HC Deb 18 May 2004 vol 421 cc861-5

'(1) Subsections (2) and (3) apply to an occupational pension scheme that has its main administration in the United Kingdom.

(2) If the scheme is not established under irrevocable trusts, the trustees or managers of the scheme must secure that no funding payment is accepted.

(3) If the rules stipulating—

  1. (a) the benefits under the scheme, and
  2. (b) any conditions subject to which benefits under the scheme accrue,
are not in force, or if those rules are not set out in writing, the trustees or managers of the scheme must secure that no funding payment is accepted.

(4) Subsection (2) or (3) does not apply to an occupational pension scheme if it is a prescribed scheme or a scheme of a prescribed description.

(5) Section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to a trustee or manager of an occupational pension scheme that has its main administration in the United Kingdom if—

  1. (a) subsection (2) or (3) requires the trustees or managers of the scheme to secure that no funding payment is accepted,
  2. (b) a funding payment is accepted, and
  3. (c) the trustee or manager has failed to take all reasonable steps to secure that no funding payment is accepted.

(6) In this section "funding payment", in relation to a scheme, means a payment made to the scheme to fund benefits for, or in respect of, any or all of the members.'.—[Mr. Pond.]

Brought up, and read the First time.

Mr. Pond

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 27—Non-EC occupational pension scheme to be trust with UK-resident trustee.

Government new clause 28—Representative of non-EC occupational pension scheme to be treated as trustee.

Government amendments Nos. 213 and 214.

Mr. Pond

I have not had to ask the hon. Member for Northavon (Mr. Webb) to be patient for too long, because we are now talking about new clauses 26, 27 and 28, which will ensure that occupational pension schemes established in the UK and those established outside the EU that have employees in the UK continue to be set up under trust. Occupational pension schemes that are established in other member states are not covered by these clauses, and I will deal with those when we come to the clauses on cross-border schemes in a few moments.

New clauses 26 to 28 are consequential on the tax simplification provisions in the Finance Bill and are in compliance with the European directive, which demands legal separation between an occupational pension scheme and a sponsoring undertaking. At the moment, it is a condition of tax approval that an occupational pension scheme is set up under trust. Under the new arrangements introduced in the Finance Bill, that condition will no longer apply. As I have explained, instead there will be a single simplified registration regime for all pension schemes for tax purposes. The same registration requirements will apply for all schemes.

It has long been the practice in UK pension schemes to use trust law to provide that separation, and this approach is recognised by the directive. We also believe that trust law continues to be the best legal basis under which occupational pension schemes in the UK should operate. The Pensions Act 1995 and other pensions legislation are built on the foundation of trust law and it offers the best means of providing security and confidence for scheme members. These clauses, therefore, maintain the requirement that an occupational pension scheme established in the UK must be set up under trust. Subsections (1) and (2) of clause 26 provide that where an occupational pension scheme has its main administration in the UK, it can accept funding payments—contributions and transfer payments—only if it is established under trust. Similarly, subsection (3) provides that a scheme must have proper written rules before it can accept funding payments, as demanded by article 9 of the directive. As schemes already have written trust deeds and rules, this is not a new or onerous requirement.

Subsection (4) allows us to make regulations to exempt certain schemes from the requirements—statutory schemes for example. Subsection (5) gives the pensions regulator the power to sanction trustees or managers who accept payments into a scheme that is not trust based or does not have proper written rules.

Clause 27 makes similar provisions for occupational schemes that have members in the UK but where the scheme is established outside the EU. It provides that such a scheme cannot accept contributions unless the scheme is established under trust and there is a trustee in the UK.

New clause 28 permits overseas schemes to appoint someone to act on their behalf in the UK, and for that person to be treated as the trustee under UK pensions legislation. Amendments Nos. 213 and 214 amend clause 62 of the Bill and are directly consequential on these new clauses. Clause 62 provides that an inspector may enter premises that are liable to inspection, in order to investigate whether specified provisions of pensions legislation are being complied with. Premises are liable to inspection if the inspector has reasonable grounds to suspect that members of the scheme are employed there, documents relevant to the administration of the scheme are being kept there, or the administration of the scheme, or work connected with the administration of the scheme, is being carried out there. These amendments are necessary so that inspections may be carried out to investigate potential breaches of the requirements of these new clauses.

The new clauses ensure that the long-established arrangement under which occupational pension schemes are established under trust law is maintained. In doing so, they provide that the legal separation of the pension scheme and the employer is also maintained, and that UK workers continue to have the protection of the Pensions Act and other pensions legislation that provides protection for UK workers.

Mr. George Osborne

I do not wish to detain the House for long. I have a question, and I begin with an observation. It seems to me that many of the new clauses are consequential on the Finance Bill. Why is the Department for Work and Pensions playing catch-up? After all, the Finance Bill has been around for more than a month, during which time we have considered the Bill in Committee. One can only same that the new pension tax proposals were drawn up in consultation with the DWP. Far be it from me to assume that the Treasury did all this without letting the DWP know or that it merely informed the Department once the process was over. If the proposals were dreamed up with the DWP, I am surprised that they were not built into the legislation as we discussed it in Committee. There we go, that was my comment.

My question, which is straight forward, is one of information, and I do not know the answer. Are there occupational schemes that are not statutory—that is, not prescribed schemes—and are not trusts? I understand the point that the Minister made, that under the process of tax approval it is a condition that a scheme is set up as a trust, but I want to know whether there are any exceptions to that rule that will be caught by the new clause? Is the Department absolutely certain that there will be no unintended consequences, even if it is on a small number of non-trust occupational schemes. I just want to check that the Government have done their homework.

Mr. Webb

I am grateful to the Minister for returning to the point about schemes based outside the member states. That is what new clause 27 deals with. This has a slight "Britannia rules the waves" feel to it in the sense that new clause 27(2), which deals with schemes that have their main administration outside the EU, says that an employer based somewhere in the UK can pay contributions to a scheme outside the UK, say in north America, only if the conditions in subsection (4) are met. One condition in subsection (4) is that there has to be a UK-resident trustee. Say I lived in the UK but my pension scheme was run in north America. Under the provision, my employer could not pay money into my pension scheme unless it had a UK-based trustee. What would happen if my employer did pay some money into my pension scheme After all, the scheme is based in the US, not in the UK. The pensions regulator will not march down Wall street, bang on the door and say, "You shouldn't have taken that money, you naughty people. Give it back."

2.30 pm

What is this all about? I do not understand what the Government are trying to stop We no longer have tax-approved status, and surely the pensions regulator has no jurisdiction over a scheme based in north America or elsewhere. We will come to the issue of the EU and reciprocal arrangements later. Does new clause 27 have any force? If employers want to put money into schemes run in north America for their employees, good luck to them. If that does not satisfy the condition in new clause 27(4), that would be tough luck. What would be the consequence of failure to adhere to new clause 27, given that the pensions regulator, who is supposed to enforce such matters, would have no jurisdiction? I hope that the Minister can clarify that point, because I am at a loss to understand it.

Mr. Pond

The hon. Member for Tatton (Mr. Osborne) raised the issue of whether there are occupational pension schemes that are not trusts and therefore whether the new clause would have unintended consequences. I can reassure him that we have done our homework on that point. I am not expecting that inspiration will tell me that any such schemes exist, but if that inspiration hits me later in the day, I will share the information with him.

The hon. Member for Northavon (Mr. Webb) asked whether new clause 27 would have any force. I should explain that the regulator will have a locus over the UK-resident trustee if a scheme has its main administration outside the UK. That is the purpose of having a trustee based in the UK. In the case of trying to have some sort of enforcement in terms of a scheme based outside the UK, he suggested that the regulator would march down Wall street, but we have not built foreign travel for such purposes into the regulator's budget. However, I am sure that my hon. Friend the Minister for Pensions would be happy to undertake such responsibilities. We expect that the regulator in the countries where the schemes operate will work with the domestic regulator and, therefore, the information will be supplied. The expectation is that the regulator in the other countries would use domestic regulation to ensure that scheme members' interests were properly upheld.

Mr. Webb

That was a fascinating response. The Minister initially said that the UK pensions regulator has locus when there is a trustee in the UK, and indeed that is the condition in subsection (4). I asked what would happen if that condition were not satisfied, there was no trustee in the UK and the firm said, "We don't care what British law says. We are going to put some money in our workers' American pension scheme. Get lost." Is the Minister really saying that the British pensions regulator will have to liaise with pensions regulators in every country in the world that might have the head office of a firm that employs a UK employee? Some such countries may not even have pensions regulators. What if the foreign pension regulator does not agree with the Government on the necessary requirements? I am completely bewildered by the matter. Has any dialogue taken place with regulators in other countries to see whether the Government's proposal is realistic?

Mr. Pond

As the hon. Gentleman will know, the community of pensions regulators throughout the world operates on a comradely and co-operative basis. Given that they have shared interests, in that multinational cross-border arrangements are increasingly common, our expectation is that co-operation will occur. In some circumstances, that may not happen, although the Wall street example is not necessarily a good one. We may need to revisit the issue if that proves to be the case, but we are confident that the provisions will work better than the current arrangements, albeit without being the perfect solution.

If a firm has workers in the UK, they should be covered by UK pensions legislation. If there is no UK-based trustee, it is the employer who is subject to sanctions by the regulator, and that is how sanctions would be applied in the hon. Gentleman's example of a US scheme refusing to set up a trustee in the UK.

I can tell the hon. Member for Tatton that no further inspiration has come to me on whether there are any occupational schemes that are not trust based. As far as the DWP and the Inland Revenue are concerned, we are aware of no such schemes.

Question put and agreed to.

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

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