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Pensions Bill

moved Amendment No. 130EW: 130EW: Before Clause 107, insert the following new Clause— ““Power to amend provisions of Pensions Act 2004 relating to contribution notices etc. (1) The Secretary of State may by regulations make provision amending Part 1 of the Pensions Act 2004 (c. 35) so far as that Part relates to— (a) contribution notices; (b) financial support directions; or (c) restoration orders. (2) But provision may be contained in regulations made under this section only if the Secretary of State considers that without the provision there would be— (a) a material risk of adverse effects on the benefits under relevant pension schemes of, or in respect of, members of such schemes, or (b) a material risk of compensation from the Pension Protection Fund becoming payable in accordance with Part 2 of the Pensions Act 2004 (c. 35). (3) Regulations under this section may make provision having retrospective effect (but may not make provision having effect in relation to any time before 14th April 2008). (4) In this section— ““contribution notice”” has the meaning given by section 38 of the Pensions Act 2004 (c. 35); ““financial support direction”” has the meaning given by section 43 of that Act; ““relevant pension scheme”” means any occupational pension scheme (within the meaning of that Act) in relation to which section 38, 43 or 52 of that Act applies; ““restoration order”” has the meaning given by section 52 of that Act. (5) Before making any regulations under this section the Secretary of State must consult— (a) the Pensions Regulator, and (b) such other persons as the Secretary of State considers appropriate.”” The noble Lord said: I shall speak to the Government’s Amendments Nos. 130EW and 141C, and at the same time respond to Amendment No. 134ZA, tabled by the noble Lord, Lord Lucas. The regulatory regime that protects occupational pensions was established under the Pensions Act 2004. It is based on the employer’s covenant to the pension scheme, which means that the employer stands behind the pension scheme risk. It is designed to strike a balance, giving employers flexibility in how they manage their funding risk without requiring them to inject capital up front. However, it also gives trustees a legitimate interest in corporate activity that might reduce the employer’s ability to support the scheme. In general, the regime is working well. However, several new business models have emerged that seek to take advantage of the flexibility of the occupational pensions regulatory regime. They wish to split the pension scheme from the support of the employer and run the scheme without the security of a sponsoring employer or an adequate capital buffer dedicated to the scheme. They could pose significant risks to the security of scheme members’ benefits, the Pension Protection Fund and those employers who pay the Pension Protection Fund’s levy. There is general agreement that the Government are right to give the regulator enhanced powers to intervene in such circumstances, but we are acutely aware that the changes must be targeted and ensure that there is as much certainty as possible in the operation of the regulatory framework. In introducing these changes, the Government aim to strike a balance which ensures that regulation remains effective without stifling new innovation or inhibiting legitimate business activity. We do not wish to burden employers or pension providers with unnecessary regulation but it is critically important that pension promises are kept, both for the security of scheme members and to ensure that liabilities are not passed on to the PPF and, ultimately, to other responsible employers. We laid out the broad proposals in our consultation, which started on 14 April and ran to 20 June. Most consultees, including the CBI and the NAPF, agreed that the Government were right to act and that we must protect members’ benefits and the Pension Protection Fund from new risks. However, we recognise that it is important to get the details right to ensure that the changes are appropriately targeted. Our policy objective remains that the overwhelming majority of pension schemes and their sponsors should not be affected by the proposed changes. It is difficult, if not impossible, to build into legislation a comprehensive definition of all the different models that look to take on pension liabilities. Doing so may appear to be simple in legislative terms, but it would simply create a regulation that could easily be sidestepped. The proposed changes are therefore designed to be sufficiently broad-based to tackle the wide-ranging risks resulting from market changes. At the same time, we are determined that they should be sufficiently targeted to ensure that the everyday business activity of responsible employers is not affected. The changes would make it easier for the regulator to ensure that pension schemes are supported properly, but only where taking action is a proportionate step and it is reasonable to expect the support to be put in place. I should like to set out our intentions. The material risk prompting these changes are those actions that singularly or collectively weaken the employer covenant standing behind the pension scheme. Our consultation set out six features or situations where that may occur, including moving the employer or the pension scheme to another jurisdiction. In these and similar circumstances, the regulator should not have to prove intent but could look at the effect of the action and whether it was detrimental to the scheme or the PPF. The amendment provides a regulation-making power to amend Part 1 of the Pensions Act 2004, but has important constraints on the use of this power. These safeguards link the power to material risks to either the security of members’ benefits or the protection of the PPF and require the Secretary of State to consult with the Pensions Regulator and others. Regulations would also be subject to the affirmative procedure, ensuring that both Houses of Parliament would debate any regulations before they came into force. We are grateful to the respondents who have put forward helpful suggestions, to which we need to give proper consideration in formulating the draft regulations. The responses received during the consultation will help in this process. We will consult formally on these regulations, which will provide stakeholders with an opportunity to comment on the precise detail of the secondary legislation. The regulator will issue revised guidance which will set out how they will be implemented at the same time. This is a complex area which demands thorough consultation, and I am pleased that many organisations are keen to engage on the detail of the regulations. What we are proposing strikes the right balance between partially constrained powers that are granted in primary legislation, but subject to further constraint, the detail of which will be in secondary legislation, and guidance. Such constraints as are proposed here will ensure that these powers are sufficiently targeted to deal with the issue in question. It is important that they can be refined to deal with future market conditions and currently unforeseen threats to pension promises. I turn now to Amendment No. 134ZA, tabled by the noble Lord, Lord Lucas. We welcome the recognition in Amendment No. 134ZA that the Government need to act in this area, but Amendment No. 134ZA is not constrained in any way and is not linked to the material risks to the security of members’ benefits or to the protection of the PPF. Unlike the Government’s amendment, it does not require consultation with the Pensions Regulator and others. The effect of this amendment would be to give the Secretary of State the power to make an order where it was necessary to prevent the avoidance of the intent of the Pensions Regulator’s anti-avoidance powers in Sections 38 to 56 of the Pensions Act 2004. The amendment is very broad-based and contains none of the safeguards that the Government consider important in the Bill. I hope that in light of my explanation the noble Lord will not press this amendment. Finally, on the issue of retrospection, the Government’s consultation included a clarificatory proposal to make clear that contribution notices can be issued in relation to acts or failures to act. This change would be effective to 27 April 2004, as it is a clarification of an existing provision, whose effect dates back to this date. The Government are carefully examining the responses to the consultation in respect of this proposal and expect to lay a further amendment to this Bill in due course. Our shared responsibility should be to ensure that pension promises are kept, with confidence in UK pensions secured for the long term. I believe that our proposals will provide that confidence. I beg to move.