§ 12.16 p.m.
§ The Parliamentary Under-Secretary of State, Department of Transport (Viscount Goschen) rose to move, That the draft order laid before the House on 7th July be approved [24th Report from the Joint Committee].490
§ The noble Viscount said: My Lords, perhaps I may express my regret that my explanation of this complex order will necessarily be full and detailed, and I hope that the House will bear with me in the course of my remarks.
§ When we debated the Railway Pensions (Protection and Designation of Schemes) Order 1994 and the Railways Pension Scheme Order 1994 on 26th May, my noble friend Lord Mackay indicated that a further affirmative order would be required to transfer the pension rights and assets in the BR Pension Scheme to the Railways Pension Scheme and to allocate those between the sections of the RPS.
§ We have long agreed with the trustees that when the time came to transfer funds from the BRPS into new schemes, that would have to be done on an agreed actuarial basis and that, unless the BRPS was in deficit, the accrued rights of all active and pensioner members should be funded adequately. Since that was agreed, we have built on the policy considerably and now have the one Railways Pension Scheme and its sections. But the original policy on transfer of funds survives in substance in the order. The order also has the effect of allocating between the sections any initial surplus there may be in the scheme. It is likely that there will be an initial surplus.
§ As I have indicated, we have long agreed the broad principles of the order, but we have over the past month or so had intensive discussions with the trustees and others. The trustees' officers kept the trustee board members closely informed about that process. We went out formally to consultation on that with the trustees, the employers and the trade unions on 29th June and laid the order before Parliament on 7th July. The result of all those consultations was that the Government's proposals were changed in some points of detail as we explored the issues with the trustees and others. The provisions of Schedule 11 to the Railways Act 1993 required us to consult the trustees on the provisions in the order relating to the transfer of pension rights and the pension scheme assets, and also the amendment of existing schemes, and further to lay copies of the trustees' written comments before Parliament. I am pleased to say that we have reached full agreement with the trustees, and that they do not wish to make any comments. I have placed a copy of their letter of 6th July confirming that in the Library of the House.
§ The trustees have a fiduciary duty to all members of the scheme, both participating members and pensioners. Both we and the trustees consider the transfer provisions equitable in the interests of all concerned and do not favour one class of members at the expense of another.
§ Article 2 of the order has the effect of transferring the existing members of the main BR pension scheme—that is the BR Pension Scheme (BRPS)—together with the assets and pension liabilities into the Railways Pension Scheme (RPS) on 1st October, and for the BRPS then to be wound up. Provision is made for the assets and pension rights to be allocated as appropriate to one or other of the pensioners' sections or, in respect of serving staff, into the (BR) open section. In due course, 491 participants may be moved under the provisions of the scheme out of the open section into the new sections of other employers as these are established.
§ Schedule 1 makes detailed provision for the allocation of assets between sections on a basis which, as I said earlier, we and the trustees consider to be fair to both serving staff (participants) and pensioners, existing or deferred. Having allocated assets related to additional voluntary contributions, which are separately invested, and any contributions paid by an employer during the period of the current contribution holiday to the appropriate section the remaining assets will be apportioned between the sections on a "share of fund" basis; that is in proportion to the respective pension liabilities.
§ For this purpose, the existing reserves for contribution holidays or reductions will count as pension liabilities of the open section and the open section liabilities will also take account of any pay increases agreed on or before 30th September 1994 for implementation before 1st January 1995. The liabilities of the pensioners' sections will include an allowance for future administrative expenses because these expenses in respect of the pensioners' sections can no longer be met out of future contributions. The proportions of any pension rights funded under the Transport Act 1980 are excluded from the calculation of liabilities because government support payments will be made direct to the relevant section.
§ Provision is made for the assets to be allocated net of apportionment costs; but these costs are likely to be minimal as BR will reimburse the actuary's costs in carrying out the valuation, which is the only substantial cost of making the apportionment.
§ The Government's and the scheme's actuaries have agreed the detailed actuarial assumptions set out in Part III of Schedule 1. Had they not, I would have been faced with the task of explaining the differences to the House. I am extremely relieved that that is not now necessary. We have made provision for the trustees to make an initial allocation of assets, but have specified in the order certain minimum proportionate holdings of certain categories of assets in the final allocation of assets to the Pensioners' A Section, again with the trustees' agreement. This ensures that the investment policy of that section has an appropriate degree of caution from the outset, but still makes it possible to add to the initial surplus inherited by the section.
§ Schedule 2 makes detailed provision for the allocation of pension rights between the appropriate sections and for the members with those pension rights to be allocated to the relevant sections.
§ Article 3 makes drafting amendments to clarify the meaning of the Railway Pensions (Protection and Designation of Schemes) Order 1994, which came into force on 31st May, following the undertaking that my noble friend Lord Mackay gave to the House to reconsider some of the drafting. These amendments do not change the substance. I am grateful to noble Lords who took the time to discover and point out these infelicities to us.492
§ Article 4 introduces Schedule 3, which amends the trust deed of the BR (1974) Pension Fund to enable BR staff who are transferred to new employers to remain in certain schemes which are included in that fund, and to enable those schemes to be wound up when appropriate. No effective winding-up provision presently exists.
§ Schedule 3 also makes a standard amendment to certain schemes other than the BRPS for which the trustee company presently acts. This amendment will give to the trustee company and its directors', officers and employees, an indemnity from the participating employers in those schemes against liability for honest mistakes but not wrongdoing, and a power with the consent of the board to take out indemnity insurance similar to the provisions contained in Clauses 2E and 2F of the RPS trust. It will formalise the existing indemnity in respect of these schemes which the trustee has from BR.
§ Article 5 introduces Schedule 4, which amends the schedule to the Railways Pension Scheme Order 1994, containing the pension trust and section rules of the RPS. One amendment extends the limit of liability and indemnity in the RPS trust to any liability for breaches of trust transferred from the old trustee to the new, other than due to personal conscious wrongdoing or recklessness. Another provides for the trustee of the RPS to amend the scheme before 1st October 1994 with the consent of my right honourable friend the Secretaiy of State. It is the intention to use this provision to make amendments agreed between the trustees and the Secretary of State to, inter alia, Clause 8C (transfers-out) of the Trust and Rules 13-(surplus assets), 14 (shortfall) and 16 (winding-up) of the pensioners' sections. The trustee's solicitor is currently preparing a deed of amendment for execution once this order has been approved.
§ Article 6 introduces Schedule 5, which designates "sections" of the RPS for the purpose of enabling or requiring the payment of government support contributions under the 1980 Transport Act. Article 7 introduces Schedule 6, which makes consequential amendments or modifications to existing legislation.
§ Although we have still to lay a substitution order under Section 52B of the Transport Act 1980 varying the timing of government support payments to the pensioners' sections on the basis already agreed with the trustees, the provisions to be implemented under this order complete the delivery of the undertakings given by the Government. They provide the promised security, protection and peace of mind to BR's existing staff, pensioners and deferred pensioners. With that detailed explanation, I commend the order to the House.
§ Moved, That the draft order laid before the House on 7th July be approved [24th Report from the Joint Committee).—(Viscount Goschen.)
§ Baroness Turner of Camden
My Lords, I thank the Minister for his detailed explanation of this order relating to railway pensions. I also thank him for his courtesy in providing me with a statement in advance of today's debate. I should like to take this opportunity of congratulating him on his promotion to his new post. I 493 recall that we were promised that another affirmative order would be required to bring the new railway pension arrangements into operation on 1st October.
Of course, the reorganisation of railway pension funds is a direct consequence of the Government's policy of privatisation of the railway industry and the fragmentation envisaged in so doing. Your Lordships will no doubt recall the long discussions that we had in this House when particular attention was drawn to the fear of railway pensioners and prospective pensioners about the security of their pension provision. Largely due to the pressure exerted by your Lordships—and notably by the noble Lords, Lord Peyton and Lord Marsh, we succeeded in this House in obtaining a much greater level of security for pensioners and prospective pensioners than had at first been envisaged. I pay a tribute to those noble Lords for the work that they did in that respect, and I am very pleased about that. We have learnt today that the present order is not opposed by the trustees.
However, I do not believe that that is the end of the story. The trustees of course have a fiduciary duty, as the Minister said, to protect members' interests and no doubt they believe that they have done that. They were faced with a situation which was not of their making and which arose only because of the Government's privatisation policy.
As we all said at the time, the railway pension scheme as it existed was a good one, which pensioners and railway staff saw as providing for security in retirement. There was a great deal of agitation when it became clear that the set-up would have to be extensively revised as a result of the fragmentation involved in the privatisation exercise. We now have this order, which I believe is a penultimate order because another is promised. However, I wish to raise some points in connection with it.
I understand that the total assets of the existing fund are to be split in the ratio of 53:47 between the existing employees and the pensioners. There is a belief that that is quite a large slice for pensioners; but, on the other hand, we in this House made a lot of fuss about the rights of pensioners, and this "split" is not something that we would now want to challenge.
However, the more important point is that some £600 million has already been set aside to revise the pension entitlements of existing employees when grade by grade restructuring packages have been settled. The money is protected only until 1st October 1994, after which it will be split in the same 53:47 ratio which applies to the rest of the assets.
I shall probably be told that the present signalmen's dispute is not relevant to our discussions today. However, I believe that it has some significance. A delay in reaching an agreement on the restructuring package with regard to signalmen will have an effect also on pension provision. A recent article in the Independent indicated that £50 million could be lost forever to the pension fund.
I know that one must not put too much credence on articles which appear in newspapers, but I should very much welcome the Minister's comment on that. At 494 present, signal workers' basic pay is low and on average they double their take home pay through non-pensionable allowances. Had Railtrack stuck with its original 5.7 per cent. offer, the basic rates for signalmen would have been considerably enhanced. There seems little doubt that government intervention has prevented Railtrack going ahead with the 5.7 per cent. offer. Of course, that has a knock-on effect on pension entitlement.
Moreover, if no settlement is reached by 1st October, as I have said, the money will be split in the same 53:47 per cent. ratio which applies to the rest of the assets.
I am informed that the result of that will be that the 47 per cent. thus transferred will delay the need for the Government's solvency guarantee upon which a great deal of stress was placed during our earlier discussions.
I certainly do not seek to oppose the order. As we know, the trustees do not oppose it. But I believe that the Government need to answer those points which I understand are causing some anxiety to the RMT union and its members. I hope that the Minister will not say that the dispute is not relevant to our discussions. The signalmen are not the most militant of workers and they have been endeavouring to obtain justice, as they see it, for at least six years. If their pension entitlement is to be undermined as well, then the Government have something to answer for since it was their idea in the first place to break up the arrangement which had existed for many years in order to bring about privatisation in that area.
Having said that, I welcome the assurance given in the statement that I received from the Government that the order provides no mechanism by which the Government can get hold of the funds. That has been stated quite specifically. I am glad that has been made clear because many fears have been voiced, as your Lordships will be aware, in various quarters that the Government were attempting to get their hands on pension fund money. I am glad that the position has been made clear to all concerned.
Having made those comments, I do not wish to oppose the order, but I should welcome some comments from the Minister on the matters that I have raised this morning.
§ 12.35 p.m.
§ Lord Peyton of Yeovil
My Lords, first I join in the congratulations which the noble Baroness opposite has already offered to my noble friend on his appointment to his new office. I wish him well in it.
Secondly, I thank the noble Baroness, Lady Turner of Camden, for the remarks that she was kind enough to make about me. I was pleased to be able to make a contribution towards achieving a fair deal for pensioners. However, I am slightly surprised that it should have taken so long to do that.
Perhaps I may ask the Minister three questions. I am sure that he will be greatly relieved to know that I hope that he will not even try to answer them. The first question is why on earth this matter has taken so long. I realise that there can be no satisfactory answer to that question, and I hope that my noble friend will not even 495 try to answer it. He has no reason to blush; but, nevertheless, he would have to blush on behalf of his friends elsewhere, and I should not wish to impose that painful process upon him.
Secondly, what does the order mean? My noble friend has done his best to try to explain what it means. It is no reproach to him when I say that the material in the order is way beyond the realms of explanation. I have asked what the order means and I believe that the best answer that he could possibly give me is to say that it means what he hopes it means.
Actuaries have long enjoyed special privileges. Today I am left wondering whether Humpty Dumpty was an actuary because I believe that it was Humpty Dumpty who coined that great phrase, "When I use a word, it means exactly what I want it to mean". I am sure that every word in the order genuinely means what the actuaries responsible want it to mean.
It has been my practice from time to time to read out part of the orders so that avid readers of your Lordships' proceedings can understand what we are talking about. On this occasion, I really do not believe that it would be sensible to do that. Perhaps I may draw your Lordships' attention to paragraph 4 on page 6 where there is a whole mass of equations which I do not believe can be easily understood. I do not believe that any pensioner to whom a copy of the document becomes available will find that to be at all lucid or clear.
I have been informed, as has the noble Baroness opposite, by the trustees, that they accept the order. That must be an act of faith on their part because no one could be sure of the meaning of those words, other than those who wrote them.
The third question which I wish to ask my noble friend is whether he intends to ensure that every pensioner receives a copy of the order. I notice that in what is laughingly called the "explanatory note" on page 21, there it is stated that copies of the pension schemes referred to in Schedule 3 to the order can be obtained from Railway Pensions Management Limited, Stooperdale Offices, Brinkburn Road, Darlington. I am sure that there will be a real queue of pensioners trying to get the information. The handbook and the tables referred to may be inspected or obtained from the Institute of Actuaries at Staple Inn Hall, High Holborn. It may be that more pensioners are able to go there rather than Darlington and I am sure that there will be an eager queue of people who wish to obtain copies of this valuable document.
Perhaps I may be serious for a moment. I am very glad that the business has been settled. Your Lordships will understand that I am always very anxious to ingratiate myself with the Whips of my party. On this occasion, I can pay a glowing tribute to my noble friend the Chief Whip because I am quite sure that had he not read, marked, learnt and inwardly digested the discussions that have taken place leading up to the order, exactly the same problem would have arisen in regard to miners' pensions. But in his previous office at the Department of Trade and Industry my noble friend took note of the fact that something had gone badly wrong. I 496 am sure that I am not wrong in giving him the credit lor ensuring that it did not happen again with the miners' pensions.
I shall conclude on that happy note. I hope that my noble friend on the Front Bench will not fail to report my remarks to the Chief Whip because I wish to earn credit in his eyes at this early stage in his distinguished career.
§ Lord Tordoff
My Lords, as the public print would have it that the noble Lord, Lord Peyton, and other destructive elements on the Government Back Benches are the cause of the reshuffle in the Whips' Office, I think that those remarks might be a little rich. However, we must not believe everything that we read in the public print.
I hope that the Minister will not suggest that copies of the explanatory note be sent to all railway pensioners. I must declare an interest because my mother-in-law, who is 93, has a widow's pension. If such a document is sent to her, it will probably fall to me to explain it to her and I have not the slightest intention of doing so.
I do not need to congratulate the noble Viscount on his promotion because I did so yesterday. However, I should like to congratulate him on surviving in the post for 24 hours which in the present climate could be something of a record. I am grateful to the noble Viscount's predecessor for having written to me on 7th July enclosing the letters from the pension trustees. En passant, I notice that he signed the letter "Yours ever, John". Well, "ever" was a short time so far as he was concerned. I believe that I have now dealt with five or six Parliamentary Under-Secretaries of State for transport, one of them at least twice. Nevertheless, the noble Viscount, Lord Goschen, is most welcome. He is to be thanked for having taken us through the order so well and carefully today.
Like the noble Lord, Lord Peyton, I am extremely grateful that the matter is coming to a conclusion. We fought together last year on the Railways Bill and the noble Lord must carry the greatest battle honours for that fight because it took a long time. Indeed, it was certainly like drawing teeth at the time. Again, the noble Viscount is not to be blamed for that in any way.
Like the noble Lord, Lord Peyton of Yeovil, we have to take the matter on trust. There is no way in which mere mortals can understand the words in such orders. One hopes that the pension fund trustees have been well advised. I am sure that they have been. But again it is a question of wait and see.
Like the noble Baroness, Lady Turner, I read the article in the Independent earlier this week, I should like to refer to it because I believe that this is an opportunity for the Government, if they wish, to state their position in relation to the signalmen's strike. The article reads:RAILTRACK may withdraw its offer to striking signal workers with the threat that £50m could be lost for ever to their pension fund.The Company hopes that such a tactic, which would mean the loss of up to £1,700 a head in pension entitlements, would make employees think again about management's productivity package".497 The article goes on to say:The basis of the company's threat over pensions is that on 1 October the British Rail pension fund will be divided up among operating companies according to a formula linked to basic pay. At the moment, signal workers' basic is low and on average they double their take home pay through non-pensionable allowances.Under the company's offer, the basic rate would be increased by between 13 and 26 per cent, thus considerably enhancing Railtrack's share of the pension fund".The rather startling headline to the article reads:Railtrack strikers threatened with £50m pension loss".I hope that that is not a tactic by Railtrack and that the Government will offer some reassurance not just to the House but also to the signalmen themselves. I do not wish to go into the merits of the dispute but, like the noble Baroness, Lady Turner, I have considerable sympathy with the fact that they have had a difficult time over the past few years during which they have been striving to achieve an adequate remuneration.
From all accounts, it appears that the Government did interfere at a very unfortunate moment and that the matter is rapidly getting out of hand. Someone needs to use a little bit of management skill to get it back in train. As a former member of the chemical industry, I shall resist making too many comments about the chairman of Railtrack, who was a competitor of mine in another incarnation. However, suffice it to say, his handling of the matter does not altogether surprise me.
As I said, I hope that the Government will take the opportunity to state their position. But, having said that, we welcome the order today and thank the Minister for introducing it. We fervently hope and pray that this is the end of what has been a very long road.
§ 12.45 p.m.
§ Lord Cochrane of Cults
My Lords, I should like, first, to thank my noble friend the Minister for his explanation of the order. He introduced it with clarity and explained an extremely obscure subject. I should also like to thank his predecessor, from whom I received a most helpful briefing. Other speakers have paid tribute to my noble friend Lord Peyton and the noble Lord, Lord Marsh, both of whom are former Ministers of Transport, for alerting the House to the difficulties which were built, very unwisely, by the Treasury into the original scheme. I believe that it was a case of more haste, less speed. Certainly the revisions and the retreats which have taken place are of immense benefit to future pensioners.
Especially valuable is the acceptance in the revised scheme of the division of assets, thereby avoiding the extraordinarily damaging state of affairs which appears to have arisen as regards Welsh Water to which we were alerted by my noble friend Lord Crickhowell. There is no need for me to say more than: thank goodness we have reached this stage. I am sure that the numerous aged pensioners will welcome the scheme. Noble Lords will recall that, when we discussed the matter on an earlier occasion, I mentioned that there were a considerable number of pensioners aged over 100; indeed, the oldest at that stage was 105½ years old. We 498 must consider those old people. They have given long and faithful service and should be properly rewarded with a decent pension for all those years.
I believe that the scheme has now reached a satisfactory state, which is quite different to the one proposed but very much better for all concerned. I congratulate all those trustees, Ministers and others on their immense work in achieving that I hope that the scheme will now go forward in a satisfactory way.
§ Viscount Goschen
My Lords, perhaps I may, first, thank noble Lords for their kind words of congratulation. My noble friend Lord Peyton asked me a number of questions which he then advised me not to answer. However, the House may like to hear an answer from me on such issues, which I shall attempt.
On the question of delay, as we discussed earlier— and all noble Lords have highlighted this—we are dealing with an extremely complex subject. Such matters have, quite properly, required very full consideration. My noble friend also asked what the order meant. My initial remarks were extremely detailed and very full; indeed, some 10 minutes' worth of technical discussion. However, I believe that I can summarise very shortly the purpose of the order.
The order transfers the pension rights and assets in the British Rail Pension Scheme to the Railways Pension Scheme on 1st October and makes provision for their allocation between the initial sections of the RPS. It also makes amendments agreed between the Government and the pension trustees to other existing British Rail pension schemes, the Railway pensions protection and establishment orders which came into force on 31st May and existing British Rail pension legislation. It also designates sections of the RPS for the purpose of Part III of the Transport Act 1980. That is a very concise explanation of what in effect the order that we are discussing this morning actually does.
The noble Baroness, Lady Turner, and the noble Lord, Lord Tordoff, both made the connection between the order and the RMT dispute over signalmen's pay. First, I should like to make it clear that the date for implementing the pension transfer was set just over a year ago when the dispute was not even in contemplation. These events are indeed purely coincidental.
I should start by saying that the Government and the trustees agreed that we could not allocate to the open section of the new scheme a reserve for pay restructuring which was uncertain. We should divide the assets between sections only on the basis of known liabilities. This is the key to the understanding of this question. Any other method could lead to unfairness particularly to the pensioners who could rightly lay claim to their share of assets which subsequently turned out not to be necessary to support liabilities because the restructuring never took place, or did not take place to the degree anticipated. As we all know, pay restructuring is not an easy matter.
The order provides therefore that any restructuring which has taken place by 1st October, or has been agreed by that date, for implementation on 1st January next, will be taken into account when assessing 499 liabilities. If the signalmen settle by 1st October—of course we all hope that they will—the increase in the liabilities in relation to them will be taken into account in dividing the assets between pensioners and active members, and subsequently informing the Railtrack section of the scheme. I think that is the full answer to the issues raised both by the noble Baroness and by the noble Lord. My noble friend Lord Peyton asked me a straightforward question: can pensioners have a copy of some explanatory documents? The trustees will be explaining the effect of the order.
§ Lord Peyton of Yeovil
My Lords, my noble friend must not get me wrong. What I thought I asked him was whether it was his intention that every pensioner should receive a copy of the order. I could imagine them having such an enjoyable hour or so with their wives discussing what the document meant and being bathed in relief as the significance of each word in the order became clear to them. But I think that is a question which does not require a very serious answer from my noble friend.
§ Viscount Goschen
My Lords, I should hate to deny anyone the pleasure of reading the order, but I feel that for their relief the pensioners should rely on the debate and the words uttered by your Lordships this morning during our discussions of this situation. The House is aware of the contribution made by my noble friend Lord Peyton in the consideration of these issues of railway pensioners. He is aware that the Government have had to play a dual role—that is, safeguarding the interests of pensioners and at the same time protecting the interests of the taxpayer. However, both the Government and the trustees consider that the compromises we have reached are fair and just to all concerned. On that note, I commend the order to the House.
§ On Question, Motion agreed to.