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Deferred Pensions

I am grateful to Mr. Speaker for having granted me this debate, which I have been trying to get off the ground for nearly a year, on and off. The subject is extremely important to my constituents who were formerly factory workers employed by Texon UK, and who are deferred members of an insolvent pension scheme run by their former employer. I know that the Minister is aware of the issue, as there has been much correspondence between me and his office on the matter during the past year. My constituents were made redundant 10 years ago, when Texon UK embarked on the job-cutting exercise that was a precursor to its going into receivership. Texon, once called United Shoe Machinery, had been a local employer for many years, serving the shoe-making industry. Thankfully, the factory, located on the Skelton industrial estate in the East Cleveland area of my constituency, still operates following a management buy-out, but with a much reduced workforce. Nevertheless, 120 jobs are important and I wish the company every success in future. That, however, will not alter the scale of the problem faced by my constituents. They were unhappy about the redundancies, but they accepted them, because they felt that they had the reassurance of a pension from the company pension scheme when they reached retirement age. However, that was not to be—hence this debate. I shall focus on two connected issues. My first concern is the financial arrangements made within the company, at the time owned by Texon, and my second what appear to be grave limitations in the new financial assistance scheme for deferred occupational pensioners. The sorry saga began when USM Texon was taken over by a private equity company, Apax, which made significant changes to the company pension scheme. A new USM pension plan was set up and 279 machinery workers were transferred into it. However, a transfer payment to cover these liabilities was made only in September 2000 when a further 318 deferred pensioners and 360 existing pensioners were moved into the new USM plan. That left several hundred people in the old Texon scheme, a number whom were my constituents. The transfer of this second tranche of members was not made until a few weeks before the company went into receivership in October 2000. Once the company ceased trading it was obvious that the pension scheme would be under threat. The threat became reality when wind-up proceedings were lodged because the scheme had insufficient funds to meet its pension liabilities. At that time the scheme had an estimated deficit of some £30 million. Under winding-up rules, existing pensioners were first in the list for a payout, so 360 old USM pensioners received the bulk of their expected benefits, but the remaining 544 USM members—including those of my constituents who are deferred pensioners—have lost their pensions and any right to contributions they had made to the scheme. The problem was made worse when the Texon scheme went bust in April 2004 with a deficit of £20 million. My first concern is, therefore, whether the former employers concerned have acted in good faith. As I said, the pension scheme was the subject of a number of financial transactions prior to the company's going into receivership. The original transfer payment made by Apax amounted to £33.1 million—a sum insufficient to meet Apax's obligation under the minimum funding requirement, but one that had been calculated on the basis of a valuation of the scheme's assets made three years previously. I understand that the view among senior actuaries was that if the valuation had been conducted on an up-to-date basis, Apax would have had to put an additional £2.3 million into the scheme. Indeed, the independent trustee appointed to wind up the scheme wrote to ask it to reverse the transfer. Parts of his letter, quoted in The Daily Telegraph, said that reversing the transfer would"““Avoid the risk of criticism for making a transfer only a few weeks before the firm went into receivership.””" He went on to point out that"““pensioners and deferred members were not asked to consent to the transfer and it seems unfair that they should now suffer a reduction in benefits as a result of a transfer over which they had no control””." Those financial transactions must have had an impact on the overall health of the USM and Texon schemes. I accept that the Minister has no direct responsibility for individual company pension schemes, but as the behaviour of companies managing such schemes can impact on his responsibilities, such as the finances of the financial assistance scheme, I would ask him to talk to his ministerial colleagues in the Department of Trade and Industry about this case. I appreciate that he might want to refer me to the pensions ombudsman and the pensions regulator. However, given the remit of those bodies, that might not produce the results that my constituents seek. Past referrals have been made to the pensions ombudsman, but I understand that he was unable to investigate the role played by Apax because he has no jurisdiction over a company's shareholders. I understand that a complaint to the pensions regulator also made no progress because, apparently, it can investigate only the actions of trustees. In this case, it decided that they had done nothing illegal, although the regulator said that the complaint contained information that"““might be of interest to the DTI.””" I understand that a complaint to the DTI was also rebuffed, because it could investigate only complaints made by shareholders, and that complaints about pensions fell outside its remit due to their ““unincorporated”” status. Some serious joined-up thinking is needed on all these issues. The second issue I wish to turn to is the way in which the FAS will affect my constituents. They have told me that at first they felt that they could rely on it. However, it is apparent that only a few from Skelton will gain any assistance through the scheme, because of the age profile of the workers who were made redundant. In the main, they are good citizens, hard-working men in their 40s and 50s with families. I have known some of them for more than 20 years. They are not people who were within three years of retirement, and who will get 80 per cent. of their pension from the FAS. I do not for a moment disparage the scheme itself. It was a good start, and helped those people who were facing the worst prospects. I applaud the fact that it injected £400 million to assist those who urgently needed such help. However, as things stand, many thousands of people who are in the same circumstances as my constituents will not benefit. This is a serious issue of faith. Past Governments have stressed the need for people to make independent provision for retirement and have backed occupational schemes heavily. My constituents followed that advice and invested in a company scheme that they saw as in their best interests. They now find themselves cut adrift, having to face a future dependent on what the state can provide. I am aware that there is a comprehensive spending review and that there will be a review of occupational pensions. There will also be a review of how the state relates to a member of a scheme who might need assistance. However, I have been told that that review may not report until 2008. If that is correct, it will further dishearten many of my constituents. I hope that the Minister will tell me that the review will be expedited. That would mean that my constituents and their trade unions could make submissions and that the finished findings of such a review could be fed into the comprehensive spending review process immediately. The Government need to grasp the problem urgently. We are told that that will be hard, given the financial implications. However, we need to recognise that those affected, such as my constituents, are a numerically defined group. Importantly, as the starting date of the pension protection fund was April last year, they are a closed group that cannot grow. My affected constituents are of a defined age cohort and will not easily find a job that could give them a reasonable prospect of employment for a period long enough to build matching pension provision. The same demographic consideration would also tell us that mortality will play its part, roughly defining the total time period that the scheme would need to cover. The Government should factor in the costs that would have to be met by the state, in any case. If we make assumptions about the people affected by such insolvent pension schemes who will need to have recourse to state benefits, another fact emerges. In that equation, the financial transfers between an expanded FAS and the cash that the Department for Work and Pensions would incur could well be neutral, at best. Would there be a cost if the FAS were widened? Of course, but the Government have made bold gestures in the past and can do so again. The Government can seriously explore other funding avenues: receipts from advance corporation tax, perhaps, or, as has been suggested before, the use of dormant assets in unclaimed accounts. I am aware that the Government see the last matter as a long-term issue and are possibly earmarking receipts from that for youth activity. However, the wronged pensioners at Texon UK and other pensioners in the same boat are also a deserving group. An extension of the FAS to cover those within 10 to 12 years of retirement would bring a lot of joy to my affected constituents. I look forward with hope to the Minister's reply.