§ Mr. Geoffrey Clifton-Brown
To ask the President of the Board of Trade what agreement has been reached between the Government and the trustees of the British Coal pension schemes on future arrangements for pensions from these schemes after privatisation.168W
§ Mr. Eggar
Comprehensive agreements have been reached between the Government and the trustees of the mineworkers' pension scheme and the British Coal staff superannuation scheme on future arrangements for the MPS and SSS after the privatisation of British Coal. The main elements of the agreement are as follows
- (i) all pensioners and deferred pensioners of the MPS and SSS and all contributing members will be able to leave their past-service entitlements in the scheme at privatisation, if they so choose; the MPS and SSS will be closed to new members at privatisation and the new private-sector owners of the industry will not participate in the schemes;
- (ii) the schemes will be given a Government solvency guarantee that will ensure that pensions and deferred pensions are increased annually after privatisation in line with the retail price index by reference to their level at privatisation; MPS and SSS beneficiaries will in addition be able to benefit from any fund surpluses through bonus enhancements over and above RPI-linked levels; surpluses after 31 March 1994, and bonus enhancements paid from them, will not be guaranteed by the Government but the Government will guarantee that, in the event of a deficiency in the MPS or SSS which results in bonus enhancements being reduced, pensions—RPI-linked pension plus bonus enhancement—will not fall in cash terms;
- (iii) an investment reserve will be established in each scheme fund on which the first call will be made if a deficiency arises; the reserve will comprise British Coal's unused shares of the September 1993 surplus in the MPS and of the April 1992 surplus in the SSS; the investment reserve will therefore act as a measure of protection for bonus augmentations; the first use of any surplus following a deficiency will be to make up the investment reserve to the level that it would have been at had no deficiency payment been made;
- (iv) the investment reserve will be run down over a period of not less than 25 years by transfers to the Government as guarantor; at each valuation the scheme actuary will recommend the level of reserve to be maintained, taking prudent account of total liabilities and the smooth running of fund management, and the scale of any transfer; it is likely that transfers will be skewed towards the second half of the period; and individual transfer could be spread, on the advice of the scheme actuary, over a period of three years;
- (v) scheme beneficiaries and the Government as guarantor, will receive equal shares of any distributable surpluses from valuations after 31 March 1994; any share of such a surplus that becomes payable to the Government will be receivable in equal instalments over 10 years; deficiency payments due under the guarantee will also be payable over ten years;
- (iv) existing obligations on British Coal to make additional contributions in respect of early and enhanced pensions will be honoured in full by the Government;
- (vii) there will normally be triennial valuations of the schemes and if a valuation subsequent to a deficiency reveals a surplus, or vice versa, there will be a settling of balances before further payments by or to Government are determined, including a safeguard to ensure that beneficiaries and Government have received equal shares of any surplus distribution;
- (viii) the Government will propose amendments to the Coal Industry Bill, currently under consideration in another place, which would make the Secretary of State's powers to modify the MPS and SSS subject to a time limit of two years from the commencement of the solvency guarantee and would focus the Secretary of State's powers to direct the trustees on the twin objectives of avoiding and minimising fund deficiencies and maximising the potential for fund surpluses.
The agreement will necessitate amendments to the draft modified MPS and SSS schemes and rules and draft MPS and SSS guarantee deeds that have been placed in the Library of the House.
As a result of the restructuring and closure of the MPS and SSS it will be necessary to review the schemes' investment strategy. The appropriate strategy for the modified schemes will be developed by the trustees, in consultation with Government, in the light of advice from the schemes' actuary and from their investment advisers. 169W The aim of the investment strategy review will be to achieve a strategy which reflects the twin objectives of minimising the risk and extent of a call on the guarantee and maximising investment returns.
I know that the MPS and SSS trustees attach particular importance to understanding how the Secretary of State might use the powers that the Coal Industry Bill would confer on him to secure that the trustees take account of the twin objectives of minimising the risk and extent of a call on the guarantee and maximising investment returns. I can assure the trustees that the Secretary of State, as guarantor, would only expect to exercise the powers conferred on him under the schemes to intervene in the day-to-day management of the scheme funds in the most exceptional circumstances. Any use of his powers would, therefore, normally only arise in the context of strategic investment policy or strategic investment decisions. He would intend only to use his powers in circumstances—which one hopes would be rare—where he considers it is necessary to do so to secure either of the twin objectives of minimising the risk and extent of calls on the guarantee or maximising surpluses. The schemes will also provide that he would, in any event, only exercise his powers after consultation with the trustees, unless in exceptional circumstances such consultation is impractical. The Secretary of State would also consult the trustees before changing the policy stated above. It may assist the trustees if I also point out that this of course does not preclude the Secretary of State having regard to other factors including the interests of beneficiaries to the extent that he considers appropriate.
There has been concern about the appointment of "Government" trustees, including the chairman, to the modified MPS and SSS. I should therefore like to confirm that the Government-appointed trustees will act as normal trustees, guided by their fiduciary duties. I should also like to make clear that future chairmen of the modified MPS and SSS will not be Crown servants or members of the schemes and will be appointed by the Secretary of State only after consultation with the respective trustees. In practice, no proposed chairman will be acceptable unless supported by a clear majority of the trustees.
I am pleased to announce that the Government intend to offer the current chairmen of the MPS and SSS, Mr. James Cowan and Sir Norman Siddall, re-appointment as chairmen for the first six months of operation of the modified schemes. I believe that their acceptance would greatly assist the transition to the new arrangements and would provide considerable reassurance to scheme members.
The arrangements outlined here concern the future of the past service pension entitlements in the MPS and SSS of employees and former employees of British Coal and its subsidiaries. The Coal Industry Bill also provides for the creation of two new industry-wide pension schemes, one following on from the MPS and one from the SSS, for the future service entitlements of employees of British Coal and it subsidiaries who are transferred to employment in successor companies. The Government's proposals for these new industry-wide schemes, including protected person status for transferred employees, are not affected by the arrangements set out in this answer.