HC Deb 19 May 2004 vol 421 cc1039-43

'(1)This section applies where there is an assessment period in relation to an eligible scheme.

(2) The Board may review a reviewable ill health pension in respect of a member under the scheme if—

  1. (a) disregarding section [Effect of a review], the member would be entitled to compensation under paragraph 3 of Schedule 7 in respect of the pension if the Board assumed responsibility for the scheme,
  2. (b) the member did not attain normal pension age in respect of the pension before the assessment date, and
  3. (c) the pension is attributable to the member's pensionable service under the scheme or another scheme.

(3) An ill health pension in respect of a member under the scheme is reviewable for the purposes of subsection (2) if the member is entitled to the pension by reason of an award under the scheme ("the award") which was made—

  1. (a) in the period of three years ending immediately before the assessment date, or
  2. (b) before the end of the prescribed period beginning with the assessment date, in response to an application made before that date.

(4) Where—

  1. (a) before the assessment date, an application was made under the scheme for the award of a pension before normal pension age by virtue of any provision of the scheme rules making special provision as to early payment of pension on grounds of ill health, and
  2. (b) the trustees or managers of the scheme failed to decide the application before the end of the period mentioned in subsection (3)(b),
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 that the application was decided before the end of that period.

(5) Where—

  1. (a) the award was made in response to an application which—
    1. (i) was made on or after the assessment date, or
    2. (ii) was made before that date but not decided by the trustees or managers of the scheme before the end of the period mentioned in subsection (3)(b), nd
  2. (b) in the absence of this subsection, the award would take effect before the assessment date,
the award is, for the purposes of determining the compensation payable under this Chapter in a case where the Board assumes responsibility for the scheme, to be treated as taking effect after the date on which the decision to make the award was made.

(6) Regulations must prescribe the procedure to be followed in relation to the review of a pension under this section and any subsequent decision under section [Effect of a review].'.—[Mr. Pond.]

Brought up, and reed 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.

Madam Deputy Speaker

With this it will be convenient to discuss the following:

Government new clause 21—Effect of a review.

Government new clause 22—Interpretation of sections [Reviewable ill health pensions] and [Effect of a review].

Government amendments Nos. 99, 104, 105, 111 and 145.

Mr. Pond

Given the spirit of celebration evident in our proceedings this afternoon, I hope that there is considerable agreement about how to move forward and improve the Bill. In Standing Committee, an Opposition amendment was tabled with the aim of giving the pension protection fund board the power to review any early retirements that took place in the three years prior to the assessment date, and to make retrospective adjustments where it appears that the award created an unfair advantage to certain scheme members.

We agreed to consider the essence of that amendment. These amendments introduce new clauses to review the awards of early retirement by scheme trustees or managers on the grounds of ill health.

We have specifically focused on scheme members who have retired early on the grounds of ill health, because that is the only way in which scheme members under NPA can receive the 100 per cent. level of compensation and be exempt from the compensation cap on entry to the PPF. Scheme members who have taken early retirement other than on the grounds of ill health will be subject to the 90 per cont. level of compensation and the compensation cap, so they are unlikely to be able to create an unfair advantage.

The clauses allow for the board to review certain cases of early retirement on the grounds of ill health where the award was made in the three years prior to the assessment date, or in limited circumstances where the application had been made before the assessment date. Other conditions fort review must also be satisfied—for example, the member must be under normal pension age immediately before the assessment date.

The board will consider whether the original decision by the trustees or managers regarding the ill health award was based on a mistake or way made in ignorance of a relevant fact. The board will also consider whether the member should have been entitled to an ill-health award at any stage before the assessment date.

The new clause is an important addition to our moral hazard powers. It will work in conjunction with the requirement that some rule changes that were made should be disregarded in certain circumstances. Together, they will be a significant deterrent to individuals looking to take advantage of the PPF.

Amendments Nos. 99, 105 and 111 are technical amendments relating to the new clauses. Amendment No. 104 will amend clause 127, on this board's obligation to obtain valuation of assets and protected liabilities, to require prescribed information to be included in the written valuation. That may include details of some of the basis of the valuation. Amendment No. 145 will insert a new paragraph into schedule 7.

The admissible rules are the scheme rules, excluding certain recent rule changes that were made, or took effect, in the three years prior to the assessment date. If the combined effect of the recent rule changes and recent discretionary increases result in an increase to the cost of the protected liabilities at the assessment date, those changes are to be disregarded. Entitlement to compensation is based on admissible rules rather than scheme rules. That is an integral part of the moral hazard provisions, to ensure that pension schemes do not increase their liabilities in the knowledge that the PPF will be required to meet those liabilities.

If an individual has been receiving a pension and the scheme rules under which the pension was awarded are disregarded for PPF purposes, in some cases we will want to ensure that he or she can still receive payments of compensation from the assessment date. We also want to ensure that any compensation to which the individual becomes entitled will take account of scheme benefits that the individual may have already received. Regulations will set out how such a person's compensation is to be determined. The effect of the amendment will be to prevent scheme members from being inadvertently affected by the PPF admissible rules and from losing their PPF compensation or gaining unintended enhanced compensation.

Mr. Waterson

This is another anti-avoidance measure, and the Minister was kind enough to nod in the direction of the provenance of this new clause, which was one of the amendments we tabled in Committee. Ill health is a way of getting round the 90 per cent. rule and the cap. The issue was originally raised at the behest of the National Association of Pension Funds, which suggested the amendment to allow a review of early retirements.

Our amendment did not specifically mention ill health, but it is likely to be the most obvious course to achieve what is called inappropriate early retirement, unless the Minister can think of any other ways around the requirements in the Bill. The three-year rule is not without some sense. Practical difficulties will arise in the enforcement of such moral hazard powers, as the explanatory note calls them. That term may stretch matters a little far: we are talking about anti-avoidance measures to stop people taking advantage of the scheme. Indeed, in Committee, the Minister referred to the episode involving a famous individual who apparently acquired Alzheimer's disease and then made a full recovery. I am sure that there have been other, less well-publicised instances of people suffering ill health and then—thanks to the wonders of medical science—making a full recovery after they have put together a satisfactory retirement package. That would be an obvious way out of the requirements of the PPF and that concerns the NAPF, which is why we tabled the original amendment. There should be a power to investigate such matters.

The new clause would give the board the power to revoke the award of a full pension on grounds of ill health. Perhaps the Minister could be a little more precise about how that would happen. The pension could be revoked some two or three years after the event, for example. Does the Minister envisage the board demanding a medical examination? What powers would the board have to require a medical examination if the person did not consent? What attention should be paid to any changes in medical condition in the intervening period? Those are practical issues, but the principle is right: we should not allow an obvious way around the PPF regulations and ill-intentioned people could use ill health to do so.

Mr. Drew

Ministers and Opposition spokesmen are trying to address an issue that we come across in our constituencies. Occasionally, people are encouraged to leave on grounds of ill health, but if that attempt fails they may be granted early retirement. That does enormous damage to pension schemes, and anything that can be done to tighten up procedures is welcome. However, does the hon. Gentleman agree that difficulties arise when people's situations are judged retrospectively? I do not know how we can reflect that in the law, because it comes down to the morality of the case. I am not sure about the term "moral hazard", but the problem needs to be addressed.

Mr. Waterson

That is a fair point. The decision to make the full award of a pension on grounds of ill health is taken at a certain moment in time, and the new clause would provide that that decision could be re-examined some years later. As I understand it, the board will try to put itself in the position of the scheme at the time that the decision was made, not at any other point in history. The obvious example is stress, the 21st century disease. In many cases, the effects of stress are very real, but it can also cover many other situations. Of course, it would be perfectly easy to argue that a high-flying executive had to retire due to ill health caused by stress, but that when the reasons for the stress were removed—whether the pressures of the job or worries about the pension—it would not be surprising that they made a reasonably good recovery.

Although we have no problem with the intentions behind the new clause, some real practical issues are involved and it would be helpful if the Minister could consider them in any further comments he makes. However, we broadly support the new clause.

Mr. Pond

The hon. Gentleman and my hon. Friend the Member for Stroud (Mr. Drew) are right to raise the practical issues. We are all agreed on the principle. We need to make sure that the board acts fairly when making assessments. There will be people—described by the hon. Member for Eastbourne (Mr. Waterson) as "ill-intentioned" individuals—who may try to abuse the system, but many more will have had to retire early on ill-health grounds and we want to protect their position.

We shall introduce regulations that set out precisely the procedure that can be used. I do not want to anticipate the regulations in too much detail, but there could be circumstances where medical evidence will form part of the evidence needed by the board to make its judgment. The board will need to ensure that all relevant evidence is taken into account and that an award is not made on an incorrect basis, especially because in almost all cases such decisions will be made after the event, as my hon. Friend the Member for Stroud said. We need to ensure that judgments are made fairly and that people have confidence in the way that they are made.

Question put and agreed to.

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

5.30 pm
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