick, Jim
Brown, rh Nicholas(Newcastle E


Fitzsimons, Mrs Lorna
Flint, Caroline
Browne, Desmond Flynn, Paul(Newport W)
Bryant, Chris Follett, Barbara
Buck, Ms Karen Foster. rh Derek
Burden, Richard Foster, Michael(Worcester)
Burgon, Colin Foster, Michael Jabez(Hastings &


Bailey, Adrian
Byers, rh Stephen Foulkes, rh George
Cairns, David Francis, Dr. Hywel
Campbell, Alan(Tynemouth) Gerrard, Neil
Campbell, Ronnie(Blyth V) Gibson, Dr. Ian
Caplin, Ivor Gilroy, Linda
Casale, Roger Goodsiff, Roger
Cawsey, Ian(Brigg) Goggins, Paul
Challen, Colin Griffiths, Jane(Reading E)
Chapman, Ben(Wirral S) Griffiths, Nigel(Edinburgh S)
Chaytor, David Grogan, John
Clapham, Michael Hain, rh Peter
Clark, Mrs Helen(Peterborough) Hall, Mike(Weaver Vale)
Clark, Dr. Lynda(Edinburgh


Hall, Patrick(Bedford)
Hamilton, David(Midlothian)
Clarke, rh Tom(Coatbridge &


Hamilton, Fabian(Leeds NE)
Hanson, David
Clarke, Tony(Northampton S) Harris, Tom(Glasgow Cathcart)
Clelland, David Healey, John
Clwyd, Ann(Cynon V) Henderson, Doug(Newcastle N)
Coaker, Vernon Henderson, Ivan(Harwich)
Coffey, Ms Ann Hendrick, Mark
Coleman, lain Heppell, John
Colman, Tony Hewitt, rh Ms Patricia
Connarty, Michael Heyes, David
Cook, Frank(Stockton N) Hopkins, Kelvin
Cook, rh Robin(Livingston) Howarth, rh Alan(Newport E)
Cooper, Yvette Howarth, George(Knowsley N &

Sefton E)

Corston, rh Jean
Cousins, Jim Howells, Dr. Kim
Cox, Tom(Tooting) Hoyle, Lindsay
Cranston, Ross Hughes, Beverley(Stretford &


Cruddas, Jon
Cryer, Ann(Keighley) Hughes, Kevin(Doncaster N)
Cryer, John(Hornchurch) Humble, Mrs Joan
Cummings, John Hutton, rh john
Iddon, Dr. Brian Morley, Elliot
Illsley, Eric Morris, rh Estelle
Ingram, rh Adam Mountford, Kail
Irranca-Davies, Huw Munn, Ms Meg
Jackson, Glenda(Hampstead &


Murphy, Denis(Wansbeck)
Murphy, Jim(Eastwood)
Jamieson, David Norris, Dan(Wansdyke)
Jenkins, Brian O'Brien, Bill(Normanton)
Johnson, Miss Melanie(Welwyn


O'Hara, Edward
Olner, Bill
Jones, Helen(Warrington N) O'Neill, Martin
Jones, Jon Owen(Cardiff C) Organ, Diana
Jones, Lynne(Selly Oak) Osborne, Sandra(Ayr)
Joyce, Eric(Falkirk W) Palmer, Dr. Dr Nick
Kaufman, rh Gerald Perham, Linda
Keen, Alan(Feltham) Picking, Anne
Keen, Alan(Brentford) Pickthall, Colin
Kelly, Ruth(Bolton W) Pike, Peter(Burnley)
Kemp, Fraser Plaskitt, James
Kennedy, Jane(Wavertree) Pollard, Kerry
Khabra, Piara S. pond, Chris (Gravesham)
Kidney, David Pope, Grey(Hyndburn)
Kilfoyle, Peter Pound, Stephen
King, Andy(Rugby) Prentice, Ms Bridget(Lewisham


King, Ms Oona(Bethnal Green &


Prentice, Gordon(Pendle)
Knight, Jim(S Dorset) Primarolo, rh Dawn
Kumar, Dr. Ashok Prosser, Gwyn
Ladyman, Dr. Stephen Purchase, Ken
Lammy, David Purnell, James
Lawrence, Mrs Jackie Quin, rh Joyce
Laxton, Bob(Derby N) Quinn, Lawrie
Lazarowicz, Mark Rammell, Bill
Lepper, David Rapson, Syd(Portsmouth N)
Leslie, Christopher Reed, Andy(Loughborough)
Levitt, Tom(High Peak) Reid, rh Dr. John(Hamilton N &


Lewis, Ivan(Bury S)
Lewis, Terry(Worsley) Robertson, John(Glasgow


Linton, Martin
Lloyd, Tony(Manchester C) Robinson, Geoffrey(Coventry


Love, Andrew
Lucas, Ian(Wrexham) Roche, Mrs Barbara
Luke, lain(Dundee E) Rooney, Terry
Lyons, John(Strathkelvin) Ross, Ernie(Dundee W)
McAvoy, rh Thomas Roy, Frank(Motherwell)
McCabe, Stephen Ruane, Chris
McDonagh, Siobhain Ruddock, Joan
McDonnell, John Russell, Ms Christine(City of


MacDougall, John
McFall, John Ryan, Joan(Enfield N)
McGuire, Mrs Anne Salter, martin
Mclsaac, Shona Sarwar, Mohammad
McKechin, Ann Savidge, Malcolm
McKenna, Rosemary Sawford, Phil
McNamara, Kevin Shaw, Jonathan
McNulty, Tony Sheerman, Barry
MacShanet, Denis Sheridan, Jim
McWilliam, John Short, rh Clare
Mahmood, Khalid Simon, Simôn(B'ham Erdington)
Mahon, Mrs Alice Simpson, Alan(Nottingham S)
Mallaber, Judy Singh, Marsha
Mann, John(Bassetlaw) Skinner, Dennis
Marris, Rob(Wolverh'ton SW) Smith, rh Andrew(Oxford E)
Marsden, Gordon(Blackpool S) Smith, rh Chris(Islington S & Finsbury)
Marshall, Jim(Leicester S)
Marshall-Andrews, Robert Smith, Geraldine(Morecambe &


Martlew, Eric
Meacher, rh Michael Smith, John(Glamorgan)
Merron, Gillian Smith, Llew(Blaenau Gwent)
Milburn, rh Alan Soley, Clive
Miller, Andrew Southworth, Helen
Mitchell, Austin(Gt Grimsby) Starkey, Dr. Phyllis
Moffatt, Laura Steinberg, Gerry
Moonie, Dr. Lewis Stewart, David(Inverness E &


Moran, Margaret
Stewart, Ian(Eccles) Vis, Dr. Rudi
Stinchcombe, Paul Walley, Ms Joan
Stoate, Dr. Howard Ward, Claire
Strang, rh Dr. Gavin Wareing Robert N.
Stringer, Graham Watson Tom(W Bromwich E)
Stuart, Ms Gisela Watts, David
Sutcliffe, Gerry White, Brian
Tami, Mark(Alyn) Whitehead, Dr. Alan
Taylor, Dari(Stockton S) Winnick David
Taylor, David(NW Leics) Williams, rh Alan(Swansea W)
Thomas, Gareth(Clwyd W) Winnick, David
Thomas, Gareth(Harrow W) Winterton, Ms Rosie(Doncaster


Tipping, Paddy
Todd, Mark(S Derbyshire) Woodward, Shaun
Trickett, Jon Worthington, Tony
Truswell, Paul Wright, Anthony D.(Gt Yarmouth)
Turner, Dennis(Wolverh"ton SE)
Turner, Dr. Desmond(Brighton


Wright, David(Telford)
Wyatt, Derek
Turner, Neil(Wigan) Tellers for the Ayes:
Twigg, Stephen(Enfield) Derek Twigg and

Charlotte Atkins

Tynan, Bill(Hamilton S)
Allan, Richard Llwyd, Elfyn
Baker, Norman Marsden Paul(Shrewsbury &


Barrett, John
Beith, rh A. J. Moore, Michael
Breed, Colin Õpik, Lernbit
Brooke, Mrs Annette L. Price, Adam(E Carmarthen &


Burstow, Paul
Cable, Dr. Vincent Pugh, Dr. John
Campbell, rh Sir Menzies(NE Fife) Rendel David
Robertson, Angus(Moray)
Carmichael, Alistair Russell, Bob(Colchester)
Chidgey, David Sanders, Adrian
Davey, Edward(Kingston) Shepherd, Richard
Doughty, Sue Smith, Sir Robert(W Ab'd'ns &


Ewing, Annabelle
Foster, Don(Bath) Smyth, Rev. Martin(Belfast S)
George, Andrew(St. Ives) Taylor, Matthew(Truro)
Green, Matthew(Ludlow) Thomas, Simon(Ceredigion)
Harris, Dr. Evan(Oxford W &


Tonge, Gr. Jenny
Trimble, rh David
Harvey, Nick Tyler, Paul(N Cornwall)
Hermon, Lady Webb, Steve(Northavon)
Holmes, Paul Willis, Phil
Jones, Nigel(Cheltenham) Wishart, Pete
Keetch, Paul Younger-Ross, Richard
Kennedy, rh Charles(Ross Skye &


Tellers for the Noes:
Lamb, Norman Mr. Andrew Stunell and

Mr. Alan Reid

Laws, David(Yeovil)

Question accordingly agreed to.

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

Forward to