---

Pensions Bill

moved Amendment No. 129B: 129B: After Clause 88, insert the following new Clause— ““Ineligibility (1) The Pensions Act 2004 (c. 35) is amended as follows. (2) In section 126 (eligible schemes), after subsection (2) insert— ““(2A) A scheme in respect of which an authorised insurer has given an unconditional and irrevocable guarantee or made any other equivalent arrangements for the purposes of ensuring that the scheme’s liabilities are met is not an eligible scheme.”””” The noble Baroness said: Amendment No. 129B seeks to insert a new clause after Clause 88. For today, this is a probing amendment, as I freely acknowledge that my new clause would at the minimum require some padding in the form of definitions before it could be accepted. Importantly, it asks whether routes are open to employers to de-risk their defined benefit schemes and in so doing remove their schemes from the ambit of the Pension Protection Fund. If employers could do this, it could be a win-win solution. For an employer, it could bring the advantage of removing the regulatory burdens and relief from the costs of the PPF. At the same time, employees could well gain greater security for their benefits. The amendment is based on briefing given to us by an organisation called BrightonRock. The issues raised by BrightonRock were significant to an understanding of the future course of defined benefit pension schemes and their relationship to the PPF. We do not necessarily advocate the insurance model suggested by BrightonRock, but we do support a market-based approach to the risks posed by defined benefit pension schemes and do not see the PPF as having a right to a monopoly in handling that risk. The Committee will be painfully aware that defined benefit pension schemes are in terminal decline, and that the chance of new ones appearing is close to zero; the Pensions Minister, Mr O’Brien, admitted as much in a recent interview with the Daily Telegraph. This is driven partly by cost but also, at least as importantly, by the need for certainty in business. The Pensions Act 2004 created the Pension Protection Fund to underwrite the risk of failure in defined benefit pension schemes. To avoid the costs being borne by taxpayers, as is the case with the FAS, the PPF had to be paid for by all schemes within the PPF. When that Act was considered in your Lordships’ House, the expectation was that the PPF would raise around £300 million a year in levies. This has already more than doubled to £675 million a year, and some are already predicting that the trajectory of the PPF’s levies will take them to beyond £2 billion a year. This is already a noticeable and increasing burden that employers put as part of the cost of maintaining their defined benefit pension schemes. It is very difficult for schemes to avoid being within the PPF’s clutches and thus having to pay its levies. At the insistence of your Lordships’ House, the PPF is supposed to raise most of its money as risk-based levies. It is possible to avoid the risk-based element by being excessively well funded or by having certain types of contingent asset in place. However, to avoid the totality of the levy and all the other costs such as valuations and advisory costs that go with being within the PPF, a scheme has to be ineligible. While insured closed schemes are ineligible, the rules currently do not treat an insured open scheme in this way. That may not be surprising, because insured open schemes as a product did not exist when the rules were originally set for what could be ineligible within the terms of the PPF rules. An insurer underwriting the risk of scheme sponsor failure would be regulated by the Financial Services Authority if it was in the UK. There is no public policy reason for saying that the FSA’s oversight was of a materially lower quality than that provided by the PPF. Indeed, the compensation levels available via the Financial Services Compensation Scheme are higher than the ones that are typically available via the PPF, so the position of members should be enhanced if they are put within a scheme that falls within the FSA and the FSCS. Moreover, of course, if we allow insurance within the UK, we must allow similar insurers who are supervised to EU standards. The reference in my Amendment No. 129B to authorised insurers is intended to refer to EU-regulated insurers, but it could clearly also extend to other insurers in other countries where the Secretary of State was content with the quality of regulation. This is one of the areas that clearly needs a lot more definition, as I mentioned when I began my remarks. To date, the Government have resisted changing the PPF rules to facilitate insured open schemes. I am not at all clear about the substance to the objections that have been made to date, such as cherry-picking, which is a non-argument. There seem to be only two reasons for resisting these proposals. The first is that the PPF does not want its natural monopoly to be diminished. Monopolists never do. A monopolist who has the ear of government, which the PPF does, and who is not subject to competition legislation, which I believe the PPF is not, is a very dangerous combination. The second possibility is that the Government are too timid to back innovation in financial services in case they are proved wrong. If that is the case, our financial services industry must fear for its future, and since our financial services are a significant part of the UK economy and a major contributor to UK growth, that is a serious issue for the economy as a whole. I hope that the Minister will be able to be encouraging about the Government's attitude to insured open schemes and will be able to say when they will be permitted to qualify for PPF ineligibility. I beg to move.