HL Deb 04 June 1992 vol 537 cc1076-94

6.51 p.m.

Lord Wigoder rose to ask Her Majesty's Government what steps they are taking to ensure that the position of pensioners in the Maxwell companies is fully safeguarded.

The noble Lord said: My Lords, I tabled the Question three weeks ago out of deep concern that the plight of the Maxwell pensioners was not being sufficiently scrutinised either in Parliament or in the media. I hesitate to say that it was entirely as a result of my setting down the Question, but during the past three weeks there has been a great improvement in the situation. Much more information is now publicly available in the area of political discussion than was available at that time.

I make clear that I am not in the least concerned this evening with the issue as to how it may be possible to prevent catastrophes of this kind happening in the future. That is a matter for another debate on another day. I am concerned only with what can be done to help the pensioners in their present position. For that purpose the relevant facts are reasonably clear, give or take the odd £100 million—I suppose "take" is perhaps the more appropriate word in the circumstances than the word "give".

At the time of Robert Maxwell's death there were around 35,000 members of pension funds being operated by companies under Maxwell's control. Of that number some 15,000 were in the Mirror Group Newspapers' fund. That proved to be an enlightened employer and the position of its employees regarding those funds appears to be reasonably secure. Of the remaining 20,000 or so, 9,000 are already pensioners and the other 11,000 members of schemes who have not yet reached retiring age.

Those pension funds appear to have been raided by Maxwell to the tune of something in the region of £500 million, largely by the means—there is no need to go into detail—of the certificates of investments held by the pension funds being deposited by or on behalf of Maxwell in various banks as collateral for loans. The loans were advanced by the banks to Maxwell and used by him in various ways to bail out his failing companies. In the result, the companies having failed or being about to fail, the loans cannot be repaid and the banks are therefore retaining the certificates of investment. The pension schemes have therefore lost their funds.

Situations have occurred where the funds have not been available to meet the pensioners' claims. In April of this year 240 pensioners in a scheme run by a company known as Headington found that their payments to their pensions were suspended altogether.

Next month 5,500 pensioners in Maxwell Communication Corporation are threatened with having their pensions drastically reduced by around 75 per cent.

That is the background to the matter, expressed, I hope the Government will agree, broadly correctly. The second matter with which I hope the Government will agree is that the hardship sustained, and about to be sustained, by those pensioners is intense. It goes without saying that many of them who contributed to pension funds throughout their working lives have now found suddenly and unexpectedly that their homes are at risk because they cannot meet mortgage repayments. They have found that the whole basis of their future family life and security is in danger of being destroyed.

The third factor with which I am sure the Government will agree is that those pensioners are totally blameless. Many of them never worked for Maxwell in the whole of their lives. They were members of companies and retired from those companies years before Maxwell took the companies over and managed to get his hands on the pension funds and assets. Many of them had to join pension schemes as a condition of their employment. All of them regularly paid their contributions prudently and sensibly in the almost certain knowledge that in due course their position would be safeguarded upon their retirement.

In recent months other groups of people have experienced similar misfortunes. For example, there were those who, in a quest for higher interest rates than may have been obtainable elsewhere, invested in Barlow Clowes. Others, in pursuing similar higher rates, deposited money in BCCI. Others, knowing that they were involved in an enterprise that was not by any means risk free, became members of Lloyd's. I do not seek to make any comparisons between those people. I simply draw attention to the fact that in no way whatever can the Maxwell pensioners be criticised for anything that they have done. They are ordinary decent people who led honest, hard-working lives; who were prudent, as they were expected and indeed required to be by their companies, but who perhaps lacked among their number certain influential people who might have been able to raise their plight rather more vocally than has been done up to the past few months. They are people whose futures are in real danger of being irreparably ruined.

The final point with which I have no doubt the Minister will agree is that the situation is urgent. It cannot wait. It is not a question of anyone saying on behalf of the Government that inquiries will be made and that in due course there will be legal investigations of this, that and the other and the position may then be resolved. It is a matter where urgent action is necessary if the position of those pensioners is to be safeguarded.

In those circumstances I ask the Minister whether or not he agrees that the community as a whole has the moral duty in this situation to ensure that those pensioners are safeguarded. If that duty rests on the community then it rests on the Government acting on our behalf and using, if necessary, the funds which the community contribute to the Government in order to assist those pensioners.

I am old-fashioned enough to believe that it is not for the Government to say that they cannot use government money on this occasion. I do not believe that there is government money, but only money which people have contributed to the Government in order that it should be used as desired by them. Therefore I suggest to the noble Lord this evening that the Government should recognise in the first instance that they have the responsibility to fund any shortfall in the pensions.

I say the responsibility as distinct from the liability. First, I believe that the Government have the responsibility to make up this shortfall forthwith and urgently. The next task of the Government should be to resolve liability issues in order to ensure that they take the lead now in keeping these people in the manner in which they could reasonably expect to be kept. The Government will then be able to recover sums from the various sources which I suggest are available to them. No doubt there are a number of sources which the Government will want to look at. They will want to look at Maxwell's estate, which may take a little time judging by the recent revelations concerning some of the more complicated dispositions of money in Liechtenstein.

Secondly, the Government will want to look at the position of the trustees of the various pension funds to see whether any of them were acting in collusion with Robert Maxwell in disposing of the investment documentation in the way that was done, or to see whether they were negligent in the way in which they carried out their duties. In either event clearly those trustees can be pursued for their contribution to fund the consequences of this disaster.

Thirdly, the Government will no doubt look with care at the role of the Department of Trade and Industry. The pension funds which were raided were managed by two companies, Bishopsgate Investment Management (BIM) and London & Bishopsgate Investment (LBI). They were both Maxwell companies for all practical purposes. He owned 75 per cent. of one of them, and 100 per cent. of the other. In April 1988 the DTI licensed London & Bishopsgate Investment to deal in securities. It did that in a situation in which it must have known that Maxwell had an overwhelming majority shareholding in that company. The DTI must have known that about 17 years earlier Maxwell had been declared a person who was unfit to hold office in any public company.

Having licensed the company in that way, the DTI then handed over its responsibilities for the supervision of those companies to the Investment Management Regulatory Organisation—better known as IMRO. That is the next area where the Government will want to look carefully to see where liability attaches. Almost immediately after the companies were handed over and came under the supervision of IMRO in June and July 1988, that body authorised the two companies to trade. It knew at the time that Maxwell had become not merely the principal shareholder but the chairman of both companies. It also knew of Maxwell's reputation as it had been ascertained in a previous inquiry many years earlier. IMRO had a very clear duty to supervise the running of those two companies. I understand that an executive of the Association of Mirror Pensioners wrote to IMRO in October of that year suggesting in terms that by investing the proceeds of the pension funds in MCC the pension funds were being placed at risk. The letter asked that an inquiry should be made by IMRO into the operation of those two Maxwell companies.

IMRO made an inquiry and received in return—not entirely surprisingly—a 75-page letter from Maxwell's lawyers. IMRO let the matter rest there for about two and a half years. IMRO made no further inquiries and did not visit the premises again until September 1990. On that occasion these two companies were managing many of the pension funds, and IMRO reported that everything appeared to be in order. IMRO went so far as to say that nothing was known which was adverse to Mr. Robert Maxwell. That was in September 1990. Therefore, there is clearly a case to be looked at as regards IMRO.

There is also the case to be looked at of the banks which accepted these pension fund securities as collateral for loans to Maxwell's private companies. Those matters will have to be examined with considerable care to see whether the banks may have been negligent in doing what they did, and whether they can now be persuaded to refund some of their ill-gotten gains on the very simple basis that the securities they were handling were stolen property.

The last body that the Government might wish to consider is in rather a different category. It is the National Association of Pension Funds (NAPF). I say at once that I do not suggest for one moment that NAPF is in any way responsible for what has happened. It consists of a large number of pension funds almost all of which are run quite impeccably by trustees who are devoted to the interests and welfare of their pensioners. The fact is that those funds handle altogether between £250 billion to £300 billion. Those funds have risen enormously in value over the past year or two as a result of the rise in Stock Exchange values. As a result, many of them are considerably over-funded. Many of them have been able to increase the benefits payable to pensioners. As they have no alternative, companies have been obliged to declare pension scheme contribution holidays.

It is not impossible that a very small voluntary levy might be contributed by those pension funds. That might go a considerable way to help in this crisis. To meet the whole of the amount necessary would be less than 0.1 per cent. of their assets. That would be barely noticed. It would have the effect of only slightly shortening the length of the contribution holiday being taken by the employers. In its way it might resemble the liability which is accepted by all insurance companies by law since the Policy Holders Protection Act passed in 1975 where if an insurance company gets into difficulties levies are made throughout the insurance industry.

I know that it is important not to take any step to discourage companies from operating their own pension schemes. I also know that the Government are about to embark on new pensions legislation in order to ensure that disasters of this kind never happen again. It might be possible for the Government, when they embark on that new legislation and consult with the NAPC, to discuss with that body whether a small, generous gesture by that association and its members might help substantially to resolve the present position and smooth the path of the legislation which is being considered. Those are the various bodies that the Government will no doubt want to investigate in order to consider from where, in the long term, the resources will come in order to fund the pensions.

There is one other action that the Government could take immediately that would have immediate effect. They could bring into effect by regulation Section 58B of Schedule 4 of the Social Security Act 1990, perhaps retrospectively for a matter of only a month or two. By that means, company pension schemes that find themselves in financial difficulties could become creditors of the parent company. That would be of material assistance, especially in relation to MCC. I understand that that might have the immediate effect of reducing the apparent deficit by something like 50 per cent.; but it is a matter which needs to be dealt with urgently. A regulation would have to be laid. It would have to be laid before the long Recess if it was to come into effect before the long Recess and to have the desired effect. The Government will therefore no doubt want to consider taking that step urgently.

The Government will also want to consider persuading the banks—if they can—to release the securities that they are holding as collateral. They will also want to pursue the other trustees; to examine the role of the Department of Trade and Industry; and, even more critically, that of the Investment Management Regulatory Organisation. They may want to talk to the National Association of Pension Funds to see whether some form of voluntary support can be obtained from the association.

All those steps, if taken, are bound to take some time; but I believe that if they are taken there is a very strong probability that most, if not all, of the appalling deficit will be recovered in due course. The problem is that "in due course" is too long to wait. The need is now and it is urgent. I should like to ask the Government tonight whether they accept that in those circumstances they have the responsibility in the first instance to ensure that payments continue to be made to existing pensioners. I do not believe that a substantial sum is involved at this stage. The payments should continue to be made by the Government while they go about their business of examining the sources from which, in due course, they can be repaid and the pensioners' interests can be safeguarded. It is not any answer for the Government to say—as they have tried to do — that at least the pensioners have the guaranteed minimum pension. That is no help to those who retired before 1978; and it is quite insufficient help to those who have retired since.

I hope that the Government will indicate tonight that they accept that there is a very real problem that has to be dealt with urgently. I hope that they will recognise that the pensioners cannot be fobbed off with talk about inquiries "taking their course", about "in due course" and about this, that and the other perhaps being done. I ask the Government to come out firmly and to say that they accept the ultimate responsibility on behalf of the community as a whole for the welfare of these unfortunate people.

7.13 p.m.

Baroness Stedman

My Lords, I should like to thank the noble Lord, Lord Wigoder, for the compassionate and constructive way in which he has raised this Question in the House tonight. I have no knowledge of the law affecting pension funds and nor am I a master of high finance, but I do have personal knowledge of some of the people who have been affected by the action of the Maxwell companies. I know only too well of the distress and anxiety that has been caused to many of those pensioners, and especially to those who have now been advised that their payments will cease altogether at the end of this month.

The instance which I know best is of an individual who jointed Atwoods in 1955. In 1960 that firm started a pension fund to which he contributed. The firm was eventually taken over, in the form of AGB Research Limited, by Maxwell. My friend's final period of service was with that company. For 25 years from 1960, he paid into a pension fund which he thought would make his eventual retirement much easier and give him a pleasanter way of life. Fortunately for him, he was also in a position to take out an independent pension, administered by the Norwich Union, which has not been affected by the Maxwell affairs. In that sense he is fortunate because he still has a little additional income. However, the loss of his Maxwell pension, through the takeover of ABC Research plc, and the apparent misuse of that company's pension funds, mean that he has lost over 50 per cent. of his income. That is a distressing situation in which to find oneself after one has contributed for 25 years and been retired for seven years. As the noble Lord, Lord Wigoder, has said action is needed now because the pensions will cease in three weeks' time.

I can understand that the Government want the banks to honour their moral commitment to the Maxwell pensioners but, faced with a massive reduction in their income in three weeks' time, those pensioners want some assurance now that if the banks do nothing the Government will either reimburse the funds or assure the pensioners that they will continue to receive some payment.

The House of Commons Select Committee on Social Services looked at this question before the general election and recommended that the incoming Government should begin discussions with the banks to point out the moral if not the legal responsibility of the banks to return the pension fund assets that are in their keeping. Have those discussions taken place and, if so, have the Government anything to report?

The Secretary of State for Social Security said, when he was the last government's Secretary of State for Trade and Industry, that a Securities and Investments Board inquiry was being made into the conduct of the Investment Management Regulatory Organisation in respect of the Maxwell pension funds and that it would be published. That was two months ago. What progress has been made with that inquiry and when can we expect the report to be published?

The noble Lord, Lord Wigoder, has referred to Section 58B of the Social Security Act 1990. I have a Question down for Written Answer, but I shall be happy if the Minister could answer the point tonight. That provision serves to make pension funds the creditors of companies that have become insolvent. Why cannot those provisions be invoked in this instance?

I accept that the Government are now to review pensions law. I hope that that review will recommend action to prevent future Maxwell-type operations, but it will not necessarily help today's victims. I understand that IMRO will be reporting on its performance and that SIB is still to give its view of IMRO's role. However, it seems to me as a layman that the structure of the regulatory framework shows such weakness that the Government, who have ultimately sanctioned this regime, have some responsibility to the unfortunate Maxwell pensioners.

I cannot help feeling that the leader in Tuesday's edition of the Evening Standard got it about right when it stated: The trustees of the Maxwell pension fund were poodles. The auditors were, to say the least, absent-minded. The lawyers were not looking in the right direction. The banks who transferred the pension fund's money looked no further than the face value of the securities they were handling. The Bank of England was doing something else at the time. The Securities and Investments Board was out to lunch … The Investment Management Regulatory Organisation was twiddling its thumbs … The buck was passed from well-manicured hand to well-manicured hand, and it seems to have come to rest in Liechtenstein, where the pensioners cannot get at it. That is perhaps rather a graphic description, but it sums up the fact that nothing in the regulatory protection mechanism seems to have functioned as it should in this case.

Parliament passed laws obliging employees to pay into a pension fund. Parliament passed laws to protect those funds. Parliament, through its Ministers, did not keep a close eye on the regulators. Therefore, I believe that it follows that, at the very least, Parliament should pay pensions to the several thousand Maxwell employees who are now to be deprived of their retirement pay. I look forward to the Minister's answer with interest.

7.20 p.m.

Baroness Hollis of Heigham

My Lords, I too should like to thank the noble Lord, Lord Wigoder, for tabling this Unstarred Question. I also congratulate him on the appropriateness of his timing. We are all very grateful to him. Robert Maxwell built up his empire in the 1980s largely by acquisition. The 80 or so companies which he acquired had two things in common: for the most part they were associated with the printing industry, but almost invariably they also had healthy and abundant pension funds. Therefore, as the noble Lord mentioned, men and women who had never worked for Maxwell found themselves and their pensions transferred along with their company to his tender loving care. Their pensions funds were acquired, moved, transferred, lent, diverted, raided, sent abroad or finally declared missing presumed stolen.

It is possible that a bandit with Maxwell's agility would have torn through any safety nets which were set to protect those pension funds. But those safety. nets were thought to be stronger than they turned out to be. They should perhaps have given him more trouble than they did. It is because of that that I want to argue that the law must be changed.

I am well aware that we are judging the situation with hindsight. But the report of the Select Committee on Social Security of another place on the operation of pension funds which was mentioned by the noble Baroness, Lady Stedman, has made it all too clear that various bodies might have exercised a whistle-blowing function. Some of them probably should have done; indeed, the pensioners certainly believe that they ought to have done. However, because there was no overarching body, no one stepped outside their narrow remit until too late.

Who might have signalled the alarm? One turns first to the professional advisers—namely, the lawyers and the accountants working to professional codes who were employed by Maxwell—who might have flagged their concerns. For example, the accountants (an outstandingly reputable firm) nonetheless serviced both the Maxwell companies and the Maxwell pension funds, despite what was to become, with hindsight, a conflict of interest.

Accounts for the year ending 5th April 1990 were received well over a year later. The management letter voicing areas of concern, which might be thought somewhat to have qualified those accounts, was not seen by the pensioners and it is not clear that it was even seen by the trustees. Therefore, the trustees were unable to detect until too late that Maxwell had moved pension funds out of the top 100 companies—a warning signal which might have been given by the accountants that came too late.

The next whistle-blower might have been the Occupational Pensions Advisory Service, a body set up to liaise between pension schemes and their members when there is a breakdown in communications. The advisory service was contacted back in March 1990 by one of the Bristol companies taken over by Maxwell in 1987. The advisory service might have used that early warning to indicate concern and to scrutinise the patterns emerging in the Maxwell pension funds. It did not do so, and another opportunity was lost.

I turn next to the Occupational Pensions Board. Its function is to ensure that schemes have enough resources to guarantee the minimum pension, within the broader considerations of gender, equity and the like; that it is checked annually. That in turn presumes a company's financial health. The OPB might perhaps have taken a wider view of that role than it felt it could do given its resources and its` remit. Back in 1982, the OPB had been calling for the abandonment of trust law as a framework for the pension industry (a framework that permitted the Maxwell defalcations), but by 1989 it had changed its mind, which is regrettable.

The OPB clearly took a scrupulous reading of its role. Not so the next possible whistle-blower; namely, IMRO, the investment management regulatory organisation body which carries the regulatory functions sub-contracted by government under the Financial Services Act 1986 to the Securities and Investments Board. Its job was to vet business records, the reputation, integrity and competence of management. As Sir Leon Brittan said in another place at the time: Powers will be transferred to the agency only if the Secretary of State is satisfied that the agency's rules were adequately protecting investors". Yet, despite the DTI report of 1971 mentioned by the noble Lord, Lord Wigoder, which stated that Maxwell should never again be regarded as fit to run a public company, the DTI licensed London and Bishopsgate Investment Limited three days before the Financial Services Act 1986 came into force. Moreover, IMRO licensed Bishopsgate Investment Management thereafter, even though the first company was 75 per cent. and the second 100 per cent. controlled by the Maxwell family. IMRO said that "nothing adverse" was known—a judgment that strains credulity. Either IMRO was not given sufficient powers to protect pensioners, in which case the Government defaulted on their responsibilities under the 1986 Act, or IMRO was given sufficient powers but it failed to exercise them. In that case, IMRO, the sub-contracting regulatory body, defaulted. Can the Minister tell the House which of those he thinks is the more appropriate explanation? Can he also tell us what he believes the standing of IMRO to be? The Select Committee in another place said that IMRO had no real understanding of what it was approving for membership. Does the Minister agree?

I now turn to the banks. The great commercial banks are powerful professional bodies. They lent large sums of money to Maxwell secured by pension funds. Did no bank ever see or ask to see any consolidated accounts, all the assets or all the debts? Moreover, what of the role of the Bank of England? It is widely believed by newspaper financial commentators that it played far too passive a role; it cannot, it should not, but it did stand aside from issues vitally affecting the integrity of the City.

I turn finally to the Government. Here it may be thought, as the noble Lord, Lord Wigoder, already argued, that the Government defaulted on the responsibilities which were uniquely their own. Their superannuation fund office might, as the Select Committee's report says, have undertaken a policing role. But it did not, given its resources. Moreover, the Government stood behind IMRO, and IMRO failed to provide the industry with the regulatory powers that it was widely believed to hold. Again, as the noble Lord, Lord Wigoder, mentioned, the Government had the capacity to put in place much earlier the Social Security Act 1990. They failed to use the protective framework that the Act permitted. Only very belatedly have the Government brought into play the rules limiting self-investment to 5 per cent, and the crucial Section 58B mentioned by both previous speakers has still not been brought into force.

We all appreciate that companies which fund all but a small fraction of their pension schemes may collapse. But as the Secretary of State for Social Security, Mr. Tony Newton, said in another place, that is precisely why we need to avoid double jeopardy —that when an employee's company and his job disappear, his pension should not be taken as well. That is why Section 58B is so significant. It would have ensured that any default in pension schemes would have become the debt of the company. If Section 58B were to be put in place speedily, it would do much to reduce the hardship of the Maxwell situation.

But, over and above that, the Government have a liability. I say that because the Government have failed to take due regard of EC Directive 80/987 which required member states to protect the pay and pensions of employees in the event of the insolvency of their employers. That was due to take effect by 1984. The Government have not introduced that protection. Cases have been fought and won in Italy on the basis of that directive; but here that directive has afforded no such protection.

The Government also have a wider responsibility because trust law was devised by medieval England to protect the real property of the legally incompetent, women and children; it was stretched in the 20th century to apply to occupational pension funds, but it has proved too frail a framework. A sequence of committees and reports have called on government for a new legal framework for pensions—for example, the Wilson Report in 1980, the OPB in 1982 and the Gower Reports of 1982 and 1984—but the Government have done little or nothing. So lawyers and accountants and the formal and statutory bodies, like the OPAS, the OPB, IMRO, the banks, the Bank of England, the DTI and the Government, have collectively failed the Maxwell pensioners. Just because no one had collective responsibility, just because there was no overall regulatory responsibility, Maxwell could and did make mayhem.

I repeat that we are judging the Maxwell situation with hindsight, but every financial figure I know fears that there may be other Maxwell type situations lurking; not so huge perhaps, but lurking with the potential problems to shadow the pension scene.

Sir David Walker, the departing chairman of the SIB has, in his annual report published in today's Financial Times noted exactly that—that the regulatory structure of the industry is too fragmentary and its splintering undermines its effectiveness.

So the system has failed the Maxwell pensioners. Headington pensioners have already had their occupational pensions stopped. Several thousands this month, as the noble Baroness, Lady Stedman, has mentioned, can expect to see their pensions reduced by some 70 per cent. Mr. John Smethhurst, of the Manchester Action Group, reports one disabled pensioner of 78 with an ailing wife of 80 who can neither sell his flat nor afford its service charges—who having retired before SERPS, cannot even receive the guaranteed minimum pension. This disabled 78 year-old is now "looking for work".

The Government have to act fast as pension companies, I understand, are deluged with pensioners seeking to remove their moneys, fearful of the Maxwell fate. The industry needs stability and confidence to be restored because, after all, after a house pensions represent the biggest financial personal investment anyone makes and represent, collectively, some 70 per cent. of the equivalent wealth tied up in the nation's housing stock.

So it is a matter of public policy because society wishes to protect against poverty in old age and the vehicle for that is the pension. If that framework is insecure, as it is now, so will be that individual provision—that individual willingness to save against one's old age. It is also a matter of public policy because, as the noble Baroness, Lady Stedman, said, before 1988 all employees were required to contribute if their employer offered an occupational scheme. They had no choice in the matter.

It is also a matter of public policy because, as with the Barlow Clowes affair, a regulatory agency set up via the SIB by government had responsibilities subcontracted to it by government on which it may have been negligent. Just as the DTI accepted a degree of culpability in the Barlow Clowes affairs, we are dealing with investors who were seeking to speculate. How much more, then, is the culpability when dealing with employees and the elderly who are seeking only to provide security and safety for their old age?

The letter dated 6th April 1992 from Sir Robert McCrindle on behalf of the Prime Minister suggested precisely this. The letter suggested that an elector, through his MP, should approach the Ombudsman, either by the Department of Trade and Industry or IMRO, then, of course, we may be in a similar situation to that which prevailed in the case of the Barlow Clowes investors". Sir Robert McCrindle added, I hope you will ponder this thought". Will the Minister perhaps comment on that letter and especially the significance of that last sentence which clearly invites electors and others to make an approach in the expectation that the Government accept some culpability for the situation.

If, then, the Maxwell affair is a matter of public policy, which I hope to have argued, may we now ask Ministers what the Government will do? The Minister will, of course, observe the existing statutory obligations to ensure the guaranteed minimum pension; the equivalent of SERPS. He has no choice, it is his statutory obligation. But at best, as has already been said, this will provide only 15 per cent. to 20 per cent. of the pension that might otherwise have been enjoyed because SERPS, of course, has not matured. What will the Minister offer to those who retired before 1978 who will otherwise get absolutely nothing? In the interim it is clearly not acceptable, as the noble Baroness, Lady Stedman, and the noble Lord, Lord Wigoder, said, that the elderly should face severe hardship. Therefore, will the Government keep the funds open so they may pursue their debts? Will the Government "drip feed" for this purpose as recommended by Tory members in another place? Or do they perhaps have other ways of keeping these funds open?

Will the Government employ Section 58B of the Social Security Act 1990—I understand that no question of retrospectivity arises—so that pension plans may become creditors of the Maxwell company assets? Alongside that, can we expect the Bank of England to exert pressure on commercial banks to return some of the securities it received on behalf of the Maxwell companies to ensure continued pension payments? I understand that the bank is holding £217 million and here I think one should pay tribute to the noble Lord, Lord Alexander, of the National Westminster Bank, who has said he recognises the moral as well as the legal considerations that are engaged in this situation.

Will the Government commit themselves to a major reform of pension law? That might, for example, introduce stricter controls over stock lending. It might produce a limited number only of standard schemes for trustees, rather than the employer free-for-all. It might, for example, have 50 per cent. of trustees representing employees and pensioners. It might require independent trustees and an independent chairman. It might require that such trustees be properly trained and that they and the pensioners be given annual reports and annual accounts with appropriate expedition and which might also require that professional advisers might not be placed into a potential conflict of interest simultaneously advising both company and pension funds, thus to reconstruct the Chinese wall.

In such legislation do the Government propose to strengthen the regulatory functions needed; perhaps not only a strengthened OPB properly resourced in order to monitor, strengthen and support trustees, but alongside it an independent pensions tribunal to consider pension disputes —for example, on the control of a scheme which is beyond the reach and range of a pension ombudsman and perhaps on the model of the employment appeals tribunal? Given that all employees must now have an employment contract, should not legislation require that such an employment contract would spell out the contributions and defined benefits associated with its pension scheme?

Finally, will the Government encourage industry to set up a compensation scheme for fraud, funded by a levy on the industry analogous to the situation in the United States, Japan, France, Germany and most of Europe? Perhaps it could be modelled, as mentioned by the noble Lord, Lord Wigoder, on the Policy Holders Protection Act 1975 which performs a similar function for life assurance. The managers and beneficiaries of the better pension schemes may be unenthusiastic but, as with ABTA bonding for package holidays, it is now vital to reassure pensioners that their deferred pay is safe from fraud.

Three years ago, encouraged by the Government, people put their savings with entire confidence into buying their homes —"as safe as houses"—and into their pensions. To paraphrase Nye Bevan, it takes a disaster to destabilise the one; it appears to have taken a Tory government to have destabilised both.

7.37 p.m.

Lord Henley

My Lords, I am most grateful to the noble Lord, Lord Wigoder, for raising this Question and giving us the opportunity this evening to discuss the problems and potential problems facing so many of the pensioners and pension scheme members of Maxwell companies.

Perhaps I may first say that Her Majesty's Government do totally share the deep concern that has been expressed by all speakers about the potential serious loss of pension rights facing many thousands of those scheme members because of what appears to have been a gigantic fraud perpetrated against them. I can assure the noble Lord, Lord Wigoder, that we also recognise the urgency of the situation and the need to act quickly.

A number of points have been raised which I should like to deal with in turn before I set out what the Government are doing and how we see the issue. First, I turn to the suggestion by the noble Lord, Lord Wigoder, that the National Association of Pension Funds (NAPF) might consider providing some sort of safety net out of the vast assets of its extensive number of members; assets which he estimated at about £300 billion. I certainly would not dispute that figure with the noble Lord.

There is a problem, as the noble Lord will know, in that pension funds are held in trust in the interests of their members and therefore, under present trust law, it would not be possible for trustees to give money to other pension funds. Certainly we take note of the noble Lord's suggestion and it is one aspect that could be considered in the review of pension law to which I shall be referring later, which was mentioned by the noble Lord and others.

Secondly, all three speakers mentioned Section 58B and asked whether the Government should consider bringing that into effect as soon as possible. We are actively considering what action should be taken and will take note of the comments made this evening; but I must stress that there is a large caveat in that the powers under Section 58B of the 1990 Act are limited and would not necessarily guarantee the return of the missing money. That would depend upon what assets there were and what preferential creditors there are who will be higher in the list than pensioners. I think I am right in saying that the powers under Section 58B relate to an ordinary debt and not a preferential debt.

I appreciate that the noble Baroness, Lady Stedman, has put down three Questions for Written Answer. I hope to be able to answer them shortly. I have answered the Question on Section 58B to some extent already. Two of the Questions relate to the responsibilities of my department and one to those of another department. I hope that we shall be able to respond to her shortly; and I apologise for not being able to respond before she spoke.

The noble Baroness, Lady Hollis, also referred to various bodies which might have called attention to the problems. Investigations are under way, as she will be aware, to discover what went wrong; but at the moment I prefer to confine my comments to the effects of what happened and leave the investigations to determine the cause. As I understand it OPAS was a voluntary body, and I do not see its duty to be the Government's watchdog.

The noble Baroness mentioned the letter from Sir Robert McCrindle. We feel that enough inquiries are under way at the moment without adding any more. We do not accept that there is evidence of maladministration by a government department. We have also been advised by the Parliamentary Commissioner, who I understand issued a press release to this effect earlier today, that the activities of IMRO are outside his jurisdiction. In other words, he cannot look at its activities. I hope that the noble Baroness will accept that as the ombudsman has said that the matter is beyond his remit, that must be the case.

Baroness Hollis of Heigham

My Lords, I thank the Minister for giving way. Why did Sir Robert McCrindle, writing on behalf of the Prime Minister, not apprise himself of that fact before advising electors that that was the way they should pursue their legitimate grievances against the Maxwell administration?

Lord Henley

My Lords, I cannot answer for Sir Robert McCrindle who after all is not a member of the Government and who was writing in his private capacity, albeit on behalf of the Prime Minister, during the course of the election campaign. Our advice from the Parliamentary Commissioner is that he does not have the power to investigate IMRO's activities.

As I said, I think it would be helpful to put on record the Government's current understanding of the scale of the problem being faced because of the Maxwell affair. The noble Lord, Lord Wigoder, spelt out what he saw to be the scale of the problem, and I am broadly in agreement with him. However, as I am speaking on behalf of the Government it would he helpful for me to spell out in broad terms what we see the issue to be. There are some 35,000 people (pensioners, pensioners' dependants, employees and former employees) who have claims on funds from which Maxwell took assets. Of those affected, just over 15,000 are pensioners or their dependants. Of those 15,000, approximately half are likely to have their pensions rebuilt by the employers concerned—the noble Lord mentioned the Mirror Group—or there will be sufficient funds for the full payment of pensions. That estimate is based on the funds currently likely to be available to Maxwell schemes. Clearly, if substantial assets were to be recovered, the situation would improve dramatically.

As the House will be aware, the definitive picture of how the crime took place and the overall situation facing Maxwell pensioners are still not clear. The Serious Fraud Office is still pursuing its investigations into that complex matter. The report on the actions of IMRO has not yet been published. It is for IMRO and SIB to decide when it should be published, and I hope that it will be published soon. The process of identifying missing assets, establishing their ownership and, wherever possible, securing their return to the pension funds where they were originally held will take a considerable time to achieve.

The noble Lord mentioned the banks' moral obligations. That was a matter raised by Mr. Frank Field and others when they saw my right honourable friend and it is a point that has been passed on to my right honourable friend the Chancellor of the Exchequer.

Many of the powers under the Financial Services Act, including the power to recognise IMRO and the other self-regulating organisations, have been transferred to the SIB. SIB is conducting with IMRO detailed reviews of IMRO's exercise of its regulatory responsibilities for Bishopsgate Investment Management Limited and London and Bishopsgate International Investment plc, covering both the operational aspects and the appropriateness of the regulatory regime. Full reports of the findings and conclusions will be published. I cannot comment on the part IMRO may have played, as the noble Baroness, Lady Hollis, requested, until that report is published.

It is also important to note that the sooner it is possible to resolve the more tractable questions of ownership the sooner the many pensioners who have not been reassured that their pensions are safe can be saved the anguish of uncertainty. It is the uncertainty which is the principal problem for many people at the moment. In those circumstances, I am sure that the House will agree that it would be wrong for anyone deliberately to seek to protract legal disputes. The Government therefore look to everyone involved to resolve those uncertainties as quickly as possible. The more that advice is heeded, the more pensioners can be rescued from uncertainty.

In saying that, I do not overlook the current hardship being faced by some Maxwell pensioners, not merely in terms of anxiety and uncertainty but in terms of the pensions that have been lost. To date, all Maxwell pension schemes have continued to pay in full those pensions which were already in payment. The one exception, which was mentioned by the noble Lord, Lord Wigoder, and the noble Baroness, Lady Stedman, is the Headington Pension Scheme whose 240 pensioners have not been paid their May or June pensions. The pension scheme trustees, with whom close liaison is maintained, hope that they may recover sufficient to resume payments to their pensioners. Because of the current shortfall of funds, however, those pensioners with guaranteed minimum pensions have been brought back into the state scheme and, where appropriate, SERPS will now be paid directly by the DSS. We expect those payments to start this month.

The noble Lord, Lord Wigoder, pressed me as to whether I agreed that the Government and the taxpayer have a moral duty to find the money to top up those funds. It must be remembered, as I said, that a number of detailed investigations into the Maxwell pension funds are under way. We need to establish what went wrong and how much of the funds will not be recoverable before we decide whether to take any further action. It would not be right at the moment to use taxpayers' money when it is not yet clear whether the pension funds are due money from the banks.

It is also worth emphasising for the record the procedures that are followed when a contracted-out occupational scheme like the Maxwell scheme is in the process of being wound up. Existing legislation provides protection for those members of pension schemes who have been contracted out of the state earnings pension scheme, SERPS, which was introduced in 1978. If a scheme is wound up, there is statutory provision designed to protect the guaranteed minimum pension which contracted-out schemes are required to make.

If there are not sufficient funds in schemes to secure that level of pension, the Government ensure through SERPS that scheme members receive a pension equivalent to that which they would have received, had they remained in SERPS and not joined a contracted-out scheme. So no one will be worse off than they would have been had they remained in SERPS.

I accept that, as all noble Lords mentioned, there will be a number of pensioners who were members of schemes and who retired before 1978 and therefore do not qualify for this protection. I also accept, as various noble Lords said, that only a small fraction of the current occupational pension of many will be made up by the SERPS entitlement. I should be the last to pretend that this provision, in itself, is in any sense a remedy for the terrible situation faced by Maxwell pensioners. But I think it is important to put on record the protection that is currently offered by the present scheme.

We recognise that there may be many pensioners who are already facing severe financial difficulties as a result of Maxwell. I mentioned the 240 members of the Headington pension scheme who lost their May and June pensions and there will be others who will possibly lose 70 per cent. of their June entitlement. For this reason we have alerted all our Department of Social Security benefit offices to the difficulties facing Maxwell pensioners and the fact that they may need access to help on an urgent basis, where payment of their full pension has been interrupted.

Obviously I cannot comment on an individual disabled pensioner who is suffering severe problems and who was mentioned by the noble Baroness, Lady Hollis. My advice would be that he should contact his local social security office which will be able to advise him, or anyone in a similar position, on any benefits for which they may be eligible, in addition to their state pension. Income support ensures a minimum income and automatic entitlement to help with rent or mortgage.

Those not entitled to income support because they have other resources may be entitled to other help—for example, with housing costs. We have amended the income support rules to ensure that anyone in financial difficulties because of a temporary break in their occupational pension payment can claim full income support entitlement immediately.

I have indicated that the trustees of the Headington Pension Plan hope to be able to resume payments in the future. I am also aware that the other pensioners who have been mentioned —4,000 pensioners in the Maxwell Communication Works Pension Scheme—are facing the prospect from July of reductions of 70 per cent. The noble Lord mentioned a figure of 75 per cent., the figure I have is 70 per cent. It is slightly academic, but I wish to have that on the record.

In regard to this, it should be emphasised that there is no question of any of the Maxwell pension funds being wound up immediately because of lack of funds and their trustees not being able to pursue the recovery of assets. Recent legislation has ensured that pension funds appoint independent trustees whose principal and continuing obligation is to seek the return of assets. We are in close contact with all trustees and none has indicated that there is any danger of funds ceasing to pursue the assets. The process in which the Maxwell pension funds are engaged is likely to take some time, possibly years, finally to complete. But we shall keep a close eye on these developments.

I trust that what I have said clearly indicates the current degree of protection that is offered by statute to the Maxwell pensioners and pension scheme members. As I have also indicated, we consider it very much a priority to resolve the question of the return of assets to pension funds as quickly as possible, wherever that is justified.

The noble Baronesses, Lady Stedman and Lady Hollis, raised the matter of the Select Committee on Social Security and its report on The Operation of Pension Funds. It made a number of recommendations on the action the Government as a whole should take in relation to the Maxwell affair. Indeed, it focused attention very much on the whole framework of law and regulation of occupational pension schemes.

One of the committee's recommendations was that there should be a review of this whole area. The House will be aware that we made a commitment to hold such a review in our election manifesto. We shall shortly be announcing details of the review and responding to the detailed recommendations of the Select Committee. I think that would be the time when it would be wise to consider whether or not—as the noble Baroness, Lady Hollis, said—the trust law is appropriate or what reforms are necessary. I do not believe that the noble Baroness can expect me tonight, in repeating our election pledge that there will be a review, to say exactly what will be its outcome. Obviously, the point of a review must be to come to various conclusions after carefully considering all the items that are relevant.

In the meantime, we shall take what further action is appropriate as the Maxwell situation develops and keep the plight of pensioners of the schemes concerned closely under review.

Lord Carter

My Lords, before the noble Lord sits down, I apologise for intervening. He will remember that he and I, together with the noble Earl, Lord Russell, took the Social Security Act 1990 through the House. It included the power for the Government to introduce by regulation the restriction of pension funds to 5 per cent. self-investment. The regulation has now been introduced, after two years. The power was given in the 1990 Act and the Minister has not answered why the regulation was not introduced sooner.

Lord Henley

My Lords, the noble Lord will be aware that the limitation on self-investment to 5 per cent. is much more complicated than it might originally have appeared to him, the noble Earl, Lord Russell, and myself when the 1990 Act passed through the House. I do not know whether the noble Lord can remember, but in correspondence which I had with the noble Lord, Lord Stallard, he mentioned a particular pension fund which wholly owned its parent company because the original owner of the company had generously given it to the pension fund. One had to look at a vast variety of problems which arose and therefore it took quite a long time, as the noble Lord knows. The regulations have now been brought forward, but whether they would have made any difference in this case, I do not know. I hope that the noble Lord is satisfied with that.

House adjourned at two minutes before eight o'clock.