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Pensions Bill

My Lords, the amendment of the noble Lord, Lord Oakeshott, responds to a keenly felt issue in our current economic situation, and gives me the opportunity to discuss the important issues he raised in relation to the PPF and the FSA. It is important that we ensure clarity regarding regulatory roles and consistency in approach. I am pleased to say that the current arrangements provide a flexible and robust framework for protection of the PPF. I agree with the broad intention behind the amendment. When the Government established the PPF under the 2004 Act we also created the Pensions Regulator and gave it an explicit objective to protect the PPF. We saw then, along with all sides of this House, that the PPF had to be protected adequately. Although I can see the intention behind the amendment, I do not agree that it is appropriate. It would duplicate the existing arrangements, which at worst could undermine the effectiveness of our regulatory regime. The Government work closely with business to develop regulations that complement and do not complicate the way people work to keep the UK competitive, mindful of potential regulatory burdens. Well targeted and proportionate regulation can deliver effective outcomes for the market, scheme members and the PPF. This amendment is neither well targeted nor proportionate: it would simply increase regulation to no obvious benefit. The Pensions Regulator is the regulator of all work-based schemes, including those within the financial sector that are sponsored by FSA-regulated firms. It has an express duty to protect the PPF, and in so doing provides a holistic and consistent approach to minimising the risk of situations arising which may lead to compensation becoming due. The regulator’s approach to minimising the risk to the PPF through regulating scheme funding is designed to be flexible according to different circumstances. The regulator considers wider aspects, including the strength of the employer that is responsible for supporting the scheme. The FSA’s statutory objectives relate to the regulation of firms in the finance sector and the protection of consumers of those firms’ products and services. It does not consider the firms’ pension schemes from the perspective of the schemes’ funding status, or the impact on scheme members. The FSA has rules for taking into account the impact of a firm’s pension obligation on the prudential position of the regulated firm. Therefore, the FSA’s focus is not the pension scheme itself and its assets and liabilities, but rather the firm’s funding obligations to the pension scheme. There are well defined and adequate regulatory arrangements in place between the FSA and the Pensions Regulator, and they work closely together on the supervision of pensions according to their statutory functions. Indeed, the noble Lord asked for such co-operation. These arrangements have been the subject of a recent independent review led by Paul Thornton. The review, which was completed in June last year, found that the existing framework was working well. Measures were recommended, however, to further strengthen this liaison, which the Government accepted. I am pleased to say that the two bodies have undertaken a programme of well co-ordinated activity to implement the review’s proposals. For example, there are regular meetings at official level on areas of mutual interest, including management of risks to DC. The amendment would also mean that financial capability was included, alongside regular bilateral engagement at chief executive level. This is underpinned by a Memorandum of Understanding. This joint working has resulted in a number of positive outcomes, including publication of a joint guide on the regulation of workplace contract-based schemes. An FSA-regulated firm would be treated differently from those schemes sponsored by companies in other sectors. It is also worth noting that this amendment would mean that schemes sponsored by an FSA-regulated firm would be treated differently from those schemes sponsored by companies in other sectors. My apologies; that note is nonsense. There is no obvious reason to single out banks and financial institutions, but not other sponsors with industry representatives, to clarify the respective roles and responsibilities, and similar schemes. Schemes should have equal protection in law, no matter the sector, particularly in those areas where the regulator and the FSA work together. In considering the additional duty for the FSA in relation to the financial sector, we would also need to consider the duty in respect of other regulated industries and other sectors. The airline industry and others are subject to economic regulation and have significant pension schemes, as do other sectors, regardless of the status of regulation to which they are subject. The amendment would therefore lead to an increase in regulatory burden and to inconsistent and incoherent arrangements in respect of other industries—for example, regulation of pension schemes in respect of the protection afforded to the PPF. The Pensions Regulator is the sole, proactive, risk-based protector of the PPF. I hope that I have given the noble Lord sufficient comfort that the current arrangement is the right one and should not be altered, notwithstanding the issues concerning the banking sector in particular at the moment. On Lehman Brothers, the scheme is undergoing assessment for the PPF, which involves calculating the extent to which scheme assets meet liabilities. A PPF valuation approach will give different numbers from, say, a full buyout. Obviously, there are issues of confidentiality here, but we do not recognise the £100 million figure. I hope that has been helpful to the noble Lord. We ought to have clarity on who is regulating who but, clearly, there is a responsibility for the FSA, particularly in relation to those firms that are engaged in pension provision.