HL Deb 14 September 2004 vol 664 cc341-404GC

(Ninth Day)

Tuesday, 14 September 2004.

The Committee met at half past three of the clock.

[The Deputy Chairman of Committees (Lord Ampthill) in the Chair.]

Clause 229 [Categories of pension scheme]:

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham) moved Amendment No. 295D:

Page 155, line 17, after "applies" insert "when the scheme is established or (as the case may be) to whom that subsection would have applied when the scheme was established had that subsection then been in force"

The noble Baroness said: We start with a really major set of amendments that are consequential on things that we have already discussed. Amendments Nos. 295D to 295H, 349, 349RA and 350 are consequential on the new provisions introduced by Clause 229. That clause introduces new definitions of occupational and personal pension schemes to Section 1 of the Pension Schemes Act 1993. Whether a pension scheme is an occupational or personal scheme determines which regulatory regime it will be subject to: the Pensions Regulator for occupational schemes; the Financial Services Authority for personal schemes. It is therefore crucial that that is clear. The new definitions are contained in Clause 229(3).

I wonder whether I need to go on much beyond that. A pension scheme is itself defined in subsection (4). It may be a single or multiple employer scheme. Occupational pension schemes that have their main administration in another EU member state are not deemed to be occupational pension schemes for the purposes of UK legislation. Those will therefore not be regulated by the Pensions Regulator and will be regulated primarily by the authority in that member state. Part 7 deals with occupational pension schemes that operate on a cross-border basis. If the Committee will allow, I think that it would be sensible to leave discussion of the cluster of issues about pensions that cross borders until we reach Part 7.

A personal pension scheme is defined as a scheme established by a person—for example, an insurance company permitted under the Finance Act 2004—but that is not an occupational pension scheme. That is to ensure that where a financial institution has an occupational pension scheme for its own employees, that scheme is correctly classified, where appropriate, as an occupational scheme. The new definitions are needed partly as a consequence of tax simplification provisions in the Finance Act, and to ensure that the UK is compliant with the European directive on occupational retirement provisions.

I could go into the amendments in detail, but that is basically what they do: they define what an occupational pension for these purposes to determine under which regulator regime they fall. If the Committee wants me to continue with a longer speech on each of the amendments, I am happy to do so. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 295E to 295H:

Page 155, line 19, at end insert— or a pension scheme that is prescribed or is of a prescribed description;

Page 155, line 23, leave out "144(1)" and insert "154(l)"

Page 156, line 9, leave out "144(4)" and insert "154(4)"

Page 156, line 10, leave out "144 and 145" and insert "154 and 155"

On Question, amendments agreed to.

On Question, Whether Clause 229, as amended, shall stand part of the Bill?

Lord Higgins

In speaking to her amendments, the noble Baroness has cleared up several of the points that were of concern to me. I think that only two are outstanding. She referred to the definition in subsection (3), which relates to a scheme, that has its main administration in the United Kingdom or outside the member States". That seems a strange way to define it. If I understand it correctly, she is saying that it does not apply to schemes in European Union states. Of course, that is a rather larger group of states than has been the case until comparatively recently.

I am unclear on the situation of a scheme whose main administration is in, for example, the United States or the Channel Islands. Is the definition as tight as it ought to be? If a scheme is in the United States, which type is it? The noble Baroness suggested that we consider some of these problems in relation to the cross-border clauses that appear later. That would be advisable.

Clause 229(3)(b) states that "personal pension scheme" means one that, is established by a person within any of the paragraphs of section 144(1) of the Finance Act 2004". Has the Finance Act 2004 received Royal Assent?

Baroness Hollis of Heigham

It has.

Lord Higgins

Could the noble Baroness tell us what persons were affected by Section 144(1) of the Finance Act 2004? I fear that I have not gone into the issue and am uncertain who is affected.

Baroness Hollis of Heigham

I shall respond first to the noble Lord's point about companies in the United States and the Channel Islands. I would like to take advice on the Channel Islands, which may be different because of their offshore status, to some degree. If a United States company—for example, an American bank—had UK employees who were part of the UK pension scheme, we would require it to have a UK trustee such that the regulator could ensure that the protection of those employees was met. The basic structure of regulation would be for the home country where the scheme is based.

Lord Higgins

Would it be regulated by the FSA?

Baroness Hollis of Heigham

An occupational pension would be regulated in the broadest terms by the regulator; a personal pension would be regulated by the FSA.

Lord Higgins

If the scheme is in the United States, which type is it?

Baroness Hollis of Heigham

It depends entirely on the type of pension scheme, I suspect. If a United States company has a UK-based DB scheme for its British employees, it would be regulated by the regulator.

A personal pension scheme is not an occupational pension scheme; it is one established by a financial institution to ensure that an occupational pension scheme provided by a financial institution was correctly classified. I do not think that this relates particularly to the American experience, whereby if there are employees in Britain with pensions, we would expect there to be a UK trustee over which the regulator could rule. That would be if the scheme were defined as an occupational pension within the remit of the regulator. It is not impossible that the employer could produce the equivalent of a group personal pension, which would remain regulated by the FSA in so far as there were British members.

As there were eight different tax regimes in the past, the Inland Revenue determined the status of pensions and therefore under what regulatory authority they came. Frankly, the DWP piggy-backed on the Inland Revenue. Now, that is no longer possible because of the change in Inland Revenue regimes. There is also a need for clarification by virtue of the European directive. We are taking the opportunity to recast the language, but so far as I am aware, there is absolutely no change in policy. The existing regime of supervision continues for the same type of pensions.

Lord Higgins

On the second point, who are the persons within the paragraphs of Section 144?

I picked the Channel Islands rather at random, but there are a number of offshore areas which I am not sure are covered by the phrase, in the United Kingdom or outside the member States". Could I press the noble Baroness on that?

Baroness Hollis of Heigham

I would prefer to write to the noble Lord about the Channel Islands and the Isle of Man.

Lord Higgins

It is quite important.

Baroness Hollis of Heigham

I accept that. However, I should like to take advice on that point and on other alleged tax havens. I repeat that, if it is a US scheme, it will be regulated by the US regulator. If there is a separate branch in the UK, it will be covered by us.

Lord Higgins

Who is affected? Who are the people in Section 144?

Baroness Hollis of Heigham

All that is being said here is that Section 154 of the Finance Act refers to Section 144 of the previous legislation. It defines Section 154 and lists the financial institutions that can provide personal pensions, including insurance companies, unit trust schemes, recognised collective investment schemes, investment companies, building societies, banks and investment portfolio managers. I do not know whether that answers the noble Lord's question.

Lord Higgins

We are making heavy weather of this. The clause states that a personal pension scheme means a pension scheme that, is established by a person within any of the paragraphs of section 144(1) of the Finance Act 2004". We have established that the Finance Act 2004 has received Royal Assent. I am not clear which persons are covered by the paragraphs of Section 144(1) of the Finance Act. It seemed from the noble Baroness's reply that it was persons in the sense of corporate bodies rather than individuals.

Baroness Hollis of Heigham

That is correct. I am sorry about the confusion. I would like to check this; I was slightly taken aback by the mention of the Finance Act. Section 144 is now Section 154 of the Finance Act, but the persons referred to are the bodies or institutions of companies that I listed—that is, insurance companies, unit trust schemes, investment companies, building societies, banks, and so on.

Lord Higgins

Are we really saying that a personal pension scheme means a scheme that is established by a bank, an insurance company, and so on? Is that the total content of the provision, or are such schemes more clearly defined?

Baroness Hollis of Heigham

No, I think that that is correct.

Lord Skelmersdale

I am sorry to intervene, but I am now slightly more confused than I was to start with. The noble Baroness mentioned Section 154, and the Bill refers to Section 144. Are we therefore expecting a government amendment on Report to remove "section 144" and substitute "section 154"?

Baroness Hollis of Heigham

If the noble Lord looks at Amendments Nos. 295F and 295G, he will see that the reference to the Finance Act has been changed from Section 144 to Section 154. That is all. The substantive point is that raised by the noble Lord, Lord Higgins, about which persons are involved. The answer turns out to be financial and finance-related companies.

Clause 229, as amended, agreed to.

Baroness Hollis of Heigham moved Amendment No. 296:

After Clause 229, insert the following new clause—

    cc345-57GC
  1. MEANING OF EMPLOYER IN PART 1 OF THE PENSIONS ACT 1995 6,064 words
    2. cc357-404GC
  2. INFORMATION SENT TO MEMBERS OF OCCUPATIONAL PENSION SCHEMES 22,203 words