HL Deb 26 May 1994 vol 555 cc859-76

11.39 a.m.

Lord Mackay of Ardbrecknish rose to move, That the draft order laid before the House on 9th May be approved [19th Report from the Joint Committee].

The noble Lord said: My Lords, noble Lords will recall that during the final stages of the Railways Bill last year my noble friend Lord Caithness undertook that there would be further consultation with all interested parties before the orders implementing the detailed future railway pensions arrangements were laid before Parliament for approval. The industry and the present trustees were fully involved in working out the detailed arrangements on which we went to wider consultation on 31st March with the trustees, the employers, the trade unions and the pensioners' representative bodies. We have taken account of their comments as far as possible. I wish to thank all those consulted for the clarity and promptness of their representations.

In particular, we have reached full agreement with the British Rail pension trustees on all major points of principle relating to railway pensions after privatisation. The arrangements that we have agreed honour the commitments given by the Government in Parliament and elsewhere. I can assure the House that the pensions of all railwaymen and railwaywomen, both past and present, earned in their service with British Rail are safe and that the future arrangements will give them security.

We have before us this morning the first two draft orders. Let me deal first with the draft Railway Pensions (Protection and Designation of Schemes) Order which will give the promised statutory "no less favourable" protection to "protected persons"—broadly, people who were in service or retained benefits in the schemes on 5th November 1993—and which incorporates (in Article 11) the "indefeasible right" to remain in equivalent (that is, "shared cost") sections of the joint industry scheme, which will be called the "Railways Pension Scheme", for so long as their employer remains a part of the railway industry. We have agreed to extend this right so that it will not now be lost where employees change jobs voluntarily within the industry. This right will provide valuable security for staff moving voluntarily around the industry in the future.

This order is difficult stuff but so are the matters which it addresses. If any noble Lord wishes clarification on any particular point I shall certainly do my best to give it at the end of the debate, or I may even have to take refuge in writing afterwards such are the complexities of this issue.

I should like to clarify two points on this order. First, that with regard to the definition of "designated scheme" in Article 1(2) the intent is to protect relevant pension rights at the date of the order, including the right to future accrual of such rights on a "no less favourable" basis. Secondly, that there is an area of concern between my department's and the trustees' lawyers over the precise drafting of paragraph (4) of Article 7. Should it be agreed that an amendment is necessary in respect of this latter point we shall make it when we make the transfer order. I intend to lay a draft of that order next month.

For the purposes of the "indefeasible right" which is conveyed by Article 11, paragraph (4) of that article defines the "railway industry". The intent is that the term should comprise activities presently carried on by BR which may in the future be carried on by successors, but only to the extent that they are activities connected with, or provided for, the railway industry.

The order also designates the existing pension schemes to which it applies for the purpose of enabling their members or beneficiaries to be protected persons. A handful of British Rail employees retain membership of pension schemes operated by Associated British Ports and the National Freight Company. If we did not specify these schemes, those BR employees would not be given statutory protection. I wish to emphasise that this is the sole reason why we are designating the ABP and NFC schemes. I give an assurance that the Government have no intention of using the powers in relation to "existing schemes" contained in Schedule 11 to the Railways Act to amend either of these schemes.

The Railways Pension Scheme Order formally establishes on 31st May 1994 (under the powers provided in paragraph 2 of Schedule 11 to the Railways Act 1993) the railways pension scheme which it is planned will succeed the existing main BR scheme, the BR pension scheme, which I gather is shortened to BRPS, on 1st October 1994. The order also appoints the Railways Pension Trustee Company Limited as the first trustee to the scheme, and designates the scheme as "the joint industry scheme" for the purposes of paragraph 8 (the "indefeasible right") of Schedule 11. The key provisions are in the schedule which contains the pension trust and the different scheme section rules.

Existing BRPS pensioners and deferred pensioners will be transferred into the 1994 pensioners' sections of the RPS. Initially, there will be two such sections, the reason being a practical one related to valuation of the Government's liabilities to them under the 1980 Transport Act. Those people who were already pensioners and deferred pensioners at 31st March 1994 will join the A section, while those retiring or deferring their pensions between 1st April and 30th September this year will join the B section. The two sections will have similar rules and will be amalgamated as soon as possible thereafter.

The Secretary of State will be under a duty to give a solvency guarantee to those sections. The guarantee will secure the continued payment of fully indexed-linked pensions. The proposed draft of the guarantee, the details of which have been agreed with the present trustees, was deposited in the Library last Friday. The members will have rights under the rules to share in any future surpluses in their fund. The rules are contained in Appendix 1 to the schedule. Distributed surpluses will be shared 40 per cent. to the pensioners and 60 per cent. to a special reserve retained in the fund. The Government cannot withdraw those sums while the fund continues.

Serving staff who are members of the BRPS will be transferred into the BR section of the RPS. They will move into their new employers' sections, which will have materially the same rules (affording them the security and continuity that they have sought), as their employment is transferred; for example, from BR to a subsidiary which is to become a franchised railway operating company. The rules are contained in Part 1 of Appendix 2 to the schedule. They provide that pensionable service will normally be treated as continuous, even on voluntary transfers between the equivalent sections of participating employers, subject to Inland Revenue restrictions. The Railtrack and European passenger services sections will be set up almost immediately.

The method for determining the initial split of assets between the sections of the railways pension scheme will be agreed with the trustees after taking the advice of our respective actuaries. The transfer order, another affirmative order, a draft of which will be laid before Parliament next month following the formal establish-ment of the scheme, may be used to split the assets between the sections of the RPS. Because we have to consult the trustees of the RPS first, the transfer order cannot be laid until the RPS has been formally established and the trustees appointed.

To maintain flexibility, employers will be able to admit new employees either to their section which succeeds BR's section, or to other new sections providing alternative pension arrangements. This will make the RPS more attractive to new employers and give their employees the comfort of belonging to a large, well-managed pension scheme. A template for the rules for defined benefit and defined contribution sections is contained in Parts 2 and 3 respectively of Appendix 2 to the schedule.

The remaining appendices to the schedule contain detail subsidiary to the main constitution of the scheme.

Equal employer/employee representation will continue on the trustee board and the pensions committees (the management committees) of all sections. For legal and technical reasons, we are having to form a new trustee company, the Railways Pension Trustee Company Limited, to act as trustee to the RPS. At 1st October this company will also take over as trustee of the other BR pension schemes for which the present trustee company acts, so that the existing investment pooling and management arrangements can continue.

It is our intention that all the participating employers in the RPS will share in the ownership of the trustee company so as to prevent a single employer having sole influence over it. To facilitate this the trustee company will be wholly owned by a holding company, Railtrust Holdings Limited, which will be a company limited by guarantee (making change of ownership easier when employers join or leave the scheme). The first directors will be the directors of the present trustee company together with two nominated by Railtrack, and one each by the British Transport Pensioners' Federation and the Retired Railway Officers' Society. The present trustees have suggested that these last two posts should be directly elected by the pensioners from the outset, but I have been advised that an early election would be difficult to organise. However, those nominees will only serve for the first two years until direct elections can be organised.

Although the articles of association provide for direct election of employee/pensioner directors after an initial two-year period, they empower the trustee board to devise alternative arrangements provided the equal employer/employee representation is maintained. Copies of the memorandum and articles of association of both companies, which were incorporated by the BR board yesterday, were placed in the Library last Friday.

For historical reasons, BR has a number of other pension schemes, all listed in the designation order. Those schemes will stay in place. We see no requirement for the time being to transfer members (either serving staff or pensioners) out of their schemes. I should make it clear that no changes are proposed to the BT police scheme.

In relation to the closed fund for pensioners—in other words, the pensioners' sections—we have honoured the memorandum of understanding entered into with the trustees and the BR board last July, which was debated at great length in this House last Autumn. We reached agreement with the trustees on arrangements for partial deferral of government cash support payments under the 1980 Transport Act to the pensioners' fund to take account of the government solvency guarantee-. Any deferred payments will remain an obligation of government, earning interest, and will be accounted for as an asset of the section. We intend to bring an order before Parliament before the Summer Recess giving effect to this agreement, which we intend will take effect in October.

It was agreed last July that the Government must give their consent to decisions affecting its financial exposure under the guarantee. Originally, this consent was to have been exercised by a "government director" on the trustee board. Because of potential conflict between his fiduciary duties under general trust law and his responsibility to the Government, we have decided, as I said at Question Time, not to proceed with that proposal. Instead, the consent of the Secretary of State will be required (within the terms and conditions of the guarantee) to strategic decisions about the fund, but not its day-to-day operation. Accordingly, there will be no government director on the trustee board. But there can be a non-voting "government representative" if the powers delegated by the trustee board to the committee running the pensioners' section of the scheme are withdrawn.

When the orders were laid before Parliament on 10th May there was one issue in relation to the pensioners' fund on which we had failed to reach agreement with the trustees. It is my understanding that when the trustee board, including the trade union nominees, last met on 5th May, they were content with all the significant elements of the Government's proposals but this one. Although we had accepted that pensions should not be reduced in cash terms in the event of a deficit in the fund (even if they include unguaranteed discretionary increases) we had not resolved the procedure which would apply (in the absence of other agreement) if the fund went into deficit and subsequently returned to surplus.

However, we have now reached agreement on the basis of a compromise proposal put to us by the trustees. The compromise was fully endorsed at the trustee board meeting on 5th May which mandated the chairman and chief executive to negotiate it with the Government. In the event of a deficit, the special reserve will be applied in full first before any freezing of pensions. I should emphasise that the pension prevailing at the establishment of the closed sections on 1st October 1994 will always be indexed for inflation. Total pensions may subsequently include discretionary real increases, and it is the total that may as a last resort be temporarily frozen until the indexed guaranteed pension exceeds it. After those sources have been exhausted, government guarantee payments will be made. A subsequent surplus would be applied in the reverse order. The trustees have also offered changes to our original agreement on 1980 Transport Act payments to reflect the ramifications of this proposal. Both we and the trustees regard this position as a fair way of dealing with a problem which was not foreseen at the time of the memorandum.

Even though the pensioners' section rules do not presently reflect this revision of policy, there is no need to amend the order. We are considering with the trustees changing the rules, in particular, rules 13, 14 and 16, on which re-drafts have been agreed, after formal establishment through the amendment procedures written into them. That procedure would also be used, with the agreement of the trustees, to make other agreed amendments to the pension trust or rules to clarify the existing drafting where that is considered necessary, particularly in relation to the provision in Clause 8C of the pension trust for "seamless" voluntary transfers between railway employers within the RPS in normal circumstances. Failing that, the required amendments will be made together with the forthcoming transfer order.

In respect of seamless transfers, we have agreed that where a person who has the right under Article 11 of the protection order to remain in the RPS moves voluntarily to another section within the scheme there will be automatic credit of pension years provided that his pensionable salary is not increased on transfer by more than 7.5 per cent. A greater figure may be agreed between the trustees and the new employer and the new employer may pay into the scheme to augment his benefits. In normal circumstances we would expect the trustees and the employer to be able to increase that automatic floor from 7.5 per cent. to around 10 per cent. We fixed that limit to protect the interests of other members of the transferee section. Actuaries advise that 7.5 per cent. is a prudent automatic figure taking account of all relevant possibilities. We believe it delivers the promise that such voluntary transfers will normally be seamless.

I do not propose to withdraw the order to make such amendments because that is not necessary and would make it impossible for the new scheme to commence operation on 1st October. A delay would cause unnecessary uncertainty and concern for all involved.

Lord Clinton-Davis

My Lords, perhaps the Minister will give way on that point. On any showing, including the Minister's statement this morning that there is an area of possible dispute on legal issues which may have to be dealt with subsequently, why was there such haste that we could not come back to this issue during the week of 6th June? That would give everybody an opportunity to resolve those issues properly when we still have the possibility of disagreement, albeit not on matters of major principle, still overhanging the orders.

Lord Mackay of Ardbrecknish

My Lords, I believe that we had to proceed. If an element of disagreement emerges in the discussion then that can be attended to in other orders. However, we believed it was necessary to proceed so that the two orders can be completed by 31st May. There is much uncertainty about these matters. I understand that. As I was about to say, there must be uncertainty among the people involved, the actual pensioners or the employees. What we have tried to do, and I believe we have succeeded in doing, is remove entirely any uncertainty. We delivered our undertakings and we are providing in these orders the promised security, protection and peace of mind to BR's existing staff, pensioners and deferred pensioners. I hope that the House will support the two orders. I beg to move.

Moved, That the draft order laid before the House on 9th May be approved [19th Report from the Joint Committee].—(Lord Mackay of Ardbrecknish.)

11.57 a.m.

Lord Peyton of Yeovil

My Lords, I welcome the opportunity to thank my noble friend for an eloquent and comprehensive speech which, so far as I was able to follow the detail, covers all the outstanding points. It is now on the record for careful examination by anyone who feels so inclined. Perhaps I may take up a few moments of your Lordships' time with the background to this development.

It was the promise of the Government at the time when the idea of privatisation first made its appearance that pensioners would receive no less favourable arrangements than they did previously. Nevertheless, the Bill reached your Lordships' House with no guarantee of the solvency of the closed fund or any acceptance of the need to index link it. A number of your Lordships, including myself, pointed out persistently that it was not the choice of the pensioners in any way that privatisation should take place; in so far as this would necessarily impact on their interests, it was essential and only fair that those arrangements should be absolutely watertight. The closed fund which the Government proposed to set up, the amount of which was to be actuarily determined, was, in the view of many of us, vulnerable both to inflation, tax changes and also to the possibility of pensioners living longer than actuaries thought appropriate.

The Government considered in July that discretion was much more praiseworthy than an absolutely foolish adherence to the position which they had taken up. A memorandum of understanding was issued in July. It had the effect of averting a Division in your Lordships' House which the Government might well have lost. Thereafter there were talks and more talks over quite a long period—interrupted from time to time by a series of almost audible hiccups—when the Government were at least giving the appearance of saying that they would not do what they had promised to do, particularly on one point—that is to say, the phasing of capital payments by the Government into the closed fund. It was declared in the memorandum that the phasing would be agreed with the trustees. Subsequently the Government thought that all they could do was to consult the trustees.

I am very glad—it would be churlish of me not to acknowledge it—that the Government have moved a long way to make sure that the words which they spoke at the beginning should survive and mean something. According to my information, on 5th May there was a meeting of the trustees at which it appeared that everything was settled except for one issue of how any deficiency which might arise in the fund should be handled. The chairman of the trustees put to his colleagues, so I am informed, a compromise. The whole body of trustees agreed that if the whole package, including the compromise which they were then suggesting, was accepted by the Government, the trustees themselves would accept it in turn. The Government did accept that alternative.

Now, so my information goes, 10 out of the 12 trustees have declared themselves to be satisfied with the agreement which they reached with the Government and which is more or less enshrined in the two instruments which are before your Lordships. Two of the trustees have not commented and no single trustee has asked for a meeting of the whole board at which the matter could be re-examined. So the remaining barrier seems to be only one of words. The Minister agreed to the proposals in another place and my noble friend has gone into more detail this morning.

I would like to refer to what the Minister of State said on 23rd May. There is no need to go into detail, but for the record I would like to refer to the Official Report of the other place and include the references. They are cols. 130, 131, 134 to 136 and 151. They all contain indications of the Government's intention to amend the scheme in certain respects. It is quite unnecessary for me to take up a lot of your Lordships' time. To me it is a source of great satisfaction that we can now say that the British Rail pensioners are fully protected, which they were not before. It has taken a very long time to reach this point, but nevertheless it must be a source of great satisfaction to all of us. I believe also that it is a source of great satisfaction to your Lordships' House that these very useful developments were launched from here.

I cannot resist the temptation to refer very briefly to some of the wording in the Railway Pensions (Protection and Designation of Schemes) Order 1994. I ask your Lordships to turn to page six and Article 7(4) (b). Your Lordships will find sufficient there to whet your appetites and to go further into the detailed wording of the scheme. I shall quote just that paragraph: without prejudice to the obligation imposed by sub-paragraph (a), the person who is required under article 4 to provide the scheme to which those rights are transferred shall pay or secure the payment to the trustees of that scheme of such part of any difference between the amounts calculated under article 6(2) and 6(5) (a) as is not paid to the trustees of that scheme under that sub-paragraph". The profound respect which I have for your Lordships leads me to believe that many of you would find it very easy to rise to your feet to explain exactly what that means, but it is beyond me. I wish to follow up what I said to my noble friend just now in thanking him for his speech. I praise him without hesitation as having talents reflecting those of William Shakespeare and Einstein. Therefore I am confident that in winding up and without taking up too much of your Lordships' time, he will be able to say precisely what the words mean which I have just quoted.

Lord Clinton-Davis

My Lords, and without a brief.

Lord Peyton of Yeovil

I shall not detain your Lordships any further. There are those who believe that your Lordships do not achieve very much in the set-up of modern politics. But with the limited experience which I have had of your Lordships' House, I believe that there are occasions when a point of very great seriousness tends to get overlooked and that the forum provided by your Lordships' House offers a most valuable opportunity to put right what might have been a very serious wrong. I believe that that has occurred in this case.

12.9 p.m.

Lord Cochrane of Cults

My Lords, first, I wish to congratulate my noble friend on his eloquent and well-informed speech and also to thank my noble friend the Minister for his admirable exposition of an immensely complicated subject. I share with my noble friend difficulty in understanding considerable parts of it. I draw his attention to the thin book at Article 9(b). I shall not ask for an explanation now. In due course, after the Recess, perhaps he will favour me with a reply as to what that part actually means in practice. I was unable to decipher it.

It was indeed unfortunate that these pension proposals were first made public at the same time as the great Maxwell scandal became apparent. That caused a great deal of apprehension because it seemed—I believe on the whole totally unjustifiably—that the Government were attempting a Maxwell on the railways.

I am glad that there has now been a considerable retreat from the original proposals and that railwaymen, past, present and future, seem to have obtained a valuable and worthwhile deal from the Government as a result of the objections which were made to the Railways Bill in this House. There is an immensely long time-spell in these pension affairs. When I spoke on the Bill I mentioned that there were already 90 pensioners over the age of 100, of whom the eldest was 105, and that there were also some 900 or so aged between 90 and 100. That means that actuarial advice to the trustees and others involved is of immense importance.

I should like to make two other points. In this House one of my noble friends, whose name momentarily escapes me, mentioned that a very unsatisfactory division of pension assets had taken place in the case of Welsh Water and that in the event one part of the fund had been left very unliquid. I should like to be assured that that point will be borne in mind when any division is attempted and that appropriate advice will be sought.

I am also particularly pleased to see that the proposal, which bore all the hallmarks of Great George Street, that a government director be appointed has now mercifully been withdrawn. I am grateful to my noble friend for that concession. I look forward to the industry being prosperous and contented and I am glad that these things have been done.

It may amuse my noble friend momentarily to refer to page 87 of the thick book where he will see that possibly some of his former constituents are to benefit. Perhaps I may save him the effort of looking it up because I have the book open. It states: Scheme No. 243. Highland Railway—artisans in workshops at Inverness—50 pence per week". I am grateful to my noble friend and to all those who have achieved a satisfactory solution and I look forward to seeing it in its final revised version before too long.

12.12 p.m.

Lord Tordoff

My Lords, first, I think one should express thanks and indeed sympathy to the noble Lord, the Minister, for having to come into this whole exercise at so late a stage. He has obviously done a lot of homework to get himself up to speed on what is a very complicated matter. The noble Lord, Lord Peyton, is quite right to say that, had it not been for your Lordships' House, many of these matters would not have been properly dealt with. Among those who deserve the greatest credit, there is no question that the noble Lord, Lord Peyton, himself should put this on his family battle honours to be flown on every possible occasion.

The matter also perhaps refers back to the discussions that took place at Question Time this morning on the way in which we conduct our business. The idea that some of these extremely complicated matters can be dealt with at times approaching midnight or even the early hours of the morning is something we need to examine ourselves on, because, quite clearly, on such matters people cannot be as on the ball as they ought to be and cannot get themselves properly briefed. Many things slip through your Lordships' House that ought to have better consideration. Fortunately, on this occasion, thanks to the noble Lord, Lord Peyton, and others, we were able to spot problems. There was also some fairly excellent briefing from outside which drew our attention to the problems that existed.

I want to touch on the timing. I well understand the point the Minister makes that people need to be given assurance as to what is going to happen, but the consultation process was, I understand, a very short one and the trustees were not at all happy with the speed of the consultation, which closed on 25th April. Apart from giving assurance to pensioners and members of British Rail, I wonder what the hurry was all about. It is not as if there is a huge rush to buy up this network. Mr. Branson, having failed in the lottery, may now change direction and buy up half of British Rail, but it does not seem at the moment that there is a collection of people rushing to buy up what was and still is British Rail.

As we have heard today, the truth is that the position has not yet been finalised. There is still some fine tuning to do. I think it would have been better if the Government had withheld this order until such time as all the i's had been dotted and all the t's had been crossed. However, agreement has now been reached and compromises have been made. It looks as though the scheme will be satisfactory so far as concerns pensioner guarantees. Nevertheless, I think it is true to say that if the scheme is examined in detail it still does not quite measure up to the memorandum of understanding. It is not as good as the old scheme. It will do. The pensioners are not at risk but it does not leave them in precisely the same state that they were in before, which is what the memorandum of understanding said would be the case. I do not blame the Department of Transport for that. One realises that it is the heavy hand of the Treasury which is always lurking in the background of such arrangements. Thank Heaven that we were able to step in early enough to stiffen the Department of Transport to fight the Treasury to get this whole thing right.

However, having said that, there is a moral dimension to this. If the Government will privatisation, they must will the payment of the costs of that privatisation. I hope that they have learnt their lesson from this whole exercise. When they go into these schemes they have to make quite sure that every angle is covered. No doubt from now on, when any such scheme comes forward on a privatisation Bill, they will know that the House of Lords is watching them like a hawk. Please let us make sure that if the Government will the end they also will the means, even if it is expensive. However, compromises have been made and the size of the surpluses is such that they can more than cover any deficiencies. Unless a catastrophe strikes, the actuarial situation is such that there is a very, very, very small risk, although it is still finite, of there being problems in the future.

Perhaps I may also echo the thanks for the fact that the government director has been removed from the scene. Noble Lords will remember that we felt very strongly about the matter when the Bill was passing through the House. It was impossible to consider him as being an independent member of the pensions board.

Lord Peyton of Yeovil

My Lords, there was another view expressed at the time. I welcomed the presence of a government director because I felt he would realise the difficulties. I thought that the trustees would have the government director's fingers well and truly stuck in their mangle, and a very good thing too.

Lord Tordoff

My Lords, I accept that the noble Lord, Lord Peyton, had that point of view, but I think generally there was a feeling that it was a form of non-independent interference with the trustees in carrying out their duty towards the pensioners.

It has been put to me that in paragraph 13C on page 57 of the Railways Pension Scheme Order the terms of secondment are not as good as they are at the moment. That may or may not be right, but it appears that people who have been seconded for more than three years could find themselves in difficulty whereas in the past that has not been the case. I think of people being seconded to the United Nations and other international bodies. In future people may be penalised. It depends on how one takes the words, or longer if the Inland Revenue permits". Knowing the Inland Revenue, it will not permit much, so I should be glad of some reassurance on that point.

I am glad that ways have been found of involving the pensioners' societies and federations, such as the Retired Railways Officers' Society and the British Transport Pensioners' Federation. I know that that is difficult because pensioners are a very disparate group of people and it is difficult to find an organisation that is democratically accountable to all pensioners. Noble Lords will remember that we said at the time that it was unfortunate that the pensioners themselves had no direct representation with the trustees and that it was possible for the employers and the trade unions representing the current workers perhaps to carve things up to the disbenefit of the existing pensioners. That seems to have been put right, and I am grateful for that.

Finally, in thanking the Minister for putting the order before us so clearly, I suppose there is no hint of hybridity in it.

12.21 p.m.

Lord Clinton-Davis

My Lords, I join the noble Lords, Lord Peyton, Lord Tordoff and Lord Cochrane, in thanking the Minister for giving us the explanation. I thought that he went well beyond the requirements of his duties when at five o'clock two days ago, acting as a postman in person, he delivered a vast bundle of documents to me in my office—I think with a sense of mischief that it might occupy my bedtime reading for two nights. I hasten to add that it did not—any more than I suspect it did for the Minister. Nevertheless, we are grateful to him and it would be churlish not to recognise that the Government have departed from the position that they occupied at the very beginning of this debate in a major number of circumstances, most particularly in relation to the interpretation of "no less favourable arrangements".

I too have some difficulties about some of the matters that are still outstanding. I am not wholly convinced that it is simply a matter of words, because words are terribly important when it comes to the construction of documents and testing them in the courts. It is a pity that the matter was not deferred. The mere fact that the magical date of 31st May appeared on the draft order does not seem to me to be a very compelling argument when we could have been given further time to review the matters legally. I certainly have not had time to take legal advice on these issues. We are not talking only about this order, to which the noble Lord, Lord Peyton, referred; we are also talking about the vast and huge documents that I have with me. I confess that I do not have any more capacity to absorb these matters than the noble Lord, Lord Peyton—in fact, probably far less.

Having said that, I think that it is right that we should place on the record what actually occurred and what has given rise to this great anxiety. It is a matter that ought to be inscribed on the record. On any showing, the railway pension orders are of huge importance to something like 380,000 railway pensioners. They have been members of one of the best, most efficiently run schemes, bearing comparison with any other—certainly in the private sector. The Government have chosen to meddle in it, disastrously in some respects.

These issues have been under discussion for approximately 18 months. Until recently they were handled in a catastrophically cack-handed way by the Government. One has only to recall how initially the pensioners became seriously alarmed when they took the view that the Government—in other words, the Treasury—were planning to collar half their hard-won savings. The Government were then forced to change their stance repeatedly, albeit under protest, and relied on a constant stream of hastily conceived excuses which we in this House were successful in showing to be a pretence. The noble Lords, Lord Peyton and Lord Marsh, played a significant role in exposing that. I am. sure that the great body of pensioners will appreciate that. The two opposition parties also had a role to play.

The House will recall the extraordinary events which followed the hastily devised memorandum of un-derstanding just a few hours before the amendment in the name of the noble Lord, Lord Peyton, was due to be debated in the House. The noble Lord has rightly drawn attention to that fact. That memorandum of understand-ing was devised simply to forestall imminent defeat. It may be remembered that it was falsely alleged on that occasion that all the trustees had given their agreement to the memorandum. The Government were later forced into some humiliating concessions.

It is for those reasons—essentially the fact that the Government got it wrong on so many previous occasions—that I understand that the pensioners remain anxious despite the Government's assertions that all their claims have been met or, if the Government have not got it quite right yet, that those concerns will be met by 1st October. The Government must know after all this time that, deeply sensitive though the issues are, they have hardly been conducted with the consummate care and skill that they deserved, yet the Government have perpetuated to this moment their quite extraordin-ary handling of the affair, in respect of which I would not charge them with deceit when the simple allegation of crass incompetence will suffice. That unquestionably has been the situation.

I do not believe that we should be debating the orders today. The orders and the documents on which they are based are hugely complex. Indeed, I was reminded of an expression that was used by the noble and learned Lord, Lord Oliver, in a case in the Court of Appeal. He referred to those circumstances as being, a minor masterpiece of opacity". That phrase could appropriately be applied to these documents, and not simply to the part to which the noble Lord, Lord Peyton, referred. The documents required diligent consultation and, more than that, explanation so that the pensioners could understand what was happening.

What happened? Why the haste, so that on the eve of a Recess we come to discuss these very important matters this morning? I really cannot believe that it would have been inappropriate to give us a little more time to take appropriate advice on these matters because we as legislators have a role in that. The trustees may be perfectly satisfied, but we know that there are still some matters outstanding, albeit not of principle. We have a role and a duty to try to understand these matters, but we have not had the time. I do not believe that the unions have had sufficient time to consider a situation which affects so many of their members.

I should like to give the chronology of what occurred. On 31st March, the detailed documentation having been completed, the Government say that they went out to consultation, just before the Easter Recess. That documentation was not received by the unions until 7th April. They were given until 25th April to respond to those immensely difficult documents. On 21st April, the unions, acting, I think, with commendable speed, presented their response to the Minister at a meeting which he held with them at which he agreed to extend the consultation period so that he could provide a considered view of that detailed response from the unions. On 5th May, the trustees met, and it seems that, while it was the view that more time might have been given by the Government, the chairman and chief executive were mandated to negotiate a compromise based on the proposal presented by the Government.

It was originally designed that the debate in another place on the draft orders would take place on 19th May. Yet at that time the documents were not even complete; amendments were still being made. It was not until last Friday, 20th May, at five o'clock in the evening, under cover of a document stating, On Her Majesty's Service. Express service at all stages. I certify that the papers transmitted under this label are official and of great urgency and require to be delivered by 5 p.m. today"— with all that panoply—that the documentation arrived at union headquarters, when the matter was to be debated on the Monday. It is extraordinary. After 18 months of discussions, massive legal fees being incurred by everyone, that is how the Government went about their business—biking their response to the union's detailed reply of 21st April, the intention being, despite Opposition pleas for some delay, to debate the matter after the weekend.

Even since then further amendments were made, and it appears now that more are to follow. As I have said before, on 24th May the Minister went out of his way —I am grateful to him for that act of extraordinarily good postmanship—and came to see me and the noble Lord, Lord Tordoff. We are grateful to him. I do not know whether he had a childish wish at one stage to be a postman, but that has been fulfilled.

There has been no time to call a meeting of the trustees, which would have been desirable.

Lord Tordoff

My Lords, I am most grateful to the noble Lord for giving way. The Minister may be looking forward to taking over the Post Office when it is privatised.

Lord Clinton-Davis

My Lords, I have no doubt that he would be better rewarded financially than he is at the moment.

It would have been desirable—notwithstanding the mandate given to the chairman—for the trustees to have met and to have given a firm validation of what had occurred.

There are some points which remain outstanding, and I gave notice of them to the Minister. I shall just put them on the record. The TSSA faxed me yesterday to say: Two aspects remain of major concern to us: We are not sure that the definition of the railway industry Clause No. 11 (4) would cover all current employees of BR in say Central Services, the Audit Office and in general the non operating aspect of work. Many of these staff have been long serving members of BR and we remain concerned that in a sell off situation they could lose their no less favourable rights under the Act. However, to be fair the definition is better and does talk about services but it shows one aspect where the lack of time being given to us to look at documents causes the Association and our members some sense of insecurity". Then on the question of the transfer and full protection of the accrued pension rights of the staff it states: It is quite possible that the staff transferring with long service may well be fairly senior staff who in the privatisation situation may be head-hunted", And then it states that the Minister's letter to me of 24th May, paragraph 4 on page 3, seems to us inadequate at setting a 10 per cent. salary increase limitation qualification for seamless transfers. It seems to us that it does not deliver the no less favourable promise the House of Lords was given during the memorable debates that took place…in the latter part of last year". Those are two points of which I gave the Minister notice yesterday. I hope that he will be able to take them on board.

In the course of this debate I received another fax, which is difficult to read, in which the RMT raises an issue about the solvency guarantee: 'The Solvency Guarantee could, following a deficiency, result in increases to Pensioners' Pensions not being applied until the Reserve has been replenished. Under existing arrangements Pensioners would not have to forego such increases. These arrangements are, therefore, 'less favourable'. The Winding-up Rule permits the Secretary of State to institute winding-up proceedings at any time after 31st December 2012. Only 40 per cent. of any resulting surplus would be applied to improve benefits. The remaining 60 per cent. would go to the Treasury". That is another matter that needs to be dealt with.

The fourth point that I raise relates to the situation of future railway staff. Is it not right that there is no assurance given that they will have access to membership of an industry-wide scheme for railway staff? That was the position prior to privatisation. That was the purpose of amendments moved in Committee by my noble friend Lady Turner which would have provided for that contingency but, regrettably of course, we lost that on a vote.

It is fair to add that we also lost votes, as the noble Lord, Lord Tordoff, has said, on the question of the appointment of a government director—notwithstanding the intervention of the noble Lord, Lord Peyton— when we argued forcefully that there was clearly a potential conflict between his fiduciary duties as a trustee and his responsibility to the Government. Those arguments were dismissed out of hand by the then Minister and the noble Lord who sits there.

At that time the Government said that our ideas were effectively unrealistic and illusory, but now they are belatedly accepted. That is the problem. Who knows whether the Government have it right? Everyone is convinced that they may have it right now, but who knows? Many other matters were conceived badly at the time, but I want to be fair. Following the debates in this place the Government have tried to meet most of the anxieties that we represented to the House which have been elaborated upon by the trustees and the unions.

I hope that I am wrong in the sense that I have conveyed that there may be serious errors. I am not in a position to justify that, but I worry about it.

In conclusion, what has happened over these past months has been—this must be recognised—a huge change of stance by the Government. We appreciate that latterly they have made great efforts to reach a fair agreement, but mistakes which should have been averted long ago occurred, and that is unfortunate. It was for those reasons that I was motivated at one stage to consider putting down a Motion to defer consideration of these draft orders to enable full advice to be taken on these matters. But I am persuaded that the Ministers are acting in good faith. I think therefore that they should be given the benefit of the doubt, although, as I have indicated, some doubts will remain.

12.38 p.m.

Lord Mackay of Ardbrecknish

My Lords, we have had an interesting and slightly complicated debate on pensions. When I discovered that dealing with that matter was part of my role, I was concerned because about four years ago I was appointed chairman of the Sea Fish Industry Authority, and the first matter with which I had to deal was that of pensions, something which the accountants among your Lordships will recognise instantly as SAP24. It required a cold towel and a great deal of effort to begin to understand what that was about. Pensions are, I am afraid, complicated. This experience with British Rail pensions has not changed my view on the complicated nature of pensions. Your Lordships might share my feeling, at the end of trying to follow all this, of hoping that someone understood my pension arrangements, because. I did not think that I would have the energy or the intellectual capacity to understand them myself.

Noble Lords have asked a number of questions, and I shall respond to them as best I can. My noble friend Lord Peyton of Yeovil has of course taken a keen interest in this matter and caused some waves, it might be said, in your Lordships' House last Autumn. I am especially pleased to hear that he is satisfied with the arrangements as they have emerged. He asked me about Article 7, paragraph 4(b). As I said in my opening speech, the effect of this article is that the new importing employer of a transferred pensioner must make up any shortfall in the transfer value if the exporting employer is not able to do so; for example, because of insolvency. We are looking with the trustees at the exact wording to see whether it requires improvement.

My noble friend appeared to imply that the difficulty in understanding legislation such as this was entirely new. I shall resist the temptation to spend next week in the Library reading some of the legislation which he as a distinguished Minister put on the statute book in order to see whether it is entirely comprehensible or whether he created legislation which is a little complicated.

Lord Peyton of Yeovil

My Lords, I hope that my noble friend will not take up any of your Lordships' time in answering, but I am tempted to ask him in due course to detail to me the large number of statutes for which I was responsible in which huge complexities occur. I am sure that the statutes for which I was responsible have areas of complexity but there are few of them and they are quite short.

Lord Mackay of Ardbrecknish

My Lords, I told my noble friend that I should resist the temptation to make any study. I assure him that the wording is being looked at and if improvement is required that will be done.

The noble Lord, Lord Cochrane of Cults, asked me about paragraph 9(b) in the same vein. Rather than reading that out and discussing it, perhaps when I have studied what he said I may write to him, I hope, to his satisfaction. The noble Lord also asked me a difficult question about the existing pension fund's assets being split and what would happen if the split turned out to be unfavourable to one of the funds which was the recipient of that split. The most equitable division of assets on establishing the JIS will be agreed between the scheme's actuary and the Government's actuary. The scheme's actuary has proposed a basis for apportionment which we are presently considering and the split will be notified to Parliament when the required order transferring pension rights is laid. There will be no advantage to the Government in over-funding, say, the new closed fund at the expense of the serving BR employees' fund. Even if that could be agreed with the trustees, who have a fiduciary responsibility for ensuring the proper provision of benefits for all members of the existing BR pension fund, including serving members who will not transfer to the closed fund, over-funding of the closed fund would lead to under-funding of the balance remaining for serving employees. That would be likely to make that fund unstable and hasten any call on the Government to exercise their power to issue a solvency guarantee for that section too. I hope that that answers my noble friend's anxieties.

The noble Lord, Lord Tordoff, raised the issue of secondment and rightly pointed to page 57, Rule 13C, of the order. That states: 'The Designated Employer may decide to treat any Member who is on secondment as still in Pensionable Service for up to 3 years (or longer if the Inland Revenue permits), so long as there is a definite expectation that the Member shall return to Service and he does not join another occupational pension scheme". The BRPS scheme at present makes no specific provision for secondments. Members can remain in the scheme for as long as they remain in service. The definition of service includes any period during which the member is absent or on leave of absence, whether paid or unpaid. Implicitly, this is subject to Inland Revenue approval. Therefore, there is no real difference between the two schemes. We believe that the RPS rule is clearer.

In answer to the noble Lord, Lord Clinton-Davis, non-operational staff will be protected. While they continue to carry out their works for an activity connected with or provided for the railway industry they will retain their indefeasible right. But even if they lose that right, their statutory, no-less-favourable protection will continue provided that their transfer of employment has been compulsory.

I discussed the other point that the noble Lord made about the 7.5 per cent. salary increase on seamless transfers. Perhaps I may reiterate and expand on that by saying that we need to balance the respective interests of the person transferring, the other members of both the transferor and transferee schemes and the employer. However, the trustee and the employer can agree a higher percentage if the state of the fund allows. In normal circumstances we would expect the trustee or the employer to be able to increase this automatic floor from 7.5 per cent. to around 10 per cent. Alternatively, as I explained in my introductory remarks, the employer can pay into the fund to augment his recruits' benefits as part of the overall employment package agreed.

The noble Lord, Lord Clinton-Davis, read out a fax which he received this morning from RMT. This method of dealing with surplus following an earlier deficit was part of the trustees' compromise proposals. I do not consider it to be less favourable. At present there is no guarantee. If, when the noble Lord manages to read the fax, there are any points which he wishes to draw to my attention, I shall be delighted if he would write to me and I shall attempt to respond.

Lord Clinton-Davis

My Lord, I managed to decipher the fax with reasonable accuracy and it is on the record. Therefore, I look forward to receiving a letter from the Minister.

Lord Mackay of Ardbrecknish

My Lords, I shall read what the noble Lord said, and if I have not covered all the points I shall write to him.

As regard future railway staff, it is not now within our powers to guarantee membership of the BRPS to new staff. However, the RPS has been set up and there is flexibility to encourage employers to put new staff into it and to encourage the staff to see it as a pension fund that they wish to join.

In the holiday spirit of the coming week's Recess, I shall allow to pass over my head the criticism of the way in which the Government have handled the matter during the past few months. I say merely that the outcome of parliamentary debate and the way that government works, listening to views and negotiating, in this case, with the trustees is important. Whatever noble Lords' views on privatisation, which I understand, all appear to think that the outcome that we have before us today gives the guarantees which my noble friend Lord Peyton and others have asked the Government to provide. Those people who are retired on British Rail pensions, who are deferred pensioners or who are currently employed and wonder what will happen on privatisation will be able to be confident in the future security of their pension schemes.

I wish to put on record that my right honourable friend Mr. Roger Freeman has done a great deal of work on this issue. He has attended a large number of meetings with the trustees, the BR board and the employees' representatives in order to reach the position we are in today. Finally, perhaps I may pay tribute to my noble friend and predecessor Lord Caithness. While he held this post he played a major part in attempting to explain these difficult matters to the House and in finding the solution that I am presenting today.

Baroness Turner of Camden

My Lords, the Minister said that he hopes that pensioners and present staff will be satisfied with what has been achieved. Will steps be taken to ensure that these arrangements are explained in simple and clear language to the people who are covered by them; otherwise, those people will remain very suspicious?

Lord Mackay of Ardbrecknish

My Lords, I am not sure how easy it will be to translate these orders into simple and clear language. However, we in Government and in the House, the trustees and the unions, have an obligation to explain to anyone who is worried that guarantees have been given, that the security of their future pensions is safe, and that they do not have to concern themselves about them. I shall certainly look into what the noble Baroness says. I would welcome warmly a one-page explanation of all of this, as perhaps your Lordships would have done when I introduced the order about an hour ago.

On Question, Motion agreed to.