Orders of the Day — Pensions Bill — [1st Allotted Day]

House of Commons, 18 May 2004.

New Clause 24 — Early leavers: cash transfer sums and contribution refunds

Malcolm Wicks (Labour, Croydon North)

I beg to move, That the clause be read a Second time.

Michael Martin (Speaker, Glasgow Springburn)

With this, we may take Government amendments Nos. 147, 156, 157, 159 to 164 and 171.

Malcolm Wicks (Labour, Croydon North)

Although the Opposition would prefer me to move the new clause at the end of Blackpool pier, I am—rather conventionally and conservatively—in the House of Commons, which is appropriate.

New clause 24 introduces a new provision that will increase opportunities for pension saving for early leavers. It will give them the choice of a cash transfer sum to be taken to a stakeholder or other appropriate scheme, or a refund of their contributions. Occupational pension schemes can have rules that require employees to be members of the scheme for a specified length of time before they secure rights under the scheme. That is known as a vesting period. Legislation provides that a vesting period cannot be longer than two years.

When members leave a pension scheme after their rights have vested but before their pensions are payable, their pension rights must be preserved in the scheme, or transferred to another scheme or arrangement. However, at present, employees who leave during a vesting period may find that the best they can get is a refund of their contributions, less tax. We believe that more employees, especially those who change jobs frequently, should be given greater opportunity to build up pension rights. The new clause will apply to employees who have been members of an occupational pension scheme for at least three months but leave before the end of a vesting period.

The trustees of the scheme will be required to inform the early leavers of their entitlement to the choice between a cash transfer sum and a refund of their contributions. They will have to set out the value of each option, tell the members about the types of scheme to which a cash transfer sum may be transferred, and give them a reasonable time in which to decide. Supplied with sufficient information to make an informed choice, early leavers should, in future, be in a better position to make positive decisions about their pension savings.

Younger people in particular, who may expect to have several relatively short-term jobs at the start of their working lives, may be more attracted to joining a scheme, when one is on offer, if that means that they can start to build up savings for a pension. Hon. Members may recall that, in our Green Paper, "Simplicity, security and choice: Working and saving for retirement", we proposed that rights in all schemes should vest immediately. The quid pro quo, to avoid schemes having to administer very small pensions for many years, was that trustees should be able to transfer small pension rights below a de minimis value to a stakeholder scheme, so long as the member did not object.

Consultation on the proposals produced several concerns, to which we gave careful thought. There was much anxiety about imposing extra administrative burdens on schemes and about the risk of trustees facing mis-selling claims if they transferred de minimis amounts without the members' consent. On the other hand, the proposals were warmly welcomed by consumer groups, especially those such as the Equal Opportunities Commission, which took the view that they would be of particular benefit to many women. We therefore drew up the revised proposal as set out in the subsequent paper, "Action on occupational pensions".

We believe that the amendments present a balanced way of improving opportunities for pension saving for early leavers without the disadvantages of the original proposals. They put the focus on individuals making an informed choice about their pension savings. Although we acknowledge that there will be some extra administrative requirements on schemes, they should be less burdensome than the original proposals. Many schemes that operate a vesting period already provide contribution refunds under their own rules. All schemes already have to have arrangements in place to calculate transfer values. The extra administrative load in those cases will be in presenting the options to members. It is not great when compared with the potential benefits for members.

We estimate that funding costs could be approximately £50 million a year for all occupational schemes and that additional administration costs will be around £9 million a year—clearly, with greater impact on companies where there is a high turnover of staff. Those additional costs will of course be incorporated in the revised regulatory impact assessment for the Bill.

On the other hand, the benefits for individuals could be significant. Let us consider, for example, the case of an employee who is a member of a defined contribution scheme for 18 months, earning £20,000 a year. If employee contributions were 3 per cent. of earnings and employer contributions were 4.5 per cent., a refund of contributions would be £900. Depending on investment return, a cash transfer sum might reasonably be between £2,000 and £2,500. That would provide a significant boost to personal saving for retirement. The clause itself is quite complex because it inserts a new chapter 5 into part 4 of the Pension Schemes Act 1993.

Steve Webb (Liberal Democrat, Northavon)

That example is in the guidance notes that have helpfully been provided to Members. Rather than giving the figures of £2,000 and £2,500, as the Minister has just done, the notes cite a figure

"of the order of £2,385",

which is quite precise. Are these amounts determinate? The Minister's figures had a range of about a quarter. Is there a formula involved, or do we not know what the figure will be? Perhaps there is some discretion as to how much will be involved. I am slightly puzzled by this discrepancy.

Malcolm Wicks (Labour, Croydon North)

It will depend on returns on investments, and things of that kind. The information note gave a very precise figure, and perhaps we have very precise calculators at the Department for Work and Pensions. I have now given the House a range of between £2,000 and £2,500, which might be more realistic. If I can give the hon. Gentleman more guidance in writing, I will do so. The main point that I am trying to make is that, in introducing this choice, we are determined that the individual making the choice should have proper information, because a transfer will often be the most sensible option for a younger person, or anyone else, to choose. The differences between taking the money, as it were, and the transfer value will be quite considerable.

Part 4 of the Pension Schemes Act 1993 deals with protections for early leavers. The new chapter 5 contains many of the provisions that apply to current rights to transfer values for members whose rights have already vested by the time they leave pensionable service. I assure the House, therefore, that the significant length of this clause does not represent some new substantial burden of regulation. It is rather a self-contained section of legislation in which some of the existing requirements on transfers are brought together to underpin the new option for employees. This forms a complete legislative guide for schemes to operate.

The clause provides that the scheme's trustees or managers must give early leavers sufficient written information for them to be able to make a choice of taking either a contribution refund or a cash transfer sum, as I have just noted. They must be given a reasonable period of time to make this decision. The notice issued to them must have a date by which they need to confirm their choice in writing. A code of practice produced by the regulator will set out what is a reasonable time, and the regulator will be able to impose sanctions on trustees or managers who fail to comply with the obligations in the legislation.

If a member elects to take a cash transfer sum, the trustees must ensure that it is used in a way permitted through this clause. Permitted options include transferring the sum into another occupational pension scheme, transferring to a stakeholder scheme or other personal pension, or purchasing an annuity. The clause also provides that, if a member fails to inform the trustees or managers in writing of his choice by the reply date, or any later date allowed, the trustees may by default pay a contribution refund. The scheme will not then be left with an obligation to hold on to small amounts of pension and maintain records of them for an indefinite period.

I believe that these new provisions will be of significant benefit to early leavers in future, and I commend them to the House. I should add that amendments Nos. 147, 156, 157, 159 to 164 and 171 are technical consequential changes—to existing definitions, for example—as a result of new clause 24. I ask hon. Members to accept the amendments.

George Osborne (Conservative, Tatton)

This is the first of the 28 Government new clauses that my hon. Friend the Member for Havant (Mr. Willetts) talked about and the first of those that have not been subjected to adequate parliamentary scrutiny. At least we know that one new clause—new clause 23—has been subjected to adequate scrutiny, because I introduced it in Committee, where the Government objected to it but they have now brought it back. Unfortunately, new clause 24, which is one of the most significant new clauses, has not had adequate scrutiny. As the Minister said, it gives employees who have been with a company for just three months the ability to take with them, when they leave, a refund or a cash transfer sum of the kind that is currently available only to those who have been employed for more than two years.

Of course we want to encourage people to build up pension provision. It is generally recognised on both sides of the House that people are not making adequate provision for their pensions and that younger people often make no such provision because they think that it is something that they can delay until they are settled into employment later in life. I certainly see the merit, therefore, in helping people who change jobs quite often in their younger years to build up a pension provision, although there are already products such as personal pensions available to help them to do that. With the Government's proposed changes to the taxation of pensions and the idea of a lifetime limit, for example, it will also be much easier—one hopes—for people who change careers consistently to build up their pension provision. I recognise, however, that the proposal is worth considering.

The Equal Opportunities Commission, Age Concern and the Fawcett Society have all pointed out that the measure could disproportionately help women. We discussed pension provision for women in Committee and we all agreed that it needed to be improved, although we disagreed on how that might be done.

Why has the new clause been tabled so late in the Bill's passage? I am afraid that that will be a theme for the next hour, because the measure did not come out of the blue. Nor—unlike new clause 34, which we shall discuss tomorrow—has it required crisis meetings in the Government, the bringing together of different Departments and the brokering of an agreement by the Prime Minister. It was in the Green Paper and was then amended and put into the White Paper, so why was it not included when the legislation was introduced in the House of Commons? Why was it tabled only at the very last moment, a couple of days before Report? The explanatory notes were given to Members only yesterday or this morning, depending on when we received the letter. In fact, I am not sure that I received the letter at all; I had to photocopy the one that had been given to my hon. Friend the Member for Eastbourne (Mr. Waterson)—but do not worry, I have read it anyway.

Because the measure has been introduced so late, the Government have not allowed outside organisations to make comments and criticisms or question the new clause's drafting. The Minister knows only too well that that is an important part of the legislative process. It is not simply a question of Ministers and Opposition spokesmen arguing things out across the Dispatch Box; the parliamentary process allows us to raise these issues in Parliament on behalf of outside organisations such as trade unions—I know that some hon. Members will speak on their behalf today—pension fund managers and many others. That is simply not possible when important changes such as this are introduced at the last moment.

Will the Minister say more about the significant changes that have taken place between the publication of the Green Paper, the White Paper and the Bill? He touched on the matter earlier when he said that the proposal in the Green Paper for immediate vesting was objected to by employers, although it had been welcomed by consumer organisations and people representing employees. Will he tell us more about the practical nature of those objections, because some of them will apply to people who have been working for only three months?

Will the Minister also explain why he has dropped altogether the proposal in the Green Paper for schemes that have to administer very small amounts of pension to be able to transfer the de minimis amounts to a stakeholder pension? There will still be people on low incomes who will have de minimis amounts after three months and the administration of a large number of such pension schemes could place significant burdens on the pension provider, the cost of which will have to be picked up by all the other scheme members; there is no such thing as a free lunch.

I asked the National Association of Pension Funds for its view but, like the rest of us, it has struggled to keep up with the Government's new clauses. It stressed that its initial comments did not represent a settled NAPF view, but it highlighted some interesting concerns, saying that

"the 3 months vesting period could potentially cause large problems for an employer who has a large turnover of staff. The result will be lots of small value benefits being vested and significant ongoing admin of these benefits as a result. A lot of the detail around the transfer value is to be prescribed so it is difficult to comment on the basis to be used. The power to transfer out must be given full protection and effective ways to do this will need to be stated."

But, of course, we do not know what these are yet. It continues:

"How viable is the transfer out of very small benefits and are other providers willing to accept these small values?"

Are there providers who will accept the value of someone who has been in employment for only three months? The NAPF also pointed out that the original two-year vesting requirements were suggested precisely because of those potential problems.

In the Green Paper, the Government said, optimistically, that the proposals could help employers to retain staff. That claim was subsequently dropped in the White Paper and the Minister did not repeat it in the House, because it might have exactly the opposite effect. The pension rights offered by a company are often an incentive to remain with a company for the long term, but these measures could give a perverse incentive that allows employees to leave after three months without having to make a commitment over a longer term. Someone will not be as settled in employment after three months as they would be after a year or two. Perhaps the Government could explain the three-month figure.

I know that, elsewhere in the Department, 13 weeks is the definition of sustainable employment in new deal programmes and the like. What is the reason for three months? What assessment have the Government made of the impact on employers' ability to retain staff? Have they any evidence to back up the claim made in the Green Paper? What are the costs? The Minister said that the measure did not represent significant extra burdens for schemes, but what is the evidence for that? We have not seen a full regulatory impact assessment, but there will be administrative costs for schemes. I know that the Minister mentioned that in passing, but he did not give hard figures. Perhaps he would undertake to provide us with a proper regulatory impact assessment.

Has the Minister considered something that was floated by the Government themselves? There may be a perverse incentive for employers to introduce waiting periods; in other words, periods after which an employee could join a scheme. In effect, that would defeat the object of the new clause. A company could take on a new employee but say that he could not be a member of the pension scheme for at least two years.

Flexibility and enabling people to build up pension funds while they move jobs is important. We are not against the principle of the new clause, but a huge amount of detail remains to be fleshed out. As it has been introduced so late in the process, it is difficult for the Opposition to undertake the scrutiny that is needed.

Steve Webb (Liberal Democrat, Northavon)

We welcome the spirit of new clause 24. The people affected by regular job moves or short-term employment will tend to be younger people and, perhaps, women in particular. One of the legion of reasons why many women have poor private pension rights in retirement today is a problem that we are trying to deal with through new clause 24: the fact that they may never have entered a scheme or that, if they were part-time, they had fewer rights than full-time workers. Many of those things have been changed but the new clause deals with something that remains a problem: the fact some people never get into a scheme for long enough to build up a decent pension right.

My wife left the NHS pension scheme after a fairly short period and, as they used to say, took out her superannuation. As a result, she will accrue smaller occupational pension rights. Obviously, she married wisely, so that should not be a problem but—abstracted from my present circumstances—we want women to have good pension rights in their own right, not least because they might not end up being married to their present husband as pensioners. Anything that gives people in short-term jobs, and women in particular, better pension rights has to be a good thing in principle. We welcome the principle of the new clause.

Before the thoughtful speech of the hon. Member for Tatton (Mr. Osborne), I had written down, "Why now?" The Minister referred to "Action on Occupational Pensions", the White Paper that we were not allowed to call a White Paper that was published about a year ago. Why has the new clause appeared at this point in the proceedings when it is so difficult to make a serious assessment of it? It is not driven by the EU directive or by the tax simplification in the Finance Bill, which is the reason why so many parts of the process have been late.

What has been the problem? Were the drafters so busy with the other things that the Government have done that this was deemed a low priority and had to be done late in the day? I am concerned that this has been slipped in, as it were, especially given that we are all sympathetic towards the measure. I do not think that the Government want to avoid scrutiny of it; I am sure that they do not.

I intervened on the Minister to get an understanding of how much people can transfer across. In the worked example given by the Minister—someone on £20,000 a year, with 3 per cent. employee contributions and working for 18 months—one can see that, if they have their money back, they get £900, but I am puzzled as to where the cash equivalent transfer figure comes from. I thought that if they got £900, presumably the tax relief would have been considered. If one put £900 into a pension fund, it would be grossed up by the amount of tax relief, presumably, and would be worth more than £1,200. If one then added back in the value of the employer contributions, one would get a figure of about £2,500, rather than the £2,385 we have been given. The figure is not clear.

New clause 24 alone takes up six pages—one can see why we sought to divide the House on the timing of debates—that none of us really understands. [Interruption.] I am sure that the Minister does understand it; I absolve him from that, but the rest of us are struggling. For example, subsection (1) of proposed section 101AF, which is headed, "Calculation of cash transfer sum", says:

"Cash transfer sums are to be calculated and verified in the prescribed manner",

which we have not seen.

It is apparent that dozens and dozens of regulations will be associated with the dozens of new clauses that the Government have tabled. That raises a serious issue that we might as well deal with now, rather than at every single new clause. Presumably, there will be a substantial burden on the parliamentary drafters in the Department who produce the regulations, which are the law of the land just as much as the new clauses. Have additional staff been taken on by the Government? Have the Government obtained additional parliamentary drafting resources to deal with the vast range of regulations that will be needed to support the new clauses? Given that we want this measure included—we want early leavers given good opportunities to build up pension rights—we want it to be included as soon as possible. If the Government have a couple of dozen regulations to write, we might have to wait a long time. I hope that the Minister can reassure us that his Department has the capacity needed to produce the detailed regulations required.

There are also worries about the scrutiny of those regulations. I am not aware that they will be subject to the affirmative resolution procedure. The chances are that they will be among the many negative resolutions that just appear on a list, about which many of us think, "Can we be bothered to try to force an hour and a half on that, when we can't amend it anyway?" I am worried about the Department's capacity to produce the regulations in a timely manner and in a way that will allow people to make useful comment.

My point on the cash transfer sums is that they must be definitive. To produce the figures given to us in our briefing notes, the Department must have had in mind a formula or structure for the sums. For the benefit of the wider audience who read our proceedings, will the Minister put on record the Department's current thinking on the way in which the transfer values will be calculated? A quite precise figure was given in our briefing, but the Minister implied that there would be a large range of possible transfer values. It would be helpful if the Government's thinking could be placed on record now so that, if there is a problem, actuaries and others who understand such matters far better than we in the House do can make early representations to the Government to allow them to do the best job possible when the regulations appear.

I have a further question on calculating cash equivalent transfer values. Are they intended to be actuarially neutral? In other words, is it intended that the amount of money that I will be given to put into a new pension if I leave my old one will be simply the equivalent of the money that I have put in, the money that the employer has put in and the return that we have had on it, or is some concept of incentive built in? Are the Government adding a bit at the expense of other scheme members or is there a slight penalty? Under the regulation in new section 101AF(3)(a), "amounts" may

"be deducted in respect of administrative costs in calculating cash transfer sums",

which involves something of a penalty element. Apart from that, is it intended that the transfer values should be actuarially neutral or is there some reward? The Minister hinted that there would be some reward for taking the money and reinvesting it in a new pension. Presumably, any such reward would be to the detriment of other scheme members if it were other than actuarially fair. If that were the case, we would object, so I hope that the Minister can clear up that point for us.

We want improved provision for people who leave early and, ideally, we want the money that they already have in a pension scheme to go into a new pension scheme, rather than just paying for a foreign holiday. That has to be the right direction. However, as will no doubt be remarked again this afternoon and during the coming three days, much is still being left to regulations of which we have not yet even seen drafts, so I hope that the Minister can give the House and the wider audience a clearer idea of the Government's thinking on these matters.

Peter Bottomley (Conservative, Worthing West)

If new clause 24 and its associated amendments had been introduced when the Bill was first laid before the House, I could have consulted actuarial adviser Mr. Gordon Bayley, but sadly his memorial service will be held on Thursday at St. Lawrence Jewry. The Society of Actuaries memorial notice to him shows that he was one of the people who helped to build up the pensions industry in a massive way at the National Provident Institution, because he saw that the effect of tax on pensions would allow great growth in the provision of second pensions. Both main parties now agree that that is the way to go forward where possible, and the only reason to introduce the new clause is to allow the best value to come from what remains of second pensions.

This is not the debate in which to discuss every other matter on which adjustment is necessary but, just to mention one or two, we have not solved the problem of the overseas pensioners in half the world who do not even receive upratings on their state pensions. That might be lawful, but it is a totally unjustifiable penalty on British pensioners living in the old Dominion countries, such as Canada, South Africa and Australia. Nor does this measure deal with the problem of the second wives of officers married before 1973. However, what we can do on this measure is to give in some detail the questions that the Government must answer.

One of those questions, on actuarial fairness—I am sure that Gordon Bayley would have asked me to ask this—is whether we are dealing with fairness simply in terms of the contributions made by the employer and employee, or whether we are talking about an actuarially fair share of the pension fund itself. If, for example, I am affected, and my pension fund has for some reason been invested incredibly wisely, will I receive a greater amount in the cash transfer than if I had been in a pension fund that had not been invested with particular success?

If there are adjustments in relation to taxation, can the Government say now whether the rates prescribed will be the tax rates that exist now or a collection of the tax rates that have existed since the time when I was a member of a pension scheme? If I may use a small example—I shall not take it too far, because it is not important—I have an expectation in 2009 of receiving £351 a year from the successor to the pension fund that I was in before I entered the House of Commons. I used to put neon lights outside theatres and cinemas in the west end, and the old Signs Department for which I worked, which became part of Mills and Allen, and is part of the united pension plan, will apparently give my estate £250 if I die before 2009, and will give me £351.47 if I survive long enough.

I am interested to know whether people like me will, in principle—I have had the chance of earning a pension here, so I am not concerned about the pennies—have a gain to their pension fund because they will not have to have those little pots, which will be accepted as a reason why the Government are introducing this measure. The question is whether the transfer value in is the same as that which an actuary would volunteer as the transfer value out. In the days when, in the private sector, I was responsible for the interests of pensioners and prospective pensioners, that was the question that I put. I would ask not only how much a company would give in transfer to a person who wanted to leave but how much prospective pension entitlement it would want to give to a person in those circumstances in the future, and see whether the actuary gave the same answer to both questions.

I hope that there will be some way, in consultation with the actuarial profession, insurance companies and pension managers, in which Ministers will be able to give a clear answer to that question. I do not think that it will be possible for them to give one today, because there has not been time to go into the details, but that is one question that needs asking.

A further question is on the tax treatment of pension funds. We will tie round this Government's neck until they go from office—which I hope will not be too far away—the fact of their taking away what was £5 billion a year from prospective pensioners. The study by John Littlewood for the Centre for Policy Studies shows that, although the economy may not have done too badly during the past seven years, the stock market, which is where many pension funds have gone, has gone down in real terms. When we are talking about the calculation for the transfers, we have to realise that one of the inglories of the present Government is the way in which they have diminished the funds that pensioners have held on their behalf. I hope that the Government are suitably ashamed of that.

Malcolm Wicks (Labour, Croydon North)

I shall try to deal with some of the points raised by the hon. Member for Worthing, West (Peter Bottomley) in a moment, although I shall not be drawn too far on the period before he entered the House of Commons when, as I understood his story, his name was in lights above west end cinemas. Perhaps I have deliberately misunderstood that, although I think that it led to an issue about transfer values.

I shall first deal with some of the questions of the hon. Member for Tatton (Mr. Osborne), who is not in Blackpool but in the House of Commons. I am pleased to see half of his Front-Bench team here. He asked, not for the first time, why the new clause was late. There is no specific answer to that question, although the reason relates to the general answer that I gave when we were discussing the motion on the three days of debate: we have been under a great deal of pressure to get the Bill into shape because of the demands for the protection that it offers to come into force as soon as possible. Because of the need to consider the issues surrounding the pension protection fund, and the more recent concerns about Allied Steel and Wire and other workers and the regulator, this measure has had to take its place in the queue in terms of time for consideration and drafting. I am afraid that I can add nothing more on that.

The idea of simply doing away with vesting periods altogether has been touched on. The Green Paper proposal that such periods no longer be permitted was coupled with the proposal that trustees be able to transfer de minimis amounts to a stakeholder pension. Those proposals received a mixed reception and we are concerned that they would impose excessive funding and administrative costs on schemes. The provisions in the new clause strike a reasonable balance for both schemes and members, and fully support the promotion of informed choice in pension saving. It is a question of striking a balance and we hope that we have got it right.

George Osborne (Conservative, Tatton)

On a related point about which I forgot to ask the Minister earlier, what happens to police officers and firemen, for example, in unfunded public sector schemes who leave after three months? Is the police service or fire service required to provide a cash transfer?

Malcolm Wicks (Labour, Croydon North)

If I may, I shall come back to the hon. Gentleman on that point.

During the discussion of transfer values, it was almost implied—although not by the hon. Gentleman—that we have invented a new concept but, of course, we have not. Transfer values have been around for a very long time—since before the name of the hon. Member for Worthing, West was in cinema lights. Essentially, the answer to the question of how they are calculated is the same as the answer to the general question about transfer values. We are not establishing a new concept. Indeed, as some of us know, many people in public sector schemes can already transfer money from one scheme to another type of scheme, so I would imagine that such an arrangement is perfectly possible. For the sector as a whole, we concede that a reasonable time should be allowed for people to make use of their pension rights, but in our view that period should be three months. Two years was too long.

The hon. Member for Tatton asked whether certain providers will accept very small investments. We accept that very small amounts might cause disproportionate administrative costs, which is why an employee will have to have been in a scheme for three months to qualify for a cash transfer sum. Such a provision reflects the argument about where we should draw the line in terms of a time period. However, so far as people who have been in a scheme for up to two years are concerned, we are not talking about trivial sums, especially where such a person qualifies for more than one cash transfer sum from a succession of employments.

Peter Bottomley (Conservative, Worthing West)

Can the Minister tell us, either now or later, whether the three-month period applies not only to full-timers but to part-timers?

Malcolm Wicks (Labour, Croydon North)

It is very important that we give equal rights to part-time and full-time workers, so the answer to the hon. Gentleman's question is yes.

On the cost burden of the schemes, I did in fact give the figures during my opening speech. I am pleased to reiterate that the estimated administrative cost is £9 million a year and that the actual cost of the new pension rights could be some £50 million a year. It is clearly important that a fully revised regulatory impact assessment be published before this issue is considered in another place, and that is what we shall do. Essentially, cash transfer sums are based on the rights that the individual would have accrued in the occupational pension scheme but for the vesting rule. I do not pretend to be an actuary myself, but if any Member requires more detail on the actuarial niceties of the provision, I am happy to supply it.

I should make clear to the hon. Member for Northavon (Mr. Webb)—I thought that I had already done so, but perhaps the point was missed—one of the differences in terms of choice. During the period in question, an employee can choose to take out their contribution but not the employer's. Of course, because the transfer value is going to be used for pension purposes, it includes both the employer's and the employee's contribution. That will help to explain the arithmetic to the hon. Gentleman. [Interruption.] He looks doubtful, but we shall put new batteries in our calculator and provide him with any further information that we can.

Steve Webb (Liberal Democrat, Northavon)

I am not sure that the Minister has responded to the point that the hon. Member for Tatton (Mr. Osborne) made about the danger of the new clause being circumvented by certain schemes. If a given scheme has to count someone in straightaway, new rules could be set up that prevent someone from being in the scheme for the relevant period. Is there not a danger that the new clause could indeed be circumvented in the way that he suggested?

Malcolm Wicks (Labour, Croydon North)

I think that one or two such schemes—in which one serves a probationary period, as it were—already exist, and I regret that fact. Of course, this issue touches on a wider question. The Government are committed to what we call the voluntary approach to spreading good practice and to encouraging and enabling employers to have proper pension schemes; we are not in the business of compulsion. However, many urge that approach on us, and the Pensions Commission will one day report on such matters. The logic that follows from the hon. Gentleman's question requires that we move towards compulsion, but that is not where we are at the moment.

George Osborne (Conservative, Tatton)

I am grateful to the Minister for giving way, and to the hon. Member for Northavon (Mr. Webb) for pointing out that the Minister has not in fact answered my question. Indeed, in talking about some of the representations that they had received, the Government raised this issue themselves in their White Paper. They said:

"There were a number of concerns, not least the extra administrative burdens that would arise and the risk that these might prompt employers to introduce waiting periods, which would be a regressive step".

The Government have not answered a question that they themselves posed.

Malcolm Wicks (Labour, Croydon North)

Such a step would be regressive, but the question is whether the Government should be able to legislate to prevent that from happening. As I said to the hon. Member for Northavon, that raises the wider question of compulsion. We do not want to go there, but of course, the door remains ever open.

It is very useful that the hon. Member for Northavon is prompting the hon. Member for Tatton on certain questions. Given that the Conservative Front Bench is only 50 per cent. full and that the shadow Minister of State cannot be here today, such co-operation is important.

In the light of my comments, I ask that the new clause be accepted.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 25 — Categories of pension scheme

Chris Pond (Labour, Gravesham)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss Government amendments Nos. 76, 132, 169, 170 and 172.

Chris Pond (Labour, Gravesham)

New clause 25 introduces new definitions of the occupational pension scheme and personal pension scheme in section 1 of the Pension Schemes Act 1993. The changes are a consequence of the tax simplification provisions in the Finance Bill, and they also ensure that the UK is compliant with the European Union directive on institutions for occupational retirement pensions. I shall also deal with Government amendments Nos. 76, 132, 169, 170 and 172, which are directly consequential to the changes to the definitions.

The current definition of "occupational pension scheme" is very similar to that for "personal pension scheme". If we had had to rely on those definitions alone, it could have proved difficult to decide how some schemes should be classified. In practice, that has not proved to be a problem until now, because the Inland Revenue system has always made it clear within its eight categories for determining tax approval whether a scheme is given tax approval as an occupational pension scheme or as a personal pension scheme. However, that will change under the simplified tax regime introduced in the Finance Bill. In future, schemes will register for tax purposes, rather than having to obtain approval.

Clause 143 of the Finance Bill will introduce a single simplified regime that will apply the same registration treatment to all schemes, no longer distinguishing between occupational and personal pension schemes. The definitions in the Pension Schemes Act 1993 will therefore become critical in determining to which regulatory regime a scheme will be subject—the pensions regulator for occupational pension schemes or the Financial Services Authority for personal pension schemes.

The new definitions in the new clause will ensure that pension schemes are correctly classified. For example, the group personal pension scheme is properly classified as a personal pension scheme, not as an occupational scheme. Subsection (3) provides that an occupational pension scheme is a scheme that provides

"benefits to, or in respect of,"

employees and ex-employees in a particular employment, as described in the scheme documentation. It may be a single-employer scheme or a multi-employer scheme. It further provides that, for the purposes of definition, an "occupational pension scheme" is one

"that has its main administration in the UK or outside"

the EU. The definition of personal pension scheme is in line with that in the Finance Bill, but includes the words

"is not an occupational pension scheme".

That is to ensure that, where a company—an insurance company, for example—is authorised under clause 144(1) of the Finance Bill to establish a personal pension scheme and it has an occupational pension scheme for its own employees, that scheme is correctly classified as an occupational scheme.

Subsection (4) makes it clear that an occupational pension scheme can be established by a single employer, a group of employers or by a person representing such employers or their employees. It further defines a pension scheme as a scheme or arrangement that provides benefits "on retirement", at "a particular age" or "on termination of service". It does not include arrangements that provide only death benefits. As now, those will be excluded from the scope of the Pensions Act.

Government amendments Nos. 76, 132, 169, 170 and 172 are directly consequential on the new definitions of occupational pension scheme and personal pension scheme introduced by new clause 25.

Steve Webb (Liberal Democrat, Northavon)

Before the Minister moves on to the consequential amendments, I refer him to subsection (3) of the new clause. According to our helpful notes, the subsection is needed for particular schemes, such as MPs' schemes—that obviously caught our eye—or those for the police. Will he clarify what is so special about those schemes that they require a separate subsection, because I do not understand what makes them so different?

Chris Pond (Labour, Gravesham)

The schemes are in respect of those employees or former employees in a particular employment, as described in the scheme documentation. It could be a single-employer or a multi-employer scheme. We were seeking to clarify definitions in the new clause, so it was important to show where those schemes fitted within the structure of classifications.

The consequential Government amendments Nos. 132, 169, 170 and 172 amend the definition of "employer" in clause 275 of the Bill and in section 124 of the Pensions Act 1995. Clause 275 provides definitions of the terms used in the Bill, and section 124 does the same for part 1 of the Pensions Act 1995, which deals with occupational pensions. The amendments will ensure that the definition of employer is consistent with the new definition of an occupational pension scheme. The amendments are clarifications, which ensure that occupational pension schemes and personal pension schemes are correctly identified and that, as a result, they fall to be regulated by the appropriate authority—the pensions regulator for occupational pension schemes and the Financial Services Authority for personal pension schemes.

George Osborne (Conservative, Tatton)

It seems strange that, after ploughing through a Bill of 282 clauses and 13 schedules, which were debated in 22 sittings in Committee, at the end of the process, the Government suddenly decide that they need to include some definitions of what is being talked about. At times, while listening to the Minister, I felt that I was attending one of the lectures about pension schemes provided by the hon. Member for Northavon (Mr. Webb)—[Interruption.] That is probably a fate worse than death, when I think about it.

I have no fundamental criticism of the new clause, but I do want to ask about the extent of joined-up thinking involved in it. As I understand it, the new clause will define all pension schemes as either occupational or personal. That sounds like a pretty good thing, but if we study the Bill, we find that it is littered with other terminology. For example, when I looked at the Bill this morning, I opened it at clause 113, which deals with money purchase schemes. We know that such schemes are personal pension schemes, but why is the terminology used in that clause different from that used in the definitional new clause? If we want simplification and if the point of the new clause is to create common terminology, should not the same terminology apply throughout the Bill? One of the problems that the wider public have with understanding pensions is the fact that different forms of words are often used to describe pretty much the same product.

That brings me to the Finance Bill. When I have finished on the Pensions Bill, my joy on Tuesday next week will be to embark in Committee for five weeks or so on consideration of the pensions tax provisions of the Finance Bill, shadowing for much of the time the Financial Secretary. I have already started to mug up on the Finance Bill, and I am sure that the Minister knows that clause 142 of it has its own set of definitions for pensions. Indeed, it has four definitions—dividing pensions into four different categories. The first is occupational, though it also calls them defined benefit schemes—another example of the use of different terminology. Secondly, the Finance Bill refers to money purchase schemes, using the words "money purchase" instead of "personal" as in this Bill. It introduces a third new category called "cash balance schemes". They do not appear in Department for Work and Pensions legislation, but in Inland Revenue legislation they do so. Finally, there are hybrid schemes. Leaving them aside—they explain themselves—we have three definitions: occupational, money purchase and cash balance. Only one—the occupational—uses the terminology in new clause 25.

There is no evidence of joined-up thinking, and it is genuinely confusing for outsiders reading the legislation to come across a whole series of different definitions and to encounter phrases used in one piece of legislation that do not appear in another. Even in the same Bill, as in the one before us, different terms are used to describe exactly the same scheme. I am all in favour of definitions. Personally, I am attracted to those set out in the new clause, which defines all pensions as either personal or occupational. When the Minister responds, will he explain why the Government have used a multitude of different phrases in different legislation and in different parts of the same legislation?

Steve Webb (Liberal Democrat, Northavon)

To paraphrase the Minister loosely, the purpose of new clause 25 is to deal with the complications arising from tax simplification. In the past, pensions legislation has relied on tax legislation, but that has now changed, so we have to do something to ensure that pensions legislation still works.

One matter of concern is the distinction in the new clause between occupational pensions and personal pensions, which is not as clear cut as it appears at first sight. As far as a worker in a company that runs a group personal pension is concerned, his pension is the works pension. It is the pension arranged through the employer, who may make an employer contribution, and the provider may come into the workplace to explain the scheme. As far as the worker is concerned, it is a company pension. However, the new clause states that it is not an occupational pension, but a personal pension. The practical significance of that distinction is that complaints about the different pensions must be directed to different regulators.

I have some sympathy for employees who do not understand the first thing about pensions, but they will be asked to understand that pensions can be arranged through the workplace and involve employer contributions and so on, and yet not be occupational schemes. It is possible for such pensions to be group personal schemes, in which case people must go to the FSA and not the pensions regulator when they are unhappy with the pension or when something goes wrong.

I do not want to go beyond the scope of the new clause, so I shall merely observe in passing that that is another reason why new confusion will be created by having one set of pensions regulated by the pensions regulator and another by the FSA. New clause 25 makes a clear distinction between two sorts of pensions in order to send people down different regulatory tracks, but should not both be regulated by a single pensions regulator? We are talking only about different types of pension, after all. New clause 25 perpetuates a distinction whereas the process of simplification suggests that all pensions should fall under one regulatory regime. Why do we want people to have recourse to two different regulators, when their view is the same as Alan Pickering's—that a pension is a pension is a pension? Clearly, that is not the view of the Department for Work and Pensions or, as the hon. Member for Tatton (Mr. Osborne) noted, the Treasury.

I have two specific and detailed questions about new clause 25. First, I intervened on the Minister in relation to proposed new subsection 3(a)(ii), which deals with pensions for MPs, police officers and so on. I am still not 100 per cent. clear as to what makes those schemes different. I suppose that Members of Parliament are employed by the Fees Office, as that is what pays our salaries. Police officers are employed by police authorities, but what makes those schemes different from an occupational scheme run by Wiggins Widgets, for example? Why does the Bill need a separate provision for those schemes?

Secondly, I do not understand why subsection 3(b) of the new clause states that an occupational pension scheme is a pension scheme which

"has its main administration in the United Kingdom or outside"

the EU. If I belong to the occupational scheme of, say, a French company, why would that scheme not be regarded as an occupational pension scheme under new clause 25? Not being a personal pension, the scheme would not be regulated by the pensions regulator, but neither would a scheme outside the EU. Why does the new clause have that rather bizarre scope? It provides that the only occupational schemes that count are ones in the UK or outside the EU. Surely the pensions regulator has no jurisdiction outside the EU, for goodness' sake? What on earth is that provision about? I am bewildered by that bit. I am sure that there is a good reason for it; there usually is, but the point of the provision is completely lost on me.

To sum up, I should prefer it if the Bill did not distinguish between the different types of pensions. We have tax simplification, so could we not also have pensions simplification? Could we not have one regulator for pensions, and not send people down different regulatory tracks? What is special about the schemes that I have mentioned, and what is the point of the provision in respect of the country in which a scheme's main administration takes place? Why do we have the two categories, with some sort of gap in between them? I am sure that clarification of those points by the Minister would be helpful for the House.

Chris Pond (Labour, Gravesham)

The hon. Member for Tatton (Mr. Osborne) sought to make us all jealous by telling us what his diary looks like for the next few weeks, given his involvement with the Finance Bill as well as this Pensions Bill. He asked why we were proposing a new clause that deals with definitions, given that we spent a long time discussing the Bill in Committee. I can tell him that new clause 25 and other new clauses that we are putting forward are consequential on the Finance Bill.

The hon. Member for Northavon (Mr. Webb) said that the Government were going in for extra complication because of the simplification being introduced in the Finance Bill. I do not go along with that characterisation, but the Inland Revenue is simplifying its procedures for exempting pension schemes and is moving away from the eight different sets of rules that currently apply to a process of registration. I think that the House will agree that that is sensible if we want to ensure that the system is more straightforward and simple, but it gives us a problem when it comes to classifying pension schemes as either occupational or personal.

The hon. Member for Northavon also said that schemes had been described in different ways throughout the Bill and our discussions, and he referred to money purchase schemes, direct contribution schemes, and so on. The important point is that those terms are descriptions of different types of pension scheme, but that we need to know whether they are classified as occupational or personal pensions. For instance, DC and DB schemes are both occupational pension schemes, but it is important to distinguish between them, as their provisions could be rather different. That is why the changes that we propose are necessary.

David Winnick (Labour, Walsall North)

My immediate diary commitment is that I must go to the Select Committee on Home Affairs very shortly, but I want to take up the point made by both the Conservative and the Liberal Democrat spokesmen. I do not know whether this matter is the subject of some other amendment, but how much information is given to employees to ensure that they understand their pension schemes and how they differ from others? Are trade unions able to give detailed information so that their members can know whether their pensions are personal or occupational, what their rights are, and how to pursue complaints?

Chris Pond (Labour, Gravesham)

When my hon. Friend goes to the Home Affairs Committee, I hope that he remembers to take his identity card with him, or he might not gain entry.

David Winnick (Labour, Walsall North)

Not if I have anything to do with it.

Chris Pond (Labour, Gravesham)

That is precisely why I made that point.

A very important component—of this Bill and of the Government's agenda on pensions—is that people should be able to make an informed choice. We must make sure that people fully understand their responsibilities and entitlements under the various schemes. We want to make sure that the various stakeholders involved, including the trade unions and representatives of scheme members, are given as much information as possible. That is a very important part of what we are trying to achieve, with this Bill and through the wider agenda of informed choice.

The hon. Member for Tatton also asked why the Government have adopted the different approaches evident in the Bill. I can tell him that it is because we need to make sure that the appropriate mechanism for regulation—the pensions regulator or the FSA—is used.

The hon. Member for Northavon asked why all pension schemes should not be regulated by a single organisation. We discussed that matter in Committee, as he will recall. The regulator will be concerned not with the sale or conditions of sale of products such as personal pension schemes, but with making sure that occupational schemes are properly administered. Those are two quite different functions, and we feel that it is sensible to provide that they be carried out separately by separate organisations.

Steve Webb (Liberal Democrat, Northavon)

I accept that the sale of pension schemes is a separate matter, but what about schemes that are up and running? I think that I am right in saying that the Government intend that, in future, an employer can require an employee to join an employer-sponsored group personal pension scheme as a condition of employment. So an employer will make an employee join a scheme and will put money into it, and the scheme will be delivered through the workplace, but the employee, if he is not happy with how the money in a scheme is managed, is supposed to know that that is nothing to do with the pensions regulator. If the scheme were a defined benefit final salary scheme or something similar, the employee would have recourse to a different regulator. Does not that seem an unnecessary confusion for the employee?

Chris Pond (Labour, Gravesham)

We went round this course a number of times in Committee. Of course a number of provisions in the Bill will give protection to people in whatever sort of scheme that is operated, but our feeling is that it is important to have specific forms of regulation for the different types of scheme. When talking about the definition of schemes—whether they are occupational or personal—what is important is the focus of that regulation and trying to disentangle it from Inland Revenue arrangements for the tax exemption of schemes.

I think that I have—

Steve Webb (Liberal Democrat, Northavon)

rose—

Chris Pond (Labour, Gravesham)

Oh, there is one further point to address before the hon. Gentleman rises to speak. He gave a hypothetical example of the French scheme and an occupational pension scheme based in another member state—a cross-border scheme. We will apply elements of pensions legislation under the provisions that we shall discuss in a few minutes when we deal with cross-border arrangements. Perhaps we could defer my response to the hon. Gentleman's point until then.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for the Minister's response on the specific example that I gave, but the new clause refers to schemes outside member states. If the point of the new clause is to direct people to the right regulator, what dominion does the pensions regulator have over schemes based outside member states? Why is there reference to anything to do with schemes outside member states?

Chris Pond (Labour, Gravesham)

As I shall explain in a few moments, the regulator will have a role in relation to schemes that have a host member state, if we are talking in EU terms, from which the contributions flow. That is what I hope I shall be able to clarify when we talk in a few moments about some of the cross-border and multinational issues.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 26 — UK-based occupational pension scheme to be trust with effective rules

Chris Pond (Labour, Gravesham)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following:

Government new clause 27—Non-EC occupational pension scheme to be trust with UK-resident trustee.

Government new clause 28—Representative of non-EC occupational pension scheme to be treated as trustee.

Government amendments Nos. 213 and 214.

Chris Pond (Labour, Gravesham)

I have not had to ask the hon. Member for Northavon (Mr. Webb) to be patient for too long, because we are now talking about new clauses 26, 27 and 28, which will ensure that occupational pension schemes established in the UK and those established outside the EU that have employees in the UK continue to be set up under trust. Occupational pension schemes that are established in other member states are not covered by these clauses, and I will deal with those when we come to the clauses on cross-border schemes in a few moments.

New clauses 26 to 28 are consequential on the tax simplification provisions in the Finance Bill and are in compliance with the European directive, which demands legal separation between an occupational pension scheme and a sponsoring undertaking. At the moment, it is a condition of tax approval that an occupational pension scheme is set up under trust. Under the new arrangements introduced in the Finance Bill, that condition will no longer apply. As I have explained, instead there will be a single simplified registration regime for all pension schemes for tax purposes. The same registration requirements will apply for all schemes.

It has long been the practice in UK pension schemes to use trust law to provide that separation, and this approach is recognised by the directive. We also believe that trust law continues to be the best legal basis under which occupational pension schemes in the UK should operate. The Pensions Act 1995 and other pensions legislation are built on the foundation of trust law and it offers the best means of providing security and confidence for scheme members. These clauses, therefore, maintain the requirement that an occupational pension scheme established in the UK must be set up under trust. Subsections (1) and (2) of clause 26 provide that where an occupational pension scheme has its main administration in the UK, it can accept funding payments—contributions and transfer payments—only if it is established under trust. Similarly, subsection (3) provides that a scheme must have proper written rules before it can accept funding payments, as demanded by article 9 of the directive. As schemes already have written trust deeds and rules, this is not a new or onerous requirement.

Subsection (4) allows us to make regulations to exempt certain schemes from the requirements—statutory schemes for example. Subsection (5) gives the pensions regulator the power to sanction trustees or managers who accept payments into a scheme that is not trust based or does not have proper written rules.

Clause 27 makes similar provisions for occupational schemes that have members in the UK but where the scheme is established outside the EU. It provides that such a scheme cannot accept contributions unless the scheme is established under trust and there is a trustee in the UK.

New clause 28 permits overseas schemes to appoint someone to act on their behalf in the UK, and for that person to be treated as the trustee under UK pensions legislation. Amendments Nos. 213 and 214 amend clause 62 of the Bill and are directly consequential on these new clauses. Clause 62 provides that an inspector may enter premises that are liable to inspection, in order to investigate whether specified provisions of pensions legislation are being complied with. Premises are liable to inspection if the inspector has reasonable grounds to suspect that members of the scheme are employed there, documents relevant to the administration of the scheme are being kept there, or the administration of the scheme, or work connected with the administration of the scheme, is being carried out there. These amendments are necessary so that inspections may be carried out to investigate potential breaches of the requirements of these new clauses.

The new clauses ensure that the long-established arrangement under which occupational pension schemes are established under trust law is maintained. In doing so, they provide that the legal separation of the pension scheme and the employer is also maintained, and that UK workers continue to have the protection of the Pensions Act and other pensions legislation that provides protection for UK workers.

George Osborne (Conservative, Tatton)

I do not wish to detain the House for long. I have a question, and I begin with an observation. It seems to me that many of the new clauses are consequential on the Finance Bill. Why is the Department for Work and Pensions playing catch-up? After all, the Finance Bill has been around for more than a month, during which time we have considered the Bill in Committee. One can only assume that the new pension tax proposals were drawn up in consultation with the DWP. Far be it from me to assume that the Treasury did all this without letting the DWP know or that it merely informed the Department once the process was over. If the proposals were dreamed up with the DWP, I am surprised that they were not built into the legislation as we discussed it in Committee. There we go, that was my comment.

My question, which is straightforward, is one of information, and I do not know the answer. Are there occupational schemes that are not statutory—that is, not prescribed schemes—and are not trusts? I understand the point that the Minister made, that under the process of tax approval it is a condition that a scheme is set up as a trust, but I want to know whether there are any exceptions to that rule that will be caught by the new clause? Is the Department absolutely certain that there will be no unintended consequences, even if it is on a small number of non-trust occupational schemes. I just want to check that the Government have done their homework.

Steve Webb (Liberal Democrat, Northavon)

I am grateful to the Minister for returning to the point about schemes based outside the member states. That is what new clause 27 deals with. This has a slight "Britannia rules the waves" feel to it in the sense that new clause 27(2), which deals with schemes that have their main administration outside the EU, says that an employer based somewhere in the UK can pay contributions to a scheme outside the UK, say in north America, only if the conditions in subsection (4) are met. One condition in subsection (4) is that there has to be a UK-resident trustee. Say I lived in the UK but my pension scheme was run in north America. Under the provision, my employer could not pay money into my pension scheme unless it had a UK-based trustee. What would happen if my employer did pay some money into my pension scheme? After all, the scheme is based in the US, not in the UK. The pensions regulator will not march down Wall street, bang on the door and say, "You shouldn't have taken that money, you naughty people. Give it back."

What is this all about? I do not understand what the Government are trying to stop. We no longer have tax-approved status, and surely the pensions regulator has no jurisdiction over a scheme based in north America or elsewhere. We will come to the issue of the EU and reciprocal arrangements later. Does new clause 27 have any force? If employers want to put money into schemes run in north America for their employees, good luck to them. If that does not satisfy the condition in new clause 27(4), that would be tough luck. What would be the consequence of failure to adhere to new clause 27, given that the pensions regulator, who is supposed to enforce such matters, would have no jurisdiction? I hope that the Minister can clarify that point, because I am at a loss to understand it.

Chris Pond (Labour, Gravesham)

The hon. Member for Tatton (Mr. Osborne) raised the issue of whether there are occupational pension schemes that are not trusts and therefore whether the new clause would have unintended consequences. I can reassure him that we have done our homework on that point. I am not expecting that inspiration will tell me that any such schemes exist, but if that inspiration hits me later in the day, I will share the information with him.

The hon. Member for Northavon (Mr. Webb) asked whether new clause 27 would have any force. I should explain that the regulator will have a locus over the UK-resident trustee if a scheme has its main administration outside the UK. That is the purpose of having a trustee based in the UK. In the case of trying to have some sort of enforcement in terms of a scheme based outside the UK, he suggested that the regulator would march down Wall street, but we have not built foreign travel for such purposes into the regulator's budget. However, I am sure that my hon. Friend the Minister for Pensions would be happy to undertake such responsibilities. We expect that the regulator in the countries where the schemes operate will work with the domestic regulator and, therefore, the information will be supplied. The expectation is that the regulator in the other countries would use domestic regulation to ensure that scheme members' interests were properly upheld.

Steve Webb (Liberal Democrat, Northavon)

That was a fascinating response. The Minister initially said that the UK pensions regulator has locus when there is a trustee in the UK, and indeed that is the condition in subsection (4). I asked what would happen if that condition were not satisfied, there was no trustee in the UK and the firm said, "We don't care what British law says. We are going to put some money in our workers' American pension scheme. Get lost." Is the Minister really saying that the British pensions regulator will have to liaise with pensions regulators in every country in the world that might have the head office of a firm that employs a UK employee? Some such countries may not even have pensions regulators. What if the foreign pension regulator does not agree with the Government on the necessary requirements? I am completely bewildered by the matter. Has any dialogue taken place with regulators in other countries to see whether the Government's proposal is realistic?

Chris Pond (Labour, Gravesham)

As the hon. Gentleman will know, the community of pensions regulators throughout the world operates on a comradely and co-operative basis. Given that they have shared interests, in that multinational cross-border arrangements are increasingly common, our expectation is that co-operation will occur. In some circumstances, that may not happen, although the Wall street example is not necessarily a good one. We may need to revisit the issue if that proves to be the case, but we are confident that the provisions will work better than the current arrangements, albeit without being the perfect solution.

If a firm has workers in the UK, they should be covered by UK pensions legislation. If there is no UK-based trustee, it is the employer who is subject to sanctions by the regulator, and that is how sanctions would be applied in the hon. Gentleman's example of a US scheme refusing to set up a trustee in the UK.

I can tell the hon. Member for Tatton that no further inspiration has come to me on whether there are any occupational schemes that are not trust based. As far as the DWP and the Inland Revenue are concerned, we are aware of no such schemes.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 27 — Non-EC occupational pension scheme to be trust with UK-resident trustee

New Clause 28 — Representative of non-EC occupational pension scheme to be treated as trustee

New Clause 29 — Activities of occupational pension schemes

Chris Pond (Labour, Gravesham)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss Government amendment No. 215.

Chris Pond (Labour, Gravesham)

I need not detain the House too long on new clause 29, which is closely related to new clauses 25, 26, 27 and 28, which we have just discussed. It assists in the UK's transposition of European directive 2003/41/EC. This clause will implement article 7 of the directive. The article requires the UK to limit occupational pension schemes to carrying out activities that relate either to retirement benefits, or activities that arise from that activity.

Currently, pension schemes are restricted from carrying out activities that are unrelated to pensions through requirements that arise as part of the Inland Revenue's tax approval process. Through this new clause, we largely achieve the same result. It is, however, necessary for the purposes of transposing the directive to place this requirement in pensions legislation separately from the tax approval process.

Amendment No. 215 is a consequential amendment linked to new clauses 25 to 29. It will amend clause 62 of the Bill, to ensure that the pensions regulator can inspect premises to investigate a potential breach of this clause.

George Osborne (Conservative, Tatton)

Like the other new clauses we have discussed, new clause 29 appears to be consequential on the proposals in the Finance Bill. Subsection (2) provides an exemption for

"a prescribed scheme or a scheme of a prescribed description."

I wonder whether the Minister could tell us what sort of schemes are prescribed and do not offer "retirement-benefit activities", and why subsection (2) has been included. As, presumably, we are introducing the new clause so that we comply with European legislation, would not a prescribed scheme that did not offer retirement-benefit activities be illegal under European law? In that case, what is the point of subsection (2)?

Chris Pond (Labour, Gravesham)

If the hon. Gentleman will bear with me on that point, I shall get back to him once I have received inspiration about the answer to his question.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 30 — Payment of surplus to employer

Malcolm Wicks (Labour, Croydon North)

I beg to move, That the clause be read a Second time.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following:

Government new clause 31—Payments of surplus to employer: transitional power to amend scheme.

Government amendments Nos. 175 to 180.

Malcolm Wicks (Labour, Croydon North)

The new clauses provide new rules governing occupational pension schemes making payments to an employer from an actuarial surplus in an ongoing scheme.

Section 37 of the Pensions Act 1995 allows pension scheme trustees to make a payment to an employer only where the Inland Revenue has approved the payment as part of a strategy to reduce an excessive actuarial surplus. The Inland Revenue currently requires schemes to take steps to reduce such surpluses. Section 37 also imposes further conditions, for example, by extending limited price indexation to all the rights of members and by requirements on informing members.

The tax simplification measures in the Finance Bill remove the requirement to reduce an excessive surplus, which in turn requires a consequential amendment to section 37 of the Pensions Act. However, simply removing the reference to tax law in the Pensions Act would leave the matter of making payments to the employer entirely dependent on the rules of individual schemes. We do not believe that would provide an adequate safeguard against the inappropriate removal of funds from pension schemes, so we propose to replace section 37 with a provision that allows us to ensure that such payments are not made unless a scheme is sufficiently well funded, to the extent that it can more than cover the accrued rights of a scheme.

New clause 30 provides for the making of regulations, which will be used to ensure that payments to an employer may not be made from a defined benefit scheme unless it is funded to a level sufficient to purchase annuities and deferred annuities securing the rights of all members and beneficiaries. That is known as the full buy-out level. The scheme actuary will be required to carry out a valuation and provide a certificate confirming that those conditions have been met before a payment can be made. Trustees must also be satisfied that such a payment would be in the interests of members.

We believe that the higher threshold for the withdrawal of surplus funds serves members' interests better than the present requirement to enhance members' benefits by the application of limited price indexation to all scheme benefits before a payment to the employer can be made, so that requirement is dropped. However, existing statutory or scheme indexation will of course be reflected in the valuation of the scheme's liabilities carried out by the actuary.

The new clause also allows for rules to be made governing payments to employers from defined contribution schemes. Regulations will define the more limited number of occasions when refunds of an excess of assets over liabilities may take place in defined contribution schemes, such as where, for example, a member of an earmarked scheme takes a refund of his contributions, leaving the employer's contributions as a surplus.

The process for making a payment of surplus will be simplified, but members will have to be notified of the intention to make a payment and given time to make representations on the matter to the regulator, who has powers to intervene if the payment appears to be irregular. The Finance Bill provides that any such payments will continue to be taxed at 35 per cent.

At present, Revenue requirements for tax approval generally require scheme rules to prohibit payments to employers except in accordance with Revenue rules and with Revenue approval. Those scheme rules would be ambiguous given the removal of the Revenue requirements, so new clause 31 contains transitional provisions to allow trustees to amend their scheme rules consequential to the relaxation of Inland Revenue and current section 37 requirements. Where schemes may currently make payments of surplus to the employer, trustees may choose to continue to do so; but if they do not so amend scheme rules within five years of the commencement of the provisions, they will be unable to make such payments.

Amendments Nos. 175 to 180 are consequential to the replacement of the existing section 37 and to the requirements under schedule 22 of the Income and Corporation Taxes Act 1988. They also remove the requirement for limited price indexation to be applied to all pensions before an excess of assets over liabilities can be paid to an employer where a scheme is winding up. That is to ensure that the valuation of assets and liabilities in a scheme that is winding up is in line with the new section 37 requirements for ongoing schemes.

Steve Webb (Liberal Democrat, Northavon)

I apologise to the Minister for having missed the beginning of his speech. It would inform our discussion if he could clarify how it would ever be in the interests of scheme members that money was taken out of their pension fund and handed back to their employer. How could that ever satisfy the interests of members?

Malcolm Wicks (Labour, Croydon North)

It is in the interests of members that their full pension rights should be protected, so that in due course their pensions are paid. It would, however, be absurd to argue that a pension scheme should have substantially more than it requires for that purpose. As the hon. Gentleman missed my introductory remarks, he may not realise that we are saying that in the new regime money could be paid back to an employer only when the actuary has substantiated—by signing a certificate and so on—that there is a full buy-out fund in place should that become necessary. Currently, it may seem unlikely that we could return to circumstances where there is more than enough money to meet pension rights, but after several tests money could, in those circumstances, be returned to the employer, bearing in mind that the employer is normally—although not always—the major funder of the company pension scheme.

I believe that our proposals strike a fair balance between the legitimate interests of both members and sponsoring employers. Restrictive rules on building up and retaining surplus in pension funds since the 1980s are frequently cited as having played a role in contributing to the funding problems of the last few years. At the same time, there are naturally also concerns that employers should not be able to cream off surplus funds where that could affect the fundamental well-being of the scheme—the point that we have just discussed. The complementary changes in tax and pensions law requirements are aimed at solving both those problems. In future, there will no longer be a restriction on employers who wish and are able to fund their scheme generously, but at the same time they will be able to remove funding only above a level that should not threaten the health of the scheme.

George Osborne (Conservative, Tatton)

The new clauses bring in significant changes to the rules governing the disposal of scheme surpluses. I am beginning to sound like a cracked record, but I point out again that it is extraordinary that we have not been accorded a proper process to scrutinise something that will affect every member of an occupational scheme and many employers.

As the Minister acknowledged, the present problem is usually one of deficit rather than of surplus, but it is important to get the rules right and to prepare for a future, perhaps under a Conservative Government, when the stock market recovers and schemes are in surplus. I thus have a direct interest in ensuring that the rules are right.

One of the problems we face is that much of the detail is left to as yet unpublished and unseen regulations. Indeed, we have only just seen the new clause. The regulations will include matters such as the valuation of the assets and liabilities of schemes, which assets and liabilities are to be taken into account, the maximum amount that can be paid, who should carry out the valuation and who should inform the Inland Revenue and the pensions regulator—a very significant detail.

My favourite sentence in the explanatory notes, which I found when I was reading them last night, is:

"The Government will, as customary, consult extensively on these draft regulations before laying them before Parliament."

Very little consultation on any of those proposals is taking place. The Bill is being rushed through on Report in the House of Commons, where a couple of Members are taking part, both of whom only saw these new clauses on Friday. They had not received representations from outside bodies because they have had no chance to examine or comment on such things in detail, and the whole thing goes through on the nod. Indeed, as we heard during the debate on the previous clause, the Minister did not really know what he was putting through Parliament. Perhaps he will say something about what he imagines will be in the regulations.

Certainly, when I asked the National Association of Pension Funds what it thought of the new clause—I stress that it said that it had not had time to reach a formulated viewpoint—its initial observations were:

"Much of the detail is to be prescribed so it is difficult to comment. From the clause as it stands it is difficult to be sure what level the funding needs to be in order for a surplus payment to kick in. If the main aim is to protect the PPF then one would assume that the funding level would be to full buy-out basis. If that is the case, how useful is this clause? You would also need to get clarification of who owns the surplus and ensure that there are correct powers to pay the money back out of the fund."

The Minister said—this is clear in the explanatory notes—that in the great majority of cases, the new rules will be more restrictive than the existing Inland Revenue requirement that those provisions supersede. What assessment has the Minister made of the resulting impact on the scheme and the ability to move surpluses to employers? What consultations has he had with the industry? Will there be any unintended consequences? In Committee, we discussed the unintended consequences of the minimum funding requirement's impact on gilts, for example. Will any unintended consequence be involved in requiring schemes to hold on to surpluses that they would otherwise have disposed of?

May I ask the Minister—perhaps this is the wrong place in our proceedings on the Bill, but I do not think that it is—how these proposals interact with the European pensions directive's requirements on surpluses? I am sure that the Minister will be aware that there is enormous concern in the pensions industry that the EU directive will force company pension schemes to hold sufficient assets so that, at all times, they are able to pay out all the benefits promised to members, whereas the UK rules tend to be more flexible, allowing schemes to take a longer-term view of promised benefits, without being held to the day-to-day movements of the stock market, for example. As a result, UK schemes have not had to hold as many assets as their European counterparts. Of course, that has not only downsides when schemes turn out to be underfunded, but upsides in allowing schemes to pay more generous benefits and encouraging more companies to set up schemes.

The industry says that complying with the EU directive could cost up to £300 billion—a huge sum—and I have no reason to doubt its figures. Interestingly, at the end of last year the chief executive of the NAPF, Christine Farnish, said:

"The UK has to implement this directive. Continuing to provide a defined benefit pension is a hugely costly undertaking for supervising employer. We know a number of firms have closed their schemes to new members but our concern is that greater numbers will also close to future accruals because of these extra costs. It is unquantifiable, and finance directors do not like having that sort of risk on their balance sheets. It is very dangerous and very costly to UK schemes, and because the rules cannot be scheme-specific, will no doubt lead to endless battles in the court. It is ridiculous; it is not the real world."

That is what the chief executive of one of the most respected pensions organisations has said.

I mention the EU pensions directive because these proposals relate to scheme funding and the interaction with the disposal of surpluses. Are these new clauses compliant with that directive, or will the Government have to return with further new clauses, perhaps in the other place? How will the Government deal with the industry's concerns on this important point?

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

However much I welcome the announcements on retrospective matters, I do not want that welcome to blunt my critical faculties in relation to these new clauses. To vest in a regulator the right to say whether a surplus can be considered in terms of the employer's benefit is a bridge too far.

I have considered regulators across a range of industries and I have not yet found one from a trade union background. They all seem to come from that group of people who have been involved in the world of the City for many years. I am drawn again to the wisdom of Woody Guthrie, the American folk singer. [Interruption.] Yes, he guides me on so many things.

John Robertson (Labour, Glasgow Anniesland)

Here we go.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

No, no—my hon. Friend will be interested in this. On occasion, Woody Guthrie said:

"I've been robbed more times by a man with a fountain pen than I ever have been by a man with a six-gun."

I have noticed that the Minister is holding a pen—it may not be a fountain pen—and the complexities of what he was explaining, which I tried desperately hard to follow, leave me a little apprehensive. Again, the conspiracy theory may be coming to the forefront, but who will the regulator be, who will he listen to and what note will he take of the workers' interests? How much will he or she be in hock to his or her colleagues in the City, who, frankly have only one interest in life: to ensure that they and their colleagues benefit to the greatest extent that they possibly can from our hard-earned wages?

We have gone through a recent period in history when, in another way, companies have taken very long pension holidays because the funds have been so much in surplus that it seemed pointless adding any more money to them. Yet we now find, of course, in the changed circumstances of a much reduced stock market valuation of pension funds, that that money could have been usefully put towards ensuring that workers actually got their pensions.

I welcome the announcements about retrospective pension failures because it is natural justice that something should be done, but are we not putting ourselves in the very same position again? Is it not likely that in the not-too-distant future—perhaps just 10 years down the line—a similar set of circumstances will occur where a surplus is paid back to an employer?

I make the point, as an aside, that we are talking about deferred wages. However they might be defined legally, the money is part of people's wages. It is theirs; it is not for someone to take it away from them again, which is what has been happening and to which I imagine these new clauses are designed to put an end. However, by any name we are talking about the employer taking out the money that has been put in by them exclusively, using whatever mechanism—the very dodgy one of a regulator worries me more than enough—when the money involved should be paid to the workers in any event but is taken back from them to pay a bonus, which is all I can call it, to an employer who can convince the regulator, or someone else, that the fund is so much in surplus that it is pointless not to take out that money. I think that I have a legitimate reason to worry.

The Minister will know that probably upwards of 500 people in Wolverhampton will, I hope, benefit from the retrospective provisions. What I do not want to happen is that whoever is standing here in 10, 15 or 20 years' time has to say exactly the same thing because the money that should rightfully be in workers' pockets, or at least in a very safe fund, has found its way back to the employer's pockets at the expense of the workers, who then find themselves with no pension. I hope that the Minister will give us a very convincing reply about why I should have any confidence in a regulator. However, if there must be a regulator, could that regulator have a duty to consult the workers' representatives before deciding to pay back any surplus?

Steve Webb (Liberal Democrat, Northavon)

I was asked by one of the broadcasters about today's deliberations, and I said that this debate was very much one for anoraks. However, this new clause touches on meaty issues relating to pensions, to our concerns about our constituents' pension rights and to the circumstances in which money can be taken out of pension funds. These are practical and important issues. I hope that "Today in Parliament" is listening.

I want to ask the Government to withdraw the new clause because there is a mistake in it. I am sure that the House has read all the texts carefully, but I have a confession to make. I have only just read the fine print of new clause 30 which will replace section 37 of the Pensions Act 1995, and I refer the Minister to proposed new subsection (3)(d). It says that

"the trustees are be satisfied that it is in the interests of the members".

The phrase "trustees are be satisfied" is not grammatical.

I will come to the point about pension surpluses in a minute, but I assume that the fact that the grammar is wrong partly reflects the speed with which the new clauses and amendments were tabled. I assume that the Government do not want an ungrammatical sentence to become part of the law of the land, but I do not know what "trustees are be satisfied" means.

Andrew Miller (Labour, Ellesmere Port and Neston)

"Are be" sounds like west country to me.

Steve Webb (Liberal Democrat, Northavon)

Yes, the phrase does have a west country ring to it, but I hope that the Minister will withdraw the new clause and table it again in another place with the grammatical error corrected.

There are other reasons why we should have substantive reservations about the new clause. Let me be sure that I understand what is going on. The Finance Bill and the pension simplification are getting rid of the 105 per cent. rule, and that must be a good thing. I hope that the Minister will stop me if I am wrong, but I understand that that rule—which said that a scheme that gets to 105 per cent. funding is so badly over-funded that we must take money out of it—is going. If I am right, that is a good and welcome change.

Whereas one of the ways in which a surplus could be disposed of hitherto was by providing enhanced benefits, the new clause says that there is no longer a requirement for that to be the first thing that a scheme does. The enhanced benefits that no longer have to be provided are indexation benefits—other than those already in the scheme rules—that relate to pre-1997 service. Post-1997 service must be indexed. Given that we are only in 2004, if someone coming up to pension age has worked in a company all their working life, three quarters or more of their service could be pre-1997 and could have no indexation rights attached to it at all. Surely if there is a surplus in the fund, the first call on that surplus should be to do something about the non-indexation of rights earned pre-1997. Money should not go out of the fund instead. If we are interested in avoiding pensioner poverty, in building up occupational pensions and in increasing funded pension rights, the first call should be pre-1997 indexation. It is surely wrong that the new clause allows an employer to request that money be taken out of the fund to the benefit of the employer when scheme members will receive pensions that will, to all intents and purposes, be frozen because of very limited price indexation. That worries me greatly.

The Government's goal is to raise from 40 per cent. to 60 per cent. the proportion of income in retirement that comes from funded pension schemes. Although the new clause might be an own goal, the Government can further their objectives by saying that before so-called surplus money can be taken out of a pension fund, it must be spent on the bare minimum of indexation of pre-1997 entitlements. That surely should have the first call. Although I welcome the abolition of the 105 per cent. rule—I never understood why we had to have it in the first place—I am unhappy about the suggestion that firms can simply take the money.

The Minister said that there would be a certification process and that the change would be in members' interests. However, I do not understand how it can ever be in members' interests for money to be taken out of a fund when their pre-1997 rights have not been indexed. When I intervened on the Minister, he said that the scheme has to provide buy-out rights. In other words, before a surplus comes out of a fund, the scheme must prove that it has enough money to meet the buy-out equivalent rights of some of the scheme members. However, those buy-outs presumably do not cover indexation for pre-1997, so there is no guarantee that the interests of the scheme's members will be looked after in respect of their pre-1997 rights, which, as I said, could be the majority of the accrued rights.

Although there must be certification that a change must be in the interests of the members, the test does not appear to be very strong. Therefore, the Minister should revisit the new clause not only because the grammar is wrong, but because it does not boost occupational pensions. It potentially undermines them.

The past few years have shown us that the valuation of funds is hugely volatile and that a certification at a point in time that there is enough money in the fund may prove to be wrong some years down the track. Given that stock markets can fall by half in three years, a certificate on a particular day that the valuation is enough to meet future liabilities is far from the same as saying that that will always be the case. One cannot certify that a scheme will always have enough money to meet the liabilities. One can only say at a point in time that it is one's best guess that there is enough money. That is not sufficient protection for scheme members.

I am simply not convinced that the new clause will protect the best interests of scheme members. When there is surplus, the requirement first to provide for indexation has been explicitly abolished, so I do not think that the interests of members will be served. This is a substantive issue and I am worried. I hope that the Minister can reassure us that scheme members' interests really will be served by the change.

Andrew Miller (Labour, Ellesmere Port and Neston)

Thank you for calling me, Madam Deputy Speaker. You missed an interesting exchange with my hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase), who quoted Woody Guthrie. I thought that he was about to burst into song, but he made pertinent points about the circumstances in which surpluses arise. You will be aware that, in a previous life, I used to negotiate with large companies about the distribution of their surpluses for the benefit of fund members.

I wish to make two points. First, I welcome the fact that the proposal will be subject to consultation. During the consultation, a couple of important points need to be examined. The courts in this country have long accepted that, when there is a massive surplus, employers are entitled to seek the recovery of some of that on the grounds that they took risks in bad times and are therefore entitled to some of the money back in good times.

If that principle remains—we should examine that point with care—a separate set of circumstances applies when a takeover takes place. The courts frequently fail pension funds if, in a takeover, an incoming employer takes none of the risks but seeks to take a significant part of the gains. Many of the trade unions that now form Amicus used that argument against Lord Weinstock when GEC took over Plessey, and it became an important piece of case law. However, now that the Minister is developing the regulations, he has the opportunity to protect the members of funds that may be in surplus by preventing an incoming employer from distributing those funds. I firmly believe that those funds should be distributed only in the interests of existing fund members.

Secondly, prior to the granting of certificate and any attempt to recover surpluses, it is incumbent on good employers to seek to maximise the benefits of the scheme up to the Inland Revenue maximums. I hope that both those points are taken on board in the consultation and the development of the regulations.

Paul Holmes (Liberal Democrat, Chesterfield)

I wish to pick up a point made in an intervention by my hon. Friend the Member for Northavon (Mr. Webb), which was later elaborated by the hon. Members for Wolverhampton, North-East (Mr. Purchase) and for Ellesmere Port and Neston (Mr. Miller). When I return to my constituency on Friday I will talk to people previously employed by two or three firms in Chesterfield who have lost their pensions, and I hope that the Minister can help me to answer questions about the removal of excess money in a pension scheme, which they have been asking for the past three years.

Chesterfield Cylinders was one of the six firms that were part of United Engineering Forgings, which lost much of its pension fund in 2001—an issue that I have raised both in letters to the Minister and in the Chamber. In the intervening period, members of the pension fund have raised something that I have been unable to explain fully, although the contribution of the hon. Member for Ellesmere Port and Neston will help me to do so in future.

In the past, employers took pension holidays, as legislation required them to do, because the pension fund was doing extremely well and had "excessive surpluses". In the bad times, however, they were not required to make up all the difference. From next year, with the establishment of the pension protection fund and so on, some of those problems will not arise, but I still struggle with the concept, discussed by other hon. Members, of having an excessive amount of money in a pension fund. If it is doing well, perhaps because the stock market is strong, why is it not worth keeping that surplus as a hedge against future years when the stock market does less well? In Committee we discussed the American protection fund, which did extremely well for 30 years. Pension funds overall did very well, and there was no significant challenge to the protection fund. Recently, however, it has experienced a few bad years. Why cannot excesses in pension funds from earlier years, when the stock market and companies did extremely well, be banked and hedged against future bad years?

The members of the work force at Chesterfield Cylinders or, more recently, at Coalite near Chesterfield, cannot understand why, given that their employers took pension holidays in the past, they have been told that there is no money to meet their deferred wages or investment in their future pension. They have lost out, but only a few years ago the surplus money was there.

Bill Tynan (Labour, Hamilton South)

I, too, welcome the abolition of the 105 per cent. rule, which is detrimental to many companies and schemes. I speak from personal experience, as Hoover in Cambuslang, which also had factories in Merthyr and Perivale, was the subject of a takeover. It was bought by Chicago Pacific because it had a surplus of more than £270 million in its pension scheme. There is a danger that the new clause would allow other employers a similar opportunity. If we took a snapshot of the stock market at any time we might find that there was a surplus in funds, but that surplus might not exist six months or a year later.

I accept the point about index linking and percentages before 1997, but I do not accept that surpluses in pension schemes are a problem. I only wish that there had been such surpluses in the past few years, as we would not need the pension protection fund that we are establishing. Workers always believed that trustees were appointed to look after the best interests of scheme members and that the scheme was separate from their employer's finances so it would always be protected. However, over the past few years that has proved not to be the case. While I welcome the consultation and the abolition of the 105 per cent. rule, I would prefer us to see a healthy surplus in a pension scheme than find ourselves in the position of having to fund a scheme such as the PPF, even though that is a welcome innovation. I would prefer schemes to be properly funded, and the best way to encourage good occupational pension schemes is to ensure that the legislation is correct. We have an opportunity in the Bill to look carefully at what we are doing, so that, hopefully, we can encourage employers and employees to make a contribution to saving for the future.

Malcolm Wicks (Labour, Croydon North)

Members have made a useful scrutiny of the proposals, enlivened by a question about the use of English and reference to the great Woody Guthrie, an inspiration to many of us, including Mr. Dylan, the great US poet. We will take a number of issues on board in the consultation, including matters raised in the final few speeches on the new clause. My hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) made an important point on which we shall reflect when developing our consultation plans.

John Robertson (Labour, Glasgow Anniesland)

Does my hon. Friend not accept that the Government do not have to take on board points made in the consultation? Something more than consultation is needed.

Malcolm Wicks (Labour, Croydon North)

Indeed. I hope to cover that later.

My hon. Friend the Member for Wolverhampton, North-East (Mr. Purchase) and I are glad to focus on the weighty matter of pensions, given the sad circumstances in which the team that we both passionately support finds itself. We have no reason to prevent employers from seeking a refund from a scheme that is genuinely overfunded, and we believe that the full buy-out standard provides a safeguard against the inappropriate reduction of scheme funds.

Steve Webb (Liberal Democrat, Northavon)

Will the Minister give way?

Malcolm Wicks (Labour, Croydon North)

I am happy to do so in a moment, but first I should like to make progress on an issue raised by several hon. Members. As I set out in my opening remarks, the tax regime does not allow schemes to hold funds 5 per cent. above their requirements, but that will soon change. It is therefore important that we look at circumstances surrounding a possible surplus. I reiterate that this is not about exercising a light touch and allowing trustees to give money back to employers in various circumstances. The requirements for a full buy-out are extremely tough indeed. As I have said, new clause 30 provides for the making of regulations, which will ensure that payments to an employer may not be made from a defined benefit scheme unless it is funded to a level sufficient to purchase annuities and deferred annuities securing the rights of all members and beneficiaries—the "full buy-out" level. That is a very tough level. The full buy-out standard provides a significantly higher margin of error for stock market fluctuations, for example, than other possible methods of valuation do. I went on to make the point that that would have to be certified by the scheme actuary before anything of the kind was possible.

Steve Webb (Liberal Democrat, Northavon)

On the meaning of "full buy-out", can the Minister confirm that full buy-out does not include pre-1997 indexation?

Malcolm Wicks (Labour, Croydon North)

No, it does not require that. Notwithstanding the situation where a surplus may go back to the employer, going into pre-1997 indexation may store up serious trouble for the future. It might seem a useful thing to do, but in terms of the costs over the longer term, there may be serious financial implications, probably way above the amount that may be returned to the employer.

One of the things that has not come out in the debate is that we are not talking about a situation or an era in which the employer's contribution or the employer's need to make occupational pension provision is compulsory. We are not in that position. All of us are concerned about companies that have made judgments in recent times to end or down-rate their occupational pension provision. We should be mindful that there is always the danger that some employers will start to walk away if we put more and more obligations on them.

I reiterate what I said earlier: the crucial point—it is almost a simplistic point to make about pension schemes—is that a scheme should be adequate to provide pensions now and in the future. That is its purpose. It is not the purpose of a pension scheme to become a reserve that is well above what might be required. In the Bill we are putting new obligations on pension schemes, not least the obligations relating to the regulator and the pension protection fund. We are telling schemes that they must contribute to a new pension protection fund. Some call that a burden. I call it a proper obligation in the 21st century, but we must be sensible. If a very significant surplus is built up, way above what is necessary for the pension requirement, in the tough circumstances specified it might be reasonable for that to be returned to the employer. I cannot see the difficulty about that.

Ken Purchase (Labour/Co-operative, Wolverhampton North East)

My hon. Friend used the words "now and in the future". Does he agree that the future has never been accurately defined? The whole of financial history shows that it is almost impossible to predict the future over any great length of time. Does my hon. Friend accept that the new clause, which he presents to us as a way of offering greater protection to employees, still provides the opportunity for money to be taken out of the fund, whereas if it were left in, it would provide greater certainty against an uncertain future?

Malcolm Wicks (Labour, Croydon North)

I understand where my hon. Friend is coming from and I take his warning that none of us can predict the future in that sense, but surely the sensible approach and the obligation is to ensure that pension schemes have sufficient money for the purpose. We are saying—this is quite a high requirement—that there should be sufficient money for full buy-out, should that prove necessary. For us to say that it is an obligation on schemes, and therefore on employers, to have funds way above that level would put an onus on employers that may put some off from continuing their final salary pension schemes. That is a real danger.

We do not want to so over-egg the pension pudding that it could lead to the demise of decent occupational pension schemes. That is our concern. I say that at a time when many Opposition Members accuse us of putting new burdens on employers. We are happy to defend that. The hon. Member for Tatton (Mr. Osborne) is nodding because the Opposition declined to give the Bill a Second Reading. They declined to allow us to introduce a Bill providing for the pension protection fund. That is where they are coming from.

My hon. Friend the Member for Wolverhampton, North-East is coming from a more respectable position. I am arguing that we need to get the balance right between the costs on schemes and therefore on employers, and proper protection for future pensioners.

Bill Tynan (Labour, Hamilton South)

rose—

Steve Webb (Liberal Democrat, Northavon)

rose—

Malcolm Wicks (Labour, Croydon North)

I shall give way first to my hon. Friend the Member for Hamilton, South (Mr. Tynan) and then to my honourable opponent, the hon. Member for Northavon (Mr. Webb).

Bill Tynan (Labour, Hamilton South)

I thank my hon. Friend for giving way. Does he accept that previously, when pension schemes had a surplus, there was considerable regulation on those schemes and on the employer to prevent surpluses being taken out, which would endanger the scheme? It was only because of the level of the stock market at that time that a surplus accrued to schemes. Once the surplus had been taken from the scheme and the stock market fell, there was no surplus and the scheme was in real difficulty. We could be in the same position in the future. In the circumstances, I caution my hon. Friend to look seriously—I understand that it is consultation—at what is being proposed. I still believe that a viable pension scheme could become unviable a year down the line, if the surplus had been taken from the scheme.

Malcolm Wicks (Labour, Croydon North)

That is a perfectly reasonable argument, but I hope my hon. Friend will take on board what I am saying. We are not proposing that in a light touch way, willy-nilly, surpluses can be given back to employers. We are stipulating a tough requirement and that the actuary must be satisfied. If he is not satisfied, the regulator can move in. Full buy-out is a very high requirement.

Some decent employers are perfectly properly putting significant amounts of shareholders' money into pension schemes to improve their finances. I do not think it is so unreasonable—I am repeating myself—that if they are in surplus, subject to the safeguards that I presented, that should be allowed.

We have had a useful debate and perhaps we should shortly wind it up. There was an interesting exchange about language and the phrase "trustees are be satisfied". We thought for a moment that the hon. Member for Northavon used to be the professor of English literature at Bath university. Someone, but I had better not say who it was in case he is accused of regionalism, thought that that was how people spoke in the hon. Gentleman's constituency. I was outraged by the very suggestion. The phrase is not an example of English usage in that part of the country, but rather more mundanely, an error. I wonder, Madam Deputy Speaker, whether it may be treated as an evident printing error, rather than something that requires amendment. I hope that might be possible.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

I should say that the Chair is prepared to treat the superfluous word "be" in section 37(3)(d) of the inserted text as an obvious printing error, which will be corrected.

Malcolm Wicks (Labour, Croydon North)

I am very grateful. That will save all of us time.

I ask the House to support the new clause. I was touched by the reminder of Woody Guthrie. As I recall, he was responsible for that great patriotic song—patriotic in the proper sense—"This Land is Your Land". The purpose of the Bill is to ensure that pensions belong to people—"this pension is our pension". It is very much what we are about. On that lyrical note, I hope that the House are be satisfied with the amendments.

New Clause 31 — Payments of surplus to employer: transitional power to amend scheme

New Clause 18 — Power to make regulations governing investment by trustees of occupational pension schemes

Chris Pond (Labour, Gravesham)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following:

Government new clause 19—Borrowing by trustees of occupational pension schemes.

Government amendments Nos. 166, 167 and 173.

Chris Pond (Labour, Gravesham)

New clauses 18 and 19 insert new powers into the Pensions Act 1995 to fulfil our obligations to implement the provisions of the EU occupational pensions directive on pension scheme investments and borrowing. Most of the pensions directive either already exists in UK law or is being incorporated through our own domestic agenda for pensions reform. However, to make transparent our compliance with the directive in respect of how schemes may invest, we intend to make regulations making explicit, in line with article 18 of the directive, the requirement that trustees invest in accordance with the "prudent person approach". On this side of the House, we know all about prudence.

New clause 18 amends section 36 of the Pensions Act 1995 to allow regulations to require trustees or fund managers to consider the additional requirements when making investment decisions. In broad terms, the requirements will include the need for investments not to affect adversely the overall quality of the investment portfolio, for them to be made predominately on regulated markets and for any investment in derivatives to be part of a strategy of risk reduction or efficient portfolio management.

In addition, new clause 19 allows for the making of regulations providing that schemes may borrow money only on a temporary basis for liquidity purposes and prohibiting them from guaranteeing loans. The provisions are not a Trojan horse designed to impose major restrictions on trustees' ability to manage their scheme's investments. Our policy intention is to disturb as little as possible the ways in which schemes may currently invest. By placing the detailed requirements in secondary, rather than primary, legislation, we will be able to consult extensively on the best way of incorporating the directive's requirements without placing undue restrictions on pension schemes and to ensure that the provisions in pensions law are consistent and coherent with the analogous rules for other financial service products. We shall therefore consult further on the details and we plan, as is customary, to consult on the draft regulations.

Amendments Nos. 166, 167 and 173 are consequential amendments to the Pensions Act 1995 required by the insertion of the new powers. Amendment No. 167 is a further consequential amendment that removes the reference to section 3 of the Pensions Act from section 36 of that Act.

George Osborne (Conservative, Tatton)

Again, significant changes are being brought in at short notice with little consultation. The new clause introduces rules that affect the way in which pension schemes can invest and borrow. Investment is one of the most important activities that pension schemes undertake. Laughably, the Government say in their explanatory notes that they will consult on this measure extensively, "as is customary". We are getting used to the customary consultation of the Government. This is no way to make good law.

The Government think that they need to take on these regulatory powers to ensure compliance with the EU directive. The Minister for Pensions did not answer my points about the directive in the previous debate because he was so busy dealing with interventions from his colleagues, but we will discuss the directive further in the next group of new clauses.

The purpose of new clause 18 is to write into UK law the "prudent person principle", as the Under-Secretary puts it. He talks about prudence. When the tectonic plates start shifting, it is incredible how junior Ministers get their ducks in a row and start to sniff the wind—[Interruption]—to mix my metaphors, as the hon. Member for Northavon (Mr. Webb) correctly points out.

Is the new clause strictly necessary? The Government need to justify it more than they have done. The English common law—as well as the Scottish common law—already imposes a duty on trustees to act with prudence when making investments. The Government thought that that, in effect, required trustees to act within the terms of the directive, so the Government were satisfied with the status quo. However, they have decided that to ensure compliance with the terms of directive and make that transparent, they will incorporate explicitly the requirements of the directive into domestic legislation.

In other words, the Government think that the status quo is adequate but want to make absolutely, doubly sure, so they will regulate, legislate and gold-plate some more. They will write into UK law some specific considerations—not that we have seen the regulations, which would be far too much to ask. They have indicated that the regulations will ensure that

"assets are invested in a manner to ensure the security, quality, liquidity and profitability of the portfolio as a whole."

There will also be a requirement that assets be invested predominantly in regulated markets and the explanatory notes contain a list of others.

There will be a significant set of rules for pension schemes that will prescribe in legislation—in a way that is not prescribed at present—exactly how schemes invest. We have not seen the regulations; as I say, the Government think that they may not be necessary because the common law principle probably covers the matter. Despite that, they are introducing these new regulations to ensure compliance with an EU directive with which the Government think we comply anyway. It seems to be a waste of our legislative time.

Steve Webb (Liberal Democrat, Northavon)

There is a distinction between the way in which UK law has hitherto dealt with these matters and the way in which the EU directive requirement will require us to deal with them in the future. The UK law adopts a principled approach, asking what a prudent person would have done, whereas the EU directive is specific and prescriptive and has a list of things that one can and cannot do. I should have thought that the way in which UK law does these things was better because of the general principle underlying the legislation.

Critically, one does not need to be able to guess in advance what the future shape of financial markets and instruments might be. To give an example, we have not seen the regulations, but the explanatory notes give us a hint as to what they might be. The notes contain a reference to "investments in derivatives." Given that derivatives are themselves a relatively modern invention—I use the term loosely—in the future, there will be new financial instruments. Under UK law, we would not have to worry about that because of the prudent person principle.We do not have to pass a new regulation every time there is a new financial instrument to say whether people may or may not invest in that instrument within the scope of a pension fund. However, if we are governed by the EU directive, the Government think that, to be on the safe side, we had better produce regulations that list explicitly what the directive says that we may or may not do.

Presumably—I hope that the Minister can confirm this—the next time the financial whizz kids invent a new financial product, we will need a new regulation and the Government will have to decide for each new financial instrument whether it is the sort of thing that pension funds may invest in. Governments, by their very nature, are not up to speed on the latest financial instruments, so there would then be a lag and any pension fund could say in its defence that it was clear that it was allowed to invest in the new financial instrument because there had not been a regulation on it, and it was not therefore listed as something that pensions could not invest in. There would no longer be general principle at work, but a list of prescribed things that a fund could or could not do.

That seems an inferior way of regulating pensions and I wonder whether the Minister, on the ground that no one is listening, could offer his personal observations on whether the traditional UK law approach—the general principle of prudence—is better than the EU-driven approach in which everything has to be spelled out and specified, with regulations constantly updated to keep pace with change. Does he share my view that the good old UK way was better?

Bill Tynan (Labour, Hamilton South)

I want to share with the House one of my experiences as a trustee of the pension fund of the Amalgamated Engineering and Electrical Union workers' scheme. I understand that the reason for the new clause is to give more protection to ensure that investments are sound and that a scheme is viable in the long term. When I was a trustee of that scheme, we had a rule—which seemed strange to me, coming from a trade union background—that said that 80 per cent. of the investments had to be in gilts and that 20 per cent. could be in equities. I know that that does not come under the new clause, but it would be interesting to hear the Minister's view on whether we should limit risk by saying that investments in pension schemes should be based partly on gilts, not just on equities, so that there is a mixture to give some protection. That would create an interesting scenario in terms of how fund managers would invest in pension schemes to protect the rights of the workers and employees for whom the scheme was there.

Chris Pond (Labour, Gravesham)

I shall deal first with the comments of the hon. Member for Tatton (Mr. Osborne), who suggested that the new clause arrived late in the day. He will understand that we are seeking through it to try to ensure that we are fully compliant with the European directive and, given that the definitive text of the directive was not available to us until last September and that we as a Government are committed to the process of consultation, we inevitably needed time to bring the proposals forward.

The hon. Gentleman is right in one of his contentions: to a large extent, the provision makes little difference to how we operate the regulation of pensions in the UK or the investment decisions that are a matter for trustees within certain bounds, because much of what is in the directive already reflects common practice in the UK. However, we want to ensure that trustees act in a way that is appropriately described as "prudent", although most trustees operate very prudently as matters stand.

That point was also made by the hon. Member for Northavon (Mr. Webb), who suggested that the approach is not sufficiently flexible and that there is a real distinction between the UK approach and that in the directive. If he looks carefully at the directive, he will see that there is much less of a distinction than he perhaps implied. We are seeking to set the boundaries within which trustees may make their decisions, but considerable flexibility is built in. There is very little imposition on pension schemes precisely because the measures in the directive reflect current UK practice. The issue is one of transparency, and the question also arises of whether common law itself is adequate to demonstrate compliance with the directive, rather than changing the way in which we do things. We are advised that, on that basis, we need to introduce these provisions.

My hon. Friend the Member for Hamilton, South (Mr. Tynan) asked how risk-averse I thought fund managers and trustees should be and talked about the balance between gilts and equities or, indeed, derivatives. I have no view on this matter, because the decision is one for fund managers and trustees. They must judge what is in the best interests of scheme members to ensure that returns are maximised, but they must do so in a manner that is "prudent". That is why that phrase is so important.

The hon. Member for Tatton complained that my hon. Friend the Minister for Pensions did not respond to his point about surpluses during the debate on the previous new clause. I cannot believe that that is so, and just in case he did not hear the response, I repeat that we are compliant on surpluses. The directive does not require schemes to be funded daily to full buy-out levels. Our surplus requirements come into play only when scheme funding is significantly higher, so there is no compliance issue.

I hope that Members understand that we are introducing these provisions largely through regulation to ensure a proper consultation process, so that there is no disruption to the operation of the scheme, and to provide the flexibility that the hon. Member for Northavon rightly craves.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 19 — Borrowing by trustees of occupational pension schemes

New Clause 5 — Occupational pension scheme receiving contributions from European employer

Chris Pond (Labour, Gravesham)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following:

Government new clause 6—General authorisation to accept contributions from European employers.

Government new clause 7—Approval in relation to particular European employer.

Government new clause 8—Notification of legal requirements of host member State outside United Kingdom.

Government new clause 9—Duty of trustees or managers to act consistently with law of host member State.

Government new clause 10—Functions of Regulator in relation to institutions administered in other member States.

Government new clause 11—Interpretation of Part.

Government amendments Nos. 59 to 61.

Chris Pond (Labour, Gravesham)

We are already well into our European journey, and we shall be talking further about the European directive. As the House is aware, we have an obligation to implement the provisions of directive 2003/41/EC, which is known as the occupational pensions directive. As has been said, many of the directive's requirements already exist in UK law or are being incorporated through our own domestic agenda for pension reform. However, new clause 5 is the first of seven new clauses that implement an area of the occupational pensions directive not previously covered to date: cross-border activity, which has already been discussed to some extent this afternoon.

Cross-border activity occurs where an occupational pension scheme administered in one EU member state—described as the home member state—accepts contributions from employers located in another member state, which is described as the host member state. The directive's cross-border provisions are important because they represent a first step towards a single market for occupational retirement provision. New clause 5 sets out the conditions that a scheme must meet before it can start to operate on a cross-border basis. To summarise, a scheme must be authorised to operate on a cross-border basis by the pensions regulator, and it must have exchanged specific information with the regulator, in the form of a notice of intention to operate on a cross-border basis with a specified European employer from a host member state.

The scheme must then have secured the regulator's approval to its accepting contributions from that employer on a cross-border basis.

New clause 6 concerns the first general stage of authorisation that an occupational pension scheme will need to obtain from the pensions regulator before it can begin operating on a cross-border basis. To obtain that authorisation, a scheme will need to demonstrate compliance with all the provisions of the directive.

New clause 7 deals with the additional approval required under the directive by a UK pension scheme provider that wants to operate cross border, once it has chosen a specified member state employer for its proposed cross-border activities. That will involve the regulator assessing the scheme's proposed operations for its compatibility with the legal requirements of the member state in which it proposes to do business.

The regulator will already have liaised with its European counterparts through the formal European regulator network to determine the broad legal requirements of each member state's pensions legislation—known in the directive as "social and labour law". A cross-border pension scheme will need to submit a notice of intention to the regulator and subsequently receive approval in respect of each new sponsoring member state employer with which it wishes to do cross-border business.

New clause 8 places a duty on the pensions regulator to pass on to the prospective UK cross-border pension scheme the details of the social and labour laws of the host member state in which it intends to operate.

New clause 9 places an important duty on cross-border scheme trustees or managers to operate in a manner that complies with the relevant social and labour law of the member state from which employer contributions are being paid. Failure to comply with another member state's social and labour law will, under the terms of section 10 of the Pensions Act 1995, be a sanctionable offence. The pensions regulator will also have the power to revoke authorisation to operate cross border.

I should explain that although the pensions regulator will have the power to take action in such cases, it is not a function of the UK regulator actually to police the social and labour laws of another host member state. That is the responsibility of the regulatory authority of that host member state. Where such a breach is detected, article 20(9) of the directive allows the regulatory body concerned to notify the UK regulator of any irregularity, and it will then be for the UK regulator to act in co-ordination with the host member state regulator to put a stop to that breach of law.

New clause 10 places duties on the UK pensions regulator when acting in a host member state capacity. It applies where the cross-border pension scheme is based in another member state and it is accepting contributions from a UK employer. There are three basic obligations placed on the regulator in those circumstances. The first obligation arises when it receives a notice of intention from the regulatory authority of another member state that a scheme in that member state intends to accept contributions from a UK employer. In such a case, the regulator is required to forward to that regulatory authority details of any relevant UK law that the cross-border pension scheme will need to comply with in its UK operations—over and above the scheme's domestic pension laws.

Secondly, the regulator is required to notify the pension scheme's domestic regulatory authority of any significant changes in relevant UK pensions law. Thirdly, the regulator is to be responsible for monitoring the cross-border scheme's compliance with relevant UK law. Where an irregularity is detected, the regulator is to notify the scheme's domestic regulatory authority, so that action can be taken to rectify the situation. In addition, where the cross-border scheme is breaching the relevant UK social and labour law, subsections (5) to (7) permit the regulator to take action in respect of a UK employer sponsoring a cross-border scheme in another member state.

New clause 11 simply defines a number of terms used in this part of the Bill.

Consequential amendments Nos. 59 to 61 concern the role of the pensions regulator in supervising cross-border pension schemes. The pensions regulator, acting as the UK's "competent authority", will have a vital role to play in supervising such schemes. The amendments will enhance the functions of the regulator to take account of certain cross-border provisions of the directive. Put briefly, they collectively empower the regulator to carry out the two-stage authorisation and approval set out in new clauses 6 and 7 for UK pension schemes wishing to operate cross border. They also add, as a function of the regulator, the power to revoke either the general authorisation for cross-border activity or the specific approval for cross-border activity with a specified European employer.

The amendments also make it a function of the regulator to issue notices directing UK employers that they must take steps specified in the notice in order to remedy a situation where a non-UK EU member state pension scheme, sponsored by the UK employer in question, has breached UK pensions law. They also make it a function of the regulator to issue notices directing UK employers to cease to make contributions to such schemes where there is, or has been, a breach of relevant UK pensions law. The amendments also ensure that the regulator's standard procedures apply to those decisions, and that they may be delegated to the regulator's determinations panel.

The House will note that we are taking regulation-making powers in a number of areas to do with cross-border activity. I make no apology for that. If a single, cross-border market is to develop, implementing this directive will very much be a co-operative process. However, member states are currently proceeding with implementation at different rates. In view of that, we wish to take advantage of the greater flexibility offered by secondary legislation, which will enable us to react appropriately to developments in other member states, if and when required.

George Osborne (Conservative, Tatton)

The Minister has made quite a defence of secondary legislation, both in his most recent contribution and in the wind-up to the previous debate. He said that it provides the Government with more flexibility, and allows them to consult more widely than would be the case if a provision were introduced by means of primary legislation brought before Parliament. Unfortunately, that says a lot about the Government's attitude to the Bill. The Minister for Pensions said that it was a work in progress, and we are seeing that unfold before our eyes.

It is fair to say that we have talked, in connection with recent new clauses, about the potential costs and red tape associated with the EU directive. I accused the Minister of gold-plating in the previous debate, but it is right for us to acknowledge that significant benefits could accrue to the UK financial services industry if we get this matter right. The UK industry is the most developed and sophisticated in Europe, and one would hope that it would be best placed to take advantage of a genuine cross-border market in financial services.

The document produced by the European Federation for Retirement Provision has, of course, been my bedtime reading for some time. [Interruption.] I am glad that that news has woken up the House of Commons. The federation is chaired by the familiar figure of Alan Pickering, who has estimated that the directive, if it works and achieves what he hopes it will achieve, could benefit European pensions by an extra €10 billion. That would be a boon to pension scheme members and to the UK financial services industry, but we must get the details right.

I make no apology for repeating my complaint that it is extraordinary that we have had to wait until now to see the detail of how the Government will implement the directive. The Minister gave the excuse a few minutes ago that the text was produced only in September, but that is eight months ago. The Government have had a long time to consult on it.

Chris Pond (Labour, Gravesham)

We have been consulting on it.

George Osborne (Conservative, Tatton)

The Minister says that the Government have been consulting on the directive, but they have not undertaken active consultation with the industry on the specific detail of legislation. Industry representatives have told me over the past few days that they have not had time to study the new clauses, so it is not true that there has been active consultation.

Indeed, the directive was adopted by the Council of Ministers more than a year ago. I shall not begin a lengthy debate about how the Council of Ministers could agree something three or four months before being given the final text. I have some limited experience of working with bodies such as the Council of Ministers, and such behaviour is unfortunately somewhat familiar. Nevertheless, the Government have had many months to consult on the final text—or the negotiating position that was agreed at the Council of Ministers.

As far as I can understand this group of new clauses, they place certain obligations on the regulator—we are talking mainly about the UK regulator, although of course similar obligations are placed on the regulators of other member states—to keep schemes informed as to the social and labour laws of host member states. Will the regulator be able to rely on the Governments of other member states to keep us informed of changes to their social and labour laws? Obviously, with so many members of the EU now, those laws will be changing all the time in many different countries. Is it the regulator's job to keep on top of that and monitor developments, or is it the duty of member states to keep the regulator informed of changes? Who is liable for the accuracy of the information that the regulator passes on to UK schemes?

Is it the pensions regulator's job to say, "Hold on, the Hungarian Parliament has just changed its employment law"? Can he rely on the letter from the Hungarian embassy and simply pass that on to UK schemes, or will he have to check that that was exactly what was agreed? We know from experience in this place that we pass laws assuming that they will be interpreted in a certain way. They then get to the courts and are interpreted in another way. So whose job is it to keep on top of developments as they unfold in member states? Is it an ongoing requirement to keep schemes informed of the changes as they happen, or is it just a requirement when they are set up? Will the regulator be expected to produce a bulletin saying, "Look at the new law in Slovakia. Look at what has happened in Cyprus. Look at the Finnish Parliament's decision on this social law"? The point that I am making is that it will be a huge amount of work. Is the regulator up to it and who will be responsible for the accuracy of the information?

The directive refers to social and labour laws, but what about tax laws? If, for example, a large American company has its European headquarters in Frankfurt and opens a cross-border scheme based in Britain for all its European employees, do our tax laws apply or do they apply only to individuals working in the United Kingdom? I am talking about the new lifetime allowances, annual allowances and so on. Does UK tax law apply to an employee working in the UK for a Greek company that has a cross-border scheme based in Luxembourg? How will it work in practice? These are complicated issues. The directive refers only to social and labour laws, but what about tax laws? As we have discovered this afternoon, much of the pensions legislation here is being driven by changes to the laws governing the taxation of pensions.

I began by saying that the directive offers great potential to the financial services industry in this country, but it is important that we can implement it without being overly bureaucratic and without asking too much of the regulator.

Chris Pond (Labour, Gravesham)

I thank the hon. Member for Tatton (Mr. Osborne) for his acknowledgement of the importance of the provisions to ensure that we build effectively a single market in occupational pensions in such a way not only that we allow the development of that aspect of the European financial services market but that citizens from different member states are given opportunities to have their pension rights protected.

The definitive text was not available to us until September last year, but I said that we had consulted on the directive, not that we had consulted on these clauses, which are based on that consultation. Of course, in bringing forward the regulations, we will consult further, so that people have an opportunity to show how the proposals will work in practice.

The hon. Gentleman asked specifically whether it would be the regulator's job to keep abreast of changes in social and labour laws in other member states. It is, of course, a requirement on the regulator in the host member state to keep us informed of what is happening in that state. The regulator will likewise have to inform those schemes operating in those states. That must be based on co-operation between regulators in the various member states, and—as the hon. Gentleman will be aware—there are proposals to establish a committee of regulators across Europe to consider just those practical issues. I am sure that hon. Members will be eager to find out how they might join that cross-European committee.

The hon. Gentleman also asked how the cross-border proposals will work with the tax simplification proposals, and I can tell him that we have debated clauses dealing with the new rules simplifying the taxation of pension schemes and we will debate further such clauses. Under those rules, a pension scheme with either a UK or an EEA-based administrator will be able to register with the Inland Revenue as long as the scheme meets UK legislative requirements. The scheme may include members who are not resident in the UK. That means that contributions paid to it will attract UK tax relief against earnings that are charged to UK tax. The Government are considering the situation and will produce proposals for those who come to the UK and wish to claim UK tax relief on contributions to overseas pensions schemes of which they are already members. I hope that that clarifies the two specific points that the hon. Gentleman raised.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 6 — General authorisation to accept contributions from European employers

New Clause 7 — Approval in relation to particular european employer

New Clause 8 — Notification of legal requirements of host member State outside United Kingdom

New Clause 9 — Duty Of Trustees Or Managers To Act Consistently With Law Of Host Member State

New Clause 10 — Functions of Regulator in relation to institutions administered in other member states

New Clause 11 — Interpretation of part

New Clause 12 — Restoration orders where transactions at an undervalue

Malcolm Wicks (Labour, Croydon North)

I beg to move, That the clause be read a Second time.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following:

Government new clause 13—Restoration orders: supplementary.

Government new clause 14—Content and effect of a restoration order.

Government new clause 15—Contribution notice where failure to comply with restoration order.

Government new clause 16—Content and effect of a section [Contribution notice where failure to comply with restoration order] contribution notice.

Government new clause 17—Debt due from the employer in the case of multi-employer schemes.

Government amendments Nos. 74, 75, 77, 88, 100, 107 to 110, 112 to 118, 127, 128, 133 and 136 to 142.

Malcolm Wicks (Labour, Croydon North)

These new clauses represent a further tranche of provision designed to mitigate the risks of moral hazard for the pension protection fund. They add to and complement the new powers introduced in Committee that aim to safeguard the integrity and sustainability of the PPF and avoid placing an unfair burden on responsible levy payers.

As I said in Committee, there are a number of forms of moral hazard that we must address. The admissible rules and "recent discretionary increases" provisions in schedule 7 of the Bill are designed to protect the PPF against actions taken by schemes in order to increase the benefits that could be payable by the new fund. New clauses 20 to 22, which we will debate later today, also bolster that aspect of protection.

Clauses 35 to 46, which we introduced in Committee, are designed to protect the PPF and scheme members from another type of moral hazard: the risk posed by unscrupulous employers who might seek to use company structures and business transactions as a cover for side-stepping their pension obligations. Many of the amendments in this large group follow on from those new clauses and make consequential amendments to other aspects of the Bill to ensure consistency.

The purpose of new clauses 12 to 16 is to protect the PPF against actions that reduce the assets in a scheme that could potentially be taken into the PPF. The clauses allow the regulator to issue a restoration order directing that the position of the scheme be restored where the scheme has entered into a "transaction at an undervalue" within a two-year period leading up to an insolvency event—as set out in clause 110—or application or notification under clause 115. The clauses provide for enforcement of the restoration order, if necessary, via a contribution notice.

A transaction at an undervalue is exactly what it says—a transaction involving scheme assets that results in the scheme receiving no consideration, or consideration that is less than the market value, in return. That could include, for example, trustees being persuaded to purchase a property on the basis of planning permission for a development that does not actually exist, or a director of a company persuading trustees to offer him a transfer on a very generous basis to prevent his benefits being reduced by the compensation cap should the scheme enter the PPF.

There is currently provision in insolvency legislation retrospectively to undo "transactions at an undervalue" involving company assets, which occur in the run-up to insolvency. New clauses 12 to 16 introduce similar provision in respect of transactions involving scheme assets, in order both to protect scheme members from having the assets of their scheme unfairly depleted and to guard against the possibility of the PPF having to assume responsibility for such schemes where it otherwise would not have done so.

In common with the anti-avoidance provisions introduced in Committee, the new clauses will be operated and enforced by the regulator in the context of meeting its objectives to reduce calls on the PPF and protect the benefits of scheme members. The pensions regulator will have the intelligence and expertise as a result of day-to-day monitoring work on pension schemes to deal proactively with the risks of moral hazard. The powers in new clauses 12 to 16 are reserved to the determinations panel and exercised by standard procedure; they are also subject to the powers to vary and revoke contained in clause 90.

In line with clauses 35 to 38, which give the regulator power to issue contribution notices where there is evidence of avoidance of employer debt, the power to issue restoration orders where there is a scheme transaction at an undervalue will apply to actions taken after 11 June 2003, when the proposal to introduce the PPF was announced. It will ensure that where a transaction at an undervalue has taken place since that date, the scheme's position can be restored and members' pensions protected. As my right hon. Friend the Secretary of State clearly warned:

"We will have to introduce protection against engineering designed to circumvent the intent of our proposals."—[Official Report, 11 June 2003; Vol. 406, c. 696.]

New clause 17 enables us to take forward the proposal to reform the position in relation to the application of debt on withdrawal from associated multi-employer schemes that I announced in Committee. The provision complements the new powers in clauses 39 to 46, which allow the regulator to issue financial support directions where an "insufficiently resourced" or service company is the sole sponsoring employer of a pension scheme.

The current legislation on withdrawal from multi-employer schemes provides for circumstances where, provided there are other companies left in such a scheme, a company can withdraw from the scheme and cease to be a sponsoring employer so that it will not be liable for any shortfall if the scheme winds up in the future. Currently, employers can do that relatively cheaply, as the withdrawal debt is based on the minimum funding requirement—the MFR.

New clause 17 introduces a new provision that enables section 75 of the Pensions Act 1995 to be modified to provide flexibility in calculating the section 75 debt when a participating employer withdraws from a multi-employer scheme with associated employers. The detail of that provision will be set out in regulations; that mirrors the approach taken in legislation governing multi-employer schemes where provision is made in secondary legislation to reflect the diverse and complex nature of such schemes.

The regulation-making powers in new clause 17, which will not be retrospective, will provide that a full buy-out debt should be triggered unless an appropriate support arrangement is put in place and approved by the pensions regulator, in which case the debt will be recalculated and a scheme-specific debt will be payable.

The financial support arrangements will be similar to those outlined in clauses 39 to 46. For example, joint and several liability for pension liabilities could be applied across the whole company group, so that the debt on the employer in the event that the scheme should wind up in the future could be claimed against any member of the group. Alternatively, the ultimate parent company in the group, whether or not participating in the scheme, could agree to meet the withdrawing employer's pension liabilities if the scheme were to wind up in the future.

In addition, there will also be the option to transfer pension liabilities to an appropriate new scheme when the employer withdraws. That would also reduce—in some cases, to zero—the debt payable, as any member's liabilities actually transferred out of the scheme will be included in the calculation of the debt.

Regulations under the new clause will provide that any person identified in the withdrawal arrangements must consent to them and that any breakdown in the withdrawal arrangements may lead to a contribution notice being issued to those identified in the arrangements.

In tandem with clauses 39 to 46, new clause 17 is designed to avoid situations where, whether by chance or design, withdrawal from multi-employer arrangements leaves pension liabilities in a company that is substantially weaker than the rest or other parts of the group. Such a situation increases the risk that the scheme will be abandoned without being able to recover the full scheme costs from the employer, leaving the PPF to pick up the bill and the risk that certain members will have their benefits cut, even if other parts of the group could meet the cost.

Finally, this group contains a number of technical amendments, consequential on clauses added in Committee. Those amendments will ensure consistency between the new moral hazard provisions and the rest of the Bill. For example, amendments Nos. 112 to 118 will ensure that amounts recovered in respect of debts due under any of the moral hazard powers can be subsumed into the pension protection fund once the PPF board has assumed responsibility for a scheme. Amendments Nos. 136 to 142 will add those new powers in relation to moral hazard that are reserved to the determinations panel under schedule 2, which lists the reserved regulatory functions.

Hon. Members will appreciate how important it is that the regulator has the right tools to enable him properly to protect the PPF from abuse, and I urge hon. Members to accept these new clauses and amendments.

David Willetts (Conservative, Havant)

I assure the Minister that, yes, we do understand the need to protect the PPF from exploitation and abuse. Indeed, I checked the original statement on the creation of the fund, made back in June 2003, and we specifically raised that issue with the Secretary of State for Work and Pensions. We understand the overall purpose of the provisions, but this is an example of the dangers of legislating in haste and repenting at leisure, because there is growing concern in the business community about the effects of some of those provisions.

I hope that the Minister is at least willing to undertake to consider the provisions further in the light of some of the representations that he has received and which we have received as well. Perhaps I can briefly give some examples of those concerns.

The PPF and the regulator will have draconian powers. In practice, a new contingent risk will be placed on companies, company directors and shareholders. Those in the business community are concerned that that will put at risk capital, shareholders' capital and dividends in a way that they had not expected. Does the Minister accept that he should consider not just the protection of the PPF, but the proposals' effect on the ability of British business to raise capital and reward capital, given the new risk to directors and the providers of capital?

That raises a specific point that has been made to us and, I am sure, to the Minister. Will the regulator solely take account of the PPF and the need to protect its finances or will he also be able to take account of the financial position of the employer and the parent company? Is that a relevant consideration for the regulator in exercising the powers set out in the new clauses? For example, what would the position be if the exercise of the power in the new clauses were to tip a company over into bankruptcy? Is that a relevant consideration for the regulator or is it beyond the focus that the new clauses give to him? It would be helpful if the Minister could comment on that.

The Minister referred particularly to new clause 17, so may I press him on that? Like the Minister and Members on both sides, we have been approached by the Association of Consulting Actuaries, which is unhappy about the provisions for multi-employer schemes. We rather like multi-employer schemes and, given the Minister's affinity for the co-operative movement and continental industry-wide schemes, I presume that he likes them too. However, the provisions are quite tough for such schemes and the ACA has suggested that

"the proposal that any employer within a group of associated employers be compelled to make up . . . some or all of a scheme shortfall should be restricted to the scheme shortfall over PPF level benefits, and not the full scheme shortfall."

It will be interesting to hear him comment on that, because the ACA's proposal would limit the burden that is imposed by these provisions.

I also want to ask the Minister about retrospectivity. Does he believe that these provisions, which go back to 11 June 2003, are retrospective and fully covered by the statement that was made then? That is what he appeared to maintain earlier. Again, lawyers are concerned that these provisions would be difficult to defend and would be open to challenge under human rights law on the grounds that they are retrospective and constitute an unjustified risk to people's ability to enjoy their property. We would also appreciate the Minister's comments on the human rights aspects of the provisions.

Steve Webb (Liberal Democrat, Northavon)

As ever, it is a pleasure to welcome the hon. Member for Havant (Mr. Willetts), with his insightful contributions, back to our proceedings.

I always get the sense of playing catch-up when the Government try to close a loophole that they fear they have just created. They have created the PPF and, quite properly, they do not want it to be abused because of the knock-on effect that that would have on the levy on employers. Having created this thing, they have sat down to think how people might abuse it. They therefore introduce provisions to second-guess the way in which the fund might be abused and to close each possible loophole in turn.

I think that I am right in saying that these new clauses are the third set relating to moral hazard. We had ones quite late in Committee to do with not putting a pension fund in the hands of an employer who had virtually no assets, because he would almost inevitably make a call upon the PPF. However, I have a slightly nagging fear. Although the Government might have correctly guessed the most obvious ways of dealing with the matter, ingenious employers, accountants and—dare I say it?—even actuaries might think of new ways of circumventing the Government's intentions. We now have an open book with a pen in the Minister's hand so that, every time the Department thinks of another clever wheeze, it can write half a dozen new clauses to stop it. However, what will happen when the ink is dry, the Bill has become an Act and a clever financial wizard comes up with another moral hazard to put an unfair burden on the PPF?

In Committee, we asked the Minister whether there should not be a stronger anti-moral hazard provision in the Bill. The Government who, with the best advice in the world, are unlikely to foresee the next clever wheeze to create a burden on the PPF, are unlikely to have enough parliamentary time to introduce primary legislation to deal with such a wheeze, which could leave the fund open to abuse. When I made that point to the Minister he offered a human rights defence and said that we could not have a general anti-avoidance rule because it might be draconian and contravene human rights legislation. Has he had a chance to reflect on that argument, and is that still the Government's position? Each group of new clauses appears to be satisfactory—no one wants assets to be sold at an implausibly low value, thereby weakening the pension scheme or the position of the employer and leading to an unnecessary claim on the PPF—but they deal only with individual examples. The Minister said that in each group of new clauses the Government have given themselves broad powers, which is mildly reassuring, but it is not reassuring enough. Is the piecemeal approach of anticipating the nasty schemes that nasty people might devise and trying explicitly to prevent them necessarily the right way to deal with such issues?

Kevin Brennan (Labour, Cardiff West)

Does the hon. Gentleman agree that if we were talking about housing benefit instead of pension protection we would call such activity fraud, not moral hazard? People claiming housing benefit would be deemed to be doing things to take advantage of the system and would be banned from making a claim. Just because it is big business, that does not mean that we should not face up to the problem and say that anything that is done simply to take advantage of the scheme or to rip it off should be banned.

Steve Webb (Liberal Democrat, Northavon)

Indeed, that is the general thrust of my argument which, however, was not expressed quite as forcefully as the hon. Gentleman's contention—I was tiptoeing around the issue. There are general presumptions about the nature of housing benefit fraud. Lying on the form is obviously fraud, but artificially depressing one's earnings to get more housing benefit is less clear-cut. However, there should be a presumption that artificial activities, the principal or sole aim of which is to make an unnecessary claim on the PPF, should be prohibited in general, rather than being prohibited individually, as there will always be others that we have not thought of. I should be grateful for further reassurance from the Minister on that point.

The hon. Member for Havant made a fair point about retrospection. The Minister read out a general hint from the Secretary of State on 11 June 2003 about the undesirability of certain actions. I doubt, however, whether that would stand up in court. We might want an employer to be caught by an anti-avoidance law, but none the less he might argue that in the past 12 months his firm undertook some asset transactions and that the Secretary of State's remarks on 11 June could not be interpreted as making that an unlawful avoidance of a restoration notice.

I am also worried about the two-year limit. First, does there need to be a date at all? If an employer at any point artificially depresses the value of a fund, should we not take action? Why do we want the two-year cut-off? If it can be demonstrated that the action taken was entirely artificial, why does it matter whether it took place two years and a day earlier or one year, 364 days earlier? The fund was artificially depressed and its position was weakened. Even if a claim is made on the pension protection fund just over two years later, the PPF has still suffered. It may be argued that once two years have elapsed it is hard to prove that something was done in response to something else, but the two-year limit is entirely arbitrary. Can the Minister therefore explain why it was selected?

We do not want any action to be taken that leads to an artificial claim on the PPF, so why two years? Is there some other part of pensions legislation that uses two years, or is there just a broad-brush assumption that once two years have gone by, one can no longer prove the case? Surely these matters should be judged on the merits of each individual case, which would imply that the fixed two-year rule is removed and replaced by a general provision that if anything that was done artificially reduced the value of the fund, leading to a claim on the PPF, and if it can be demonstrated that that is why it was done, the regulator is allowed to make some sort of restoration order.

I appreciate that that falls foul of the point made by the hon. Member for Havant about the open-ended nature of the liability on the directors and so forth, but clearly if something had occurred more than two years previously, it would be difficult to prove. If it could be proven that the effect on the fund was completely artificial, the people responsible should not be allowed to get away with it.

As ever, the spirit of the new clause is right. We want to close the loopholes, but I am not convinced that the piecemeal approach to closing loopholes is the way that we should be going.

Michael Fallon (Conservative, Sevenoaks)

I shall speak on Government amendments Nos. 74 and 75 as they apply to clause 35. Amendment No. 74 qualifies the retrospective date of 11 June to a certain extent, but does not deal with some of the wider concerns about clause 35, which I think the Minister will concede was added at a very late stage in the proceedings on the Bill. In my view, the clause needs substantial redrafting. As my hon. Friend the Member for Havant (Mr. Willetts) said, it goes far too wide in its scope and may well end up discouraging investment in precisely those companies where investment is needed, not least to address any weaknesses in the pension fund.

First, I fully understand the concerns that led to the clause. I say that to the Minister straight away. I do not doubt the abuses that occurred, and I do not doubt that he is right to try and tackle the issue of moral hazard. It is one thing to impose further duties on directors—I declare an interest as a company director, recorded in the register, of course—as directors accept their responsibilities for the company of which they are directors. However, the clause goes very much further than directors and could catch not just shareholders and investors, as my hon. Friend the Member for Havant said, but any person associated with them—in the words of subsection (3)(b),

"a person connected with, or an associate of, the employer".

I should like the Minister to explain what that means. Does it mean a friend of the employer? Does it mean a fellow member of a racing syndicate or a fellow owner in a holiday complex? Does it mean just a very good friend of the employer? The way the clause is drawn, it goes far too wide. It could mean that a contribution notice is addressed to almost anybody, and the regulator will therefore not only be able to go on a fishing expedition among the directors or former directors of a company, or among the shareholders and business investors or business angels behind the company, but after any friend of the employer. That goes too far.

Secondly, the test of reasonableness that is laid down in the clause is ultimately self-serving. It seems to be reasonable so long as the regulator thinks it is reasonable. There appears to be no appeal provision. The Minister may correct me if I am wrong, but in the batch of new clauses that he has produced today or those that he produced at the very end of the Committee proceedings, I can see no appeal provision. In other words, the action of the regulator does not even have to be reasonable. It has to be reasonable only in the regulator's opinion. Again, that goes too far.

Finally, the regulator will be free to go after that person's assets—as I said, not simply a director, a shareholder or an investor, but an associate of the employer. The regulator will be able to go after his house, his shares and his assets. There is no limit to the sort of liability of a person who happened to be associated with the employer.

Kevin Brennan (Labour, Cardiff West)

First, what would such people have to fear from, as the hon. Gentleman describes it, a fishing expedition? Secondly, the pensions regulator would, of course, be subject to judicial review if he acted unreasonably.

Michael Fallon (Conservative, Sevenoaks)

I accept the second point, but it would be hard for the Minister to rely on the provision being subject to judicial review in the courts. What is reasonable should be set out in statute and not simply left to the regulator's opinion. The hon. Member for Cardiff, West (Kevin Brennan) says that even a friend of an employer should be pursued to the ends of the earth, but I do not agree. A connection should be proved, preferably involving the directors of the company, but certainly involving somebody who has been legally associated with that company and its affairs.

The provision is also too wide because it covers not only actions, but failures to act. It is difficult to be sure that one has failed to do something, and it is certainly difficult to be sure that one has failed to do something in a period that has already passed. If someone wants to correct an error with a pension fund, it is now too late to do so because the provision is, of course, retrospective to June 2003, which will cause a few problems.

If shareholders, investors, directors or friends of directors are personally liable and may have their assets seized to make good a pensions deficit in a subsidiary of a company that happened to belong to a friend of theirs, they are surely less likely to invest in or be involved with such companies. That might well discourage overseas investment, which the Minister may want. Those involved in running companies where a difficulty has occurred with the pension fund face a dilemma: if the liabilities mount up and they declare the company insolvent, they become personally liable up to the extent of their assets—houses and wealth—for any apparent deficiency, and the only way in which they can avoid that and protect their personal assets is to trade fraudulently.

I do not doubt the Minister's intention, and he is right to tackle moral hazard, but he must bear in mind that hard cases sometimes make bad law. The provision is too widely drawn, and, to his credit, he admitted that in Committee. He said:

"We have deliberately framed the powers broadly."—[Official Report, Standing Committee B, 27 April 2004; c. 776.]

If he will not reflect on how the powers are framed, I hope that the other place will have more time than us to ensure that the provision is more equitable for those involved in business and that it is fit for the worthwhile purpose for which he designed it.

Frank Field (Labour, Birkenhead)

I support the Government, who must draw a certain satisfaction from the fact that although detailed criticisms are being made, no one is speaking against the provision's drift, which is that we should protect the fund.

I share the anger felt by my hon. Friend the Member for Cardiff, West (Kevin Brennan) on behalf of constituents who believe that their pension savings were stolen by the actions of their employers, which should be judged in the courts. It is proper for the Government to try to close as many loopholes as possible and, presumably, to make amendments in the other place, but I have a couple of warnings. Although my hon. Friend the Member for Cardiff, West and I represent constituents who have lost all or part of their pension savings, the Government's responsibility in framing the measures is greater than simply bringing our constituents retrospective justice.

As I see it, the Government's proposals face two danger zones. Those relate not so much to what has happened in the past—because under new clause 34 a group of people who have been badly treated will get some redress—as to what some employers may try to do between now and the fund coming into operation, and what might happen in the very early stages of its life. I assume that the Government's great concern is not that if we go on fishing expeditions we might be able to land a few people in court, but that there may be one or more major closures between now and the early stages of the fund that swamp the finances of that organisation.

I am sure that my hon. Friend the Minister, who has been listening carefully to the debate, takes considerable pleasure in the support that has come from Members on both sides of the House in agreeing that we must close as many loopholes as possible. However, I hope that in devising ways of doing so he will not be blind to the danger zone that we have now entered, whereby unscrupulous employers may try to offload some very significant liabilities on to the fund. If they were successful in doing so, its life might be crippled and limited. Although these debates are important, we should focus our vision on the period from now until the vesting of the fund, and then to the early stages of its life.

Malcolm Wicks (Labour, Croydon North)

This has been a useful discussion. I heed the warning from my right hon. Friend the Member for Birkenhead (Mr. Field). We need to be smart and astute about how those with poor intentions may read these debates about our intentions, because we must be ahead of the game. That is partly why we have opted for fairly broad powers, despite gentle criticism that they might be too broad, as well as some criticism that they may be insufficient to keep up with events. I do not think that I should apologise for that.

After I spoke, the debate was led by the hon. Member for Havant (Mr. Willetts), who previously spoke memorably of the need to protect against companies that

"shed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a company without pensions."—[Official Report, 11 June 2003; Vol. 406, c. 685.]

Indeed, my right hon. Friend the Secretary of State gave a similar warning. The debate therefore centres on whether we have got this broadly right or wrong.

In response to the hon. Member for Havant, the regulator will have the power to issue a contribution notice to a person, but only in certain circumstances: if that person was a party to an act or a failure to act, the main purpose of which was to avoid any section 75 debt or to reduce such a debt or prevent its becoming due; the person was the employer in relation to the pension scheme, or connected or associated with the employer at the time of the act or failure to act; and the regulator thinks it reasonable to impose liability on that person. We are then mindful of several other criteria. When deciding whether it is reasonable to impose liability on any person, the regulator will have to consider a range of factors such as the degree of involvement of that person in the act or failure to act, and the financial circumstances of that person—for example, if the person is a company, whether the sum required would make it insolvent.

Those are important issues, although I am bound to say that the best way of not getting involved in this no doubt nasty business with the regulator is to be an honest and proper person. Those who behave honestly will have nothing to fear. The existing body, which will become the regulator, the Occupational Pensions Regulatory Authority—OPRA—is aware of possible cases where, in spite of the Secretary of State's warning, it appears that some employers may have already taken action to dump liabilities on the pension protection fund.

The new clauses are designed to guard against such manipulation and will apply to actions that are taken after 11 June 2003, when the proposal to introduce the PPF was announced. The Government believe that that limited retrospection is proportionate as a matter of law. If some people are wringing their hands because of the retrospection, I am glad about it. They have every reason to wring their hands and we have every reason to ensure that they do not overcome Parliament's will, hence the limited retrospection.

The hon. Member for Havant asked reasonable questions about multi-employer schemes. The current position, which allows companies to leave a scheme and its pension liabilities behind, is unfair because it leaves the other employers to pick up the bill. Those employers may not be able to afford that, leaving members and the PPF to pick it up in future. The new clauses provide for flexible arrangements to allow companies to pay a lower debt, including, for example, the company that transfers its liabilities to a new scheme.

I want to clarify one of the remarks in my opening speech. I left out a vital negative.

David Willetts (Conservative, Havant)

No one noticed.

Malcolm Wicks (Labour, Croydon North)

I was disappointed that no one noticed; indeed, I was disappointed that I did not notice. I should have said that new clause 17, which amends section 75 of the Pensions Act 1995, provides for any members' liabilities that are transferred out of the scheme not to be included in the calculation of that debt.

The hon. Member for Northavon (Mr. Webb) asked about new wheezes. I suppose that it is a reasonable description in this period of hayfever. We are advised that a general, continuing moral hazard power is inconsistent with human rights. That remains the case. Some of us in some political parties must have regard to human rights and we believe that the new clauses are sufficiently broad to cover all circumstances. However, I take seriously the hon. Gentleman's anxieties, which my right hon. Friend the Member for Birkenhead echoed. We need to be careful and ahead of the game.

Frank Field (Labour, Birkenhead)

Did my hon. Friend notice that the plea for general powers came from the Liberal Democrat Benches? He said that they might go against the European convention on human rights, yet the Liberal Democrats are the strongest defenders of the European conventions.

Malcolm Wicks (Labour, Croydon North)

Life is full of joyful irony and I am pleased on this occasion to be regarded as something of an old-fashioned Liberal.

We were asked why a time of two years had been set. There will never be a clear scientific answer to that sort of question about where to draw the line. The power is primarily intended to protect the PPF and scheme members from transactions that occur when the scheme is or may be in jeopardy. Establishing a broad and flexible power creates a balance between certainty and protection. It should allow the regulator to achieve protection, but limits the time scale when the power can be exercised. A scheme's funding position is most likely to be in jeopardy in the period before an insolvency. The insolvency may be the trigger for the involvement of the new PPF. Outside that period, the regulator may use the power in clause 17, which has more limited scope.

Let me deal with the points of the hon. Member for Sevenoaks (Mr. Fallon)—now sadly only one oak, due to natural calamity. I believe that others have been planted. I hope that that is the case, otherwise we shall table a new clause to that effect. He expressed a proper concern about whom we mean by connected or associated persons. As an old-fashioned Liberal, I believe that we should not be draconian about that. I am advised that section 435 of the Insolvency Act 1986 defines the relevant test. It provides that the regulator may require a contribution to be paid only when it is reasonable to do so. Subsection (5) deals with factors to assist in determining who may reasonably be required to pay. Let me try to reassure the hon. Gentleman that this is not an unreasonable catch-all. We only want to go after the people whom we are required to go after. Perhaps I can spell that out to the hon. Gentleman in a letter, to give him reassurance in response to his perfectly reasonable questions. Indeed, I think he raised some other points to that effect.

Within the new regulator, we shall have the admittedly slightly quaintly named determinations panel, which will be at arm's length from the main regulator's powers, and which will provide a check and a balance. As my hon. Friend the Member for Cardiff, West (Kevin Brennan) said earlier, if people are not satisfied with a decision, they may seek permission to appeal to the Court of Appeal on a point of law. I hope that I have covered most of the points that have been raised and I urge the House to accept the new clause.

Question put and agreed to.

Clause read a Second time, and added to the Bill.

New Clause 13 — Restoration orders: supplementary

New Clause 14 — Content and effect of a restoration order

New Clause 15 — Contribution notice where failure to comply with restoration order

New Clause 16 — Content and effect of a section [Contribution notice where failure to comply with restoration Order] Contribution Notice

New Clause 17 — Debt due from the employer in the case of multi-employer schemes

Clause 2 — Membership of the Regulator

George Osborne (Conservative, Tatton)

I beg to move amendment No. 1, in page 1, line 11, leave out from 'the' to end of line 12 and insert

'Chairman and approved by the Secretary of State.'.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following:

Amendment No. 2, in page 2, line 12, at end insert—

'(7) At least one of the non-executive members of the Regulator shall be a representative of an occupational pension scheme subject to the pension protection levies under this Act.'.

Amendment No. 5, in clause 5, page 3, line 10, at end insert—

'(e) to promote occupational pension provision by minimising regulatory burdens applying to well run schemes and their sponsoring employers.'.

Amendment No. 6, in clause 5, page 3, line 10, at end insert—

'(f) in conjunction with the Pension Protection Fund Board to take all reasonable steps to maintain the cost of the levy on occupational pension schemes to the minimum compatible with the Regulator's other duties under this Act.'.

Government amendments Nos. 62 to 73.

Amendment No. 8, in clause 50, page 35, line 20, at end insert

'save that the register will be open to members of the public during normal working hours, but with the home addresses of individual scheme trustees deleted.'.

Amendment No. 9, in clause 57, page 39, line 40, at end insert

'but only to the extent that the collection of such information appears to the Regulator proportionate to the benefits to be obtained from collecting that information.'.

Government amendments Nos. 78 and 79.

Amendment No. 10, in clause 62, page 44, line 9, at end insert—

'(8) Where such an inspection is carried out under this Act, and no further action is taken by the Regulator following such inspection, the owners or occupiers of the relevant premises are entitled to claim from the Regulator the reasonable costs of such inspection.'.

Government amendments Nos. 80 to 82.

Amendment No. 11, in clause 63, page 45, line 9, at end insert—

'(7) Where such an inspection is carried out under this Act, and no further action is taken by the Regulator following such inspection, the owners or occupiers of the relevant premises are entitled to claim from the Regulator the reasonable costs of such inspection.'.

Government amendments Nos. 83 to 86.

Amendment No. 12, in clause 79, page 55, line 21, at end insert—

'(3A) Any code of practice issued by the Regulator must include an analysis of the costs and benefits of the code'.

Government amendment No. 87.

Amendment No. 13, in clause 80, page 56, line 3, at end insert

'which includes a draft analysis of the costs and benefits of the code'.

Government amendments Nos. 89 to 96.

Amendment No. 3, in schedule 1, page 204, line 2, leave out

'with the approval of the Secretary of State'.

Government amendments Nos. 134 and 135.

George Osborne (Conservative, Tatton)

Now that my shadow Secretary of State has done his star turn, it is back to the understudy.

Malcolm Wicks (Labour, Croydon North)

A rising star.

George Osborne (Conservative, Tatton)

That is the kiss of death, as the Pensions Minister knows. I shall make sure that it does not appear on the record.

The amendments are designed to increase the independence of the new pensions regulator, and to reduce the regulatory impact on pension schemes and those employers who still provide them. Central to the background to this legislation and to our discussions in Committee has been the collapse in confidence in savings and pensions, in regard not only to the halving of the savings ratio but to the closure of final salary schemes. Indeed, in the last week or two, some further developments have taken place to set the amendments in context.

The chairman of Aviva—the owner of Norwich Union and the biggest life assurer in the country—warned in the Financial Times on Monday:

"We will have a generation of elderly people coming soon who will have a hard time to live above the poverty line. No one should be proud or pleased with that scenario."

Indeed, Aviva says that it is seeing faster rates of savings growth in many continental European markets than in the UK, because of people's reluctance to save. A report from JP Morgan Fleming last week found that the number of defined benefit schemes that had closed or been restricted to new staff had doubled in two years, and that 61 per cent. of the top 350 pension funds had closed or restricted availability to defined benefit schemes. Indeed, they are shifting to defined contribution schemes.

The reason that I have made those points is that a central criticism of the Bill is that it will increase the burden on occupational schemes. It will do so partly for good, honourable reasons such as the creation of the PPF and the levy that that will impose, but that will nevertheless create an impact in regard to some of the measures in the Bill. It is therefore incumbent on us to reduce the burden on schemes as far as possible in other areas of the Bill, so that employers are still encouraged to create final salary schemes for their employees. At the moment it is not the industry's view that the burden will be reduced. The Association of Consulting Actuaries produced a report for this debate and surveyed employers. It found that a majority of firms felt that the measures would decrease occupational pension scheme coverage. Fewer than one in 10 felt that the measures would improve coverage. Close to nine out of 10 firms said that the Bill's measures would either add to costs or make no difference. That is against the background of the Government's claim that there would be savings of £130 million from the Bill. Clearly the industry does not accept that.

Amendments Nos. 5 and 6 are an attempt to recognise a danger that most of the industry believes to be real and present. The amendments would give the pensions regulator additional and specific statutory objectives, alongside the four set out in clause 5. The objectives in the Bill deal with matters such as protecting the benefits of members and reducing the risk that they might have to fall back on the PPF. Those are good objectives and it is good that the Government have taken up the recommendation of the National Audit Office and put statutory objectives in the Bill.

We propose to add a couple of objectives, one of which—on the regulator—would be to promote occupational pension provision by minimising regulatory burdens applying to well-run schemes and their sponsoring employers. It is a broad remit for the regulator; to look not just at itself, but at the world of occupational pension provision, how to encourage it and how to stop the Government—perhaps unwittingly, perhaps not—discouraging it.

In Committee in March, the Minister said that the proposals were worthy aims but were unnecessary because the new regulator would adopt a risk-based approach. Perhaps that is what he will say today. We think that that is a little complacent and we do not see why the regulator should not have a statutory obligation to promote occupational pension provision and to minimise the regulatory burdens on well-run schemes.

Amendment No. 6 makes it an objective for the regulator, in conjunction with the PPF, to take all reasonable steps to maintain the costs of the levy on occupational pension schemes to the minimum compatible with the regulator's other duties under the Bill. We hope that the regulator will do that anyway, but we think that it would be useful to have that written into the Bill. In Committee, the Minister said that there were measures in the Bill to check the costs of the levy but, again, we felt that to be too complacent. We want to keep the regulator from running away from itself and creating a mini-empire.

In the regulatory impact assessment, the Government came up with the extraordinary figure that the Bill would lead to savings of £130 million, a figure with which almost the entire industry disagrees. Given that overwhelming view, the purpose of the amendments is to give the regulator the job of monitoring costs and to see whether the Government or the industry is right. We think that it would be sensible and useful to include that in the Bill.

Our other amendments are designed to ensure that the regulator's powers are kept to the minimum required for it to do the job that we all want to see it do. As currently drafted, the Bill gives the regulator extensive powers to seize documents, enter premises and interview people. I have vague recollections of an afternoon in Committee when we went through some of those powers and I made the point that Parliament should always be cautious about expanding the state's power to enter premises, interview people and seize documents. Our amendments would introduce some checks on that power.

Amendment No. 9 would deal with the broad power given to the regulator in clause 57 to

"collect any information which appears to it to be relevant to the exercise of the functions"

of the PPF. We would qualify that by saying that that should happen

"only to the extent that the collection of such information appears to the Regulator proportionate to the benefits to be obtained from collecting that information."

That judgment would be made only by the regulator, not by anyone else. It is difficult to see how the Minister could disagree with that sensible provision, although no doubt we will shortly hear how and why.

Under amendments Nos. 10 and 11, when the regulator carried out an inspection and no further action was taken, owners and occupiers would be entitled to claim reasonable costs from the regulator. An inspection might be very expensive and disruptive to business, and it is fair that there should be some redress and some check on the regulator's zealotry. Amendments Nos. 12 and 13 merely require that where the regulator produces a code of practice—a new power that it is being given—that

"must include an analysis of the costs and benefits of the code".

Again, that would force the regulator to consider the consequences of its actions in the real world.

Other amendments would ensure that the regulator was genuinely independent and open, and gained the confidence of the public and of pension schemes. Through amendment No. 1 we are saying that as the chairman of the regulator is already appointed by the Secretary of State, it is surely permissible to allow the chairman to appoint the board of the regulator, rather than all members being appointed by the Secretary of State. The chairman should be able to choose his or her own board, although the amendment includes the perfectly reasonable proviso that the Secretary of State should approve those appointments. We must get the balance right and let the regulator have some freedom over how it wants to set up and run its operations.

Amendment No. 3 would give the regulator the power to employ staff on his or her own terms, by amending schedule 1. Amendment No. 2 would require at least one non-executive member of the regulator to be a representative of an occupational pension scheme. We think that too often, Governments—this is true of Conservative as well as Labour Governments—operate in a vacuum, particularly when they have been in power for a while and are out of touch with what is going on in the real world. This proposal would force the regulator to include someone with real first-hand experience of the impact of the regulator's action on occupational schemes.

In amendment No. 8, in a spirit of openness, we propose that the register of occupational pension schemes compiled by the regulator should be open to public scrutiny. It should not give the home addresses of the trustees, but should be an open public register, rather like the open public register of companies at Companies House. That would help with pension tracing, but as I said, it would also be useful in terms of freedom of information. The Minister said in Committee that this was a perfectly reasonable amendment. Although he was concerned about human rights, the right to privacy and so on—he sounded a bit like Donald Rumsfeld when he fell back on the human rights defence—he undertook to reflect on the strong points that I had made. That is presumably why Mr. Speaker, in his wisdom, allowed me to re-table the amendment. It will be interesting to hear what the Minister has to say.

Malcolm Wicks (Labour, Croydon North)

A rather whimsical reference was made to the absurd notion that the Bill as a whole is a work in progress, but my speech on this group of amendments—there are many of them, including Government amendments—is indeed a work in progress. It began as an extraordinarily long speech, but in view of the time and of the other debates that Members want to have, I am in something of a quandary as to how much detail to provide. I hope that the hon. Member for Tatton (Mr. Osborne) in particular will bear with me if I confine myself to some key points, given that we have to get through a certain amount of business by 7 o'clock. I thank him for his reasonableness.

Amendment No. 1 seeks to move primary responsibility for appointing members of the regulator from the Secretary of State to the chairman of the regulator; moreover, it would not allow members to be staff of the regulator as well. This raises some difficult accountability issues. In order to strike the right membership balance, it is important that the Secretary of State should have this role, but he must consult the chairman of the regulator in selecting its members. We rehearsed these arguments in Committee, and I hope that the hon. Member for Tatton accepts that that remains our position.

Amendment No. 2 provides that the regulator must have a member who is a

"representative of an occupational pension scheme subject to the pension protection levies".

That would impose an undesirable limitation on the flexibility provided in the Bill—a limitation designed to ensure that, instead of moving towards a more representative membership, appointments to the regulator are based purely on the skills and knowledge required, and on the relative merits of each candidate.

The new regulator will have a number of statutory objectives, which are contained in clause 5. Amendments Nos. 5 and 6 seek to add to those objectives. We have nothing against the idea of those extra objectives, but in developing the new regulator's objectives we have been mindful of the criteria set out by the Better Regulation Task Force, which suggest that regulators should be proportionate, targeted, accountable, consistent and transparent in their approach. Providing further objectives does not add very much to what we are about. The Bill gives the regulator the flexibility required to operate a risk-focused approach to regulation; that will itself minimise the regulatory burden on the well-run schemes to which the Opposition amendments refer. I therefore consider amendment No. 5 unnecessary, and I ask the hon. Member for Tatton to withdraw it.

Amendment No. 6 would oblige the regulator to work with the board of the pension protection fund to minimise the levy payable by occupational pension schemes. We want to minimise the levy, which has to be appropriate and in large part risk-based, so we are very mindful of the issues that have been raised.

Amendment No. 9 seeks to ensure that the information collected under the clause is proportionate to the benefits obtained from it. The clause already provides that information so collected must appear to the regulator to be relevant to the exercise of the functions of the PPF board, so I do not believe that the amendment is necessary.

As to the open access to information by members of the public, I should like to write to the hon. Member for Tatton. I said in Committee that it seemed a reasonable question, but on further exploration, we believe that opening up to the wider public could also open up certain risks that we are worried about—perhaps certain unscrupulous people looking at the health or ill health of certain schemes. We have concerns about that, but given the time restrictions, I would prefer to write to the hon. Gentleman. I hope that he will consider withdrawing the amendment, and I support the Government amendments.

Steve Webb (Liberal Democrat, Northavon)

I had not planned to intervene in this short debate and I would not have done so were it not for the fact that there are 32 Government amendments in the group. As far as I am aware—I was listening carefully—the Minister has not explained any of them.

David Cairns (Labour, Greenock and Inverclyde)

They are technical.

Steve Webb (Liberal Democrat, Northavon)

It may be, as the Parliamentary Private Secretary suggests, that they are all technical, but who knows? Clearly, the briefing material on other Government new clauses has also referred to technical amendments, but I presume that they were mainly grouped with those Government new clauses. I feel that asking the House to nod through 32 Government amendments is too much. I would be happy to give way if the Minister wanted to reassure me that, whether consequential or inconsequential, they are all completely technical amendments. It is wholly unsatisfactory to have 32 Government new clauses nodded through without the slightest explanation for the benefit of the House. I am still hoping that the Minister will put me right. [Interruption.] I can say no more. It is deeply regrettable that we have reached this position and I want to put that on the record.

George Osborne (Conservative, Tatton)

I agree entirely with what the hon. Gentleman has just said. I was expecting the Minister, after dealing with my amendments, to turn to his own, but he obviously has nothing to say on the matter. Since he has not explained what they are for, we cannot really vote for or against them.

I have listened to what the Minister had to say about my amendments and we had similar debates in Committee. As I explained, it was our intention primarily to reduce the regulatory burden on pension schemes, and we believe that the Bill will add to, rather than diminish, that burden. We felt that it would be useful as a statutory objective to have a requirement to reduce the regulatory burdens on the industry or keep them to a minimum. However, we have been round the course before. I look forward to receiving the Donald Rumsfeld-like letter about the human rights of scheme members and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 4 — Regulator's functions

Harry Barnes (Labour, North East Derbyshire)

I beg to move amendment No. 181, in page 2, line 25, leave out from 'Act' to 'and' in line 26.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following:

Amendment No. 182, in clause 9, page 4, line 36, leave out

'or in any corresponding provision in force in Northern Ireland'.

Amendment No. 183, in clause 48, page 33, line 41, leave out sub-paragraph (iii).

Amendment No. 184, in clause 48, page 34, line 12, leave out from '(c. 49)' to end of line 17.

Amendment No. 185, in clause 67, page 47, line 13, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 186, in clause 67, page 47, line 43, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 187, in clause 91, page 64, line 38, leave out

'or any provisions in force in Northern Ireland corresponding to this Act'.

Government amendments Nos. 97, 98, 119 and 121.

Amendment No. 189, in clause 177, page 119, line 35, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 190, in clause 177, page 120, line 6, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 191, in clause 267, page 193, line 42, leave out paragraph (e).

Amendment No. 192, in clause 280, page 200, line 10, leave out lines 10 to 40.

Amendment No. 193, in clause 280, page 200, line 8, after 'England', insert 'Northern Ireland'.

Amendment No. 194, in clause 281, page 200, line 41, leave out Clause 281.

Amendment No. 195, in schedule 1, page 206, line 12, leave out

'and any corresponding provisions in force in Northern Ireland'.

Amendment No. 196, in schedule 1, page 206, line 32, leave out from 'function' to 'or' in line 34.

Amendment No. 197, in schedule 1, page 207, line 13, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 198, in schedule 1, page 207, line 16, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 199, in schedule 1, page 211, line 35, leave out from 'Act' to end of line 36.

Amendment No. 200, in schedule 1, page 211, line 44, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 201, in schedule 1, page 212, line 2, leave out

'or any corresponding provision in force in Northern Ireland'.

Amendment No. 202, in schedule 4, page 220, line 12, leave out

'or any provisions in force in Northern Ireland corresponding to this Act'.

Amendment No. 203, in schedule 5, page 230, line 14, leave out

'or any provisions in force in Northern Ireland corresponding to this Act'.

New clause 32—Application to Northern Ireland—

'(1) This Act extends to Northern Ireland.

(2) The Secretary of State may by order make such modifications to this Act or other legislation as are necessary in the application of this Act to Northern Ireland.'.

Government amendment No. 165.

Harry Barnes (Labour, North East Derbyshire)

The key amendment is No. 193, which would make the whole Bill apply to Northern Ireland. At the moment, only parts of the Bill apply there. To ensure that the whole Bill applies to Northern Ireland, it must be amended so that all the partial references are deleted. Amendment No. 193 would then come fully into play.

Consequential amendments in another place would be required if my amendments were accepted. Provisions applicable to Northern Ireland need to be added to the Bill to take account of the region's distinctive legislative position, but that should present no great difficulty, as the Bill promises that a statutory instrument will be put before the House for that purpose.

It would be distinctly advantageous if that instrument could be introduced now and adjusted to the primary legislation. One result would be that Northern Ireland matters could be debated as they arose in connection with the rest of the Bill. Moreover, amendments appropriate to the circumstances in Northern Ireland could be proposed.

Using the Order-in-Council procedure could mean that we end up in a Committee for one and a half hours or three hours, dealing with everything in one go on a take-it-or-leave-it basis. We would then have to take it on trust, to some extent, that the secondary legislation fitted in with the Bill and applied to the circumstances in Northern Ireland.

The Northern Ireland section of the Irish Confederation of Trade Unions has a distinct interest in this Bill and wants certain matters to be pursued. Other groups of amendments contain proposals to do with information and advice for annuity purchasers, TUPE, consultation by employers and stakeholder pensions. Those are exactly the sort of matters that attract the interest of Northern Ireland trade unions, as I am sure is the case with the trade unions on the mainland that have made representations on them.

The Northern Ireland interest in the Bill was evident in the Adjournment debate at the end of the Northern Ireland Grand Committee of 29 April. It was introduced by the hon. Member for Belfast, North (Mr. Dodds), who referred to a number of firms in the region. He mentioned Irish Fertiliser Industries in his constituency, TK-ECC in the constituency of the hon. Member for Strangford (Mrs. Robinson), and Fii Shoes in the constituency of the right hon. Member for Upper Bann (Mr. Trimble). The debate also covered cross-border provisions in respect of company pension schemes, as IFI was formed in 1987 as a joint venture between ICI and the Irish state.

I wanted these amendments to be considered in the Standing Committee that dealt with this Bill and my hon. Friend the Member for Cardiff, West (Kevin Brennan) was kind enough to move them. The Minister argued that, because social security and pensions are transferred matters under the Northern Ireland Act 1998, Northern Ireland has its own social security and pensions law. He said that such matters are normally dealt with by means of an Order in Council. I do not think that it is or ever has been inevitable that all matters to do with Northern Ireland must be dealt with by means of the Order-in-Council procedure.

When the Disability Discrimination Bill was in front of the House, I was promoting a version of the Civil Rights (Disabled Persons) Bill for which I had sponsors from four political parties in Northern Ireland. On announcement of the Second Reading of the Government's Bill, the then Minister said that Northern Ireland would be included, and it was. All the technical problems that usually meant that we had to shunt legislation off somewhere were miraculously dealt with on that occasion.

It is therefore important that we have this measure applied to Northern Ireland properly and fully. The Government should get round to applying all legislation of this type to Northern Ireland. The argument that something might happen in the meantime and we might get the Executive and the Assembly up and running so the legislation might need to be shunted off to them is inappropriate. Either the measure will be dealt with before we reach that stage and the law will apply to Northern Ireland or, if something miraculous happens, we can change the measure and transfer to the Assembly the bits that are relevant.

David Trimble (UUP, Upper Bann)

I rise primarily to speak to new clause 32 and amendment No. 194 in my name and that of my hon. Friends, but I also support the amendments tabled by the hon. Member for North-East Derbyshire (Mr. Barnes). If the Minister is minded to accept his amendments, I shall be happy to concur.

The issue of pensions and company pension schemes applies to Northern Ireland just as much as to the rest of the United Kingdom. There is no significant difference and nor should there be. It would be foolish if there were significant differences in commercial law in the United Kingdom. I am glad to see the Minister nodding his head. That deals with the point to which the hon. Member for North-East Derbyshire referred and the point that was made in Committee. There is no good reason and no intention for the law to be different. It would be a bad thing if it were different.

The Minister should not use the excuse that because these matters are notionally devolved to a Northern Ireland Assembly that does not exist, the legislation should not extend to Northern Ireland. It is not a good argument. It would be much better if the Government looked at why these issues are devolved when there is no good reason for their devolution and it carries with it a serious risk. The risk is that the Bill makes provision for a subsequent Order in Council. There is no guarantee that that Order in Council will appear when it should, whereas if new clause 32 or the amendment tabled by the hon. Member for North-East Derbyshire were accepted, the legislation would extend to Northern Ireland at the same time as it comes into operation for the rest of the United Kingdom.

In the past, Orders in Council have limped along a significant time after the legislation here. It is simply not right that the people of Northern Ireland should be deprived of the protection available to their counterparts on this side of the Irish sea. The problem should not arise. There is a serious danger that the Order in Council will not arrive in time due to the length and complexity of the legislation and the fact that the small team of legislative draftsmen in Belfast will have to make last-minute adjustments as further new clauses and amendments are introduced.

If the Minister does not accept the new clause or amendments, I want a clear assurance that steps will be taken by him and the Northern Ireland Office to ensure that the Order in Council is brought into effect at exactly the same time as the Bill and that no gaps will occur in the coverage of the legislation or the ambit of new clause 34, which we will discuss tomorrow, when we can take up the issues that the hon. Member for North-East Derbyshire mentioned with regard to companies that have failed in Northern Ireland leaving workers who believed that they had a pension entitlement with little or no pension. That is an issue that we can come back to tomorrow. The issue today is to ensure that the protections that are being introduced for the benefit of people in England, Scotland and Wales apply in Northern Ireland at the same time, and that is the point on which I hope the Minister will reply. Can he give us an assurance that the provisions will apply at the same time and, if he cannot, can we extend the legislation?

Nigel Dodds (DUP, Belfast North)

I support the amendment tabled by the hon. Member for North-East Derbyshire (Mr. Barnes) and concur with much of what the right hon. Member for Upper Bann (Mr. Trimble) said. It is imperative that the people of Northern Ireland, especially those affected by the Bill—including the matters that will be discussed tomorrow—should have the protection it affords at the same time as the rest of the country. I shall not rehearse all the arguments that have already been made, but we have seen examples where legislation was passed for other parts of the UK, to be followed by Orders in Council in Northern Ireland where a significant time lag has occurred. For example, there is widespread support in Northern Ireland for the introduction of the legislation on antisocial behaviour orders, but some six years after their introduction in the rest of the country, the process is only just reaching a conclusion for us.

It is imperative that the Bill should apply to Northern Ireland from the start, and provision to achieve that should appear on the face of the Bill. I cannot see any real argument against that. As the hon. Member for North-East Derbyshire said, the matter of workers left with pension shortfalls was considered in the Northern Ireland Grand Committee in some detail, and the provisions applying in such cases should also apply to Northern Ireland from the outset.

Chris Pond (Labour, Gravesham)

I share the Front Bench at the moment with my right hon. Friend the Minister for Work, who used to be a Minister in the Northern Ireland Office, and I know that she will have listened as carefully as I have to the arguments that have been made. I shall not spell out again the constitutional arrangements because I know that the right hon. and hon. Members who have spoken do not accept that because social security and pensions are transferred matters under the Northern Ireland Act 1998, that is an automatic reason to reject the amendments. Although the right hon. Member for Upper Bann (Mr. Trimble) asked me to consider whether that is appropriate, under the current arrangements the House has no authority—

David Trimble (UUP, Upper Bann)

If the Minister was going to say that the House has no authority to enact legislation, I can tell him that he is wrong. There is no exclusive jurisdiction in the Northern Ireland Assembly, which does not even exist at the moment.

Chris Pond (Labour, Gravesham)

I accept that point and, given the suspension of the Assembly, such matters have to be dealt with by Order in Council—[Interruption.] If I may develop the arguments, I hope that the right hon. Gentleman's patience will be rewarded, although perhaps not to the extent that he would like.

Northern Ireland issues are dealt with in different ways in various parts of the Bill and there are good reasons for that. Clause 281 sets out the detail of how the Order in Council will be introduced and, of course, in the event of a return to devolved government, provisions for Northern Ireland would be a matter for the Assembly.

In line with established practice in the pensions field, some of the provisions of the Bill extend directly to Northern Ireland, including, for example, those relating to the establishment of the pensions regulator, which is to operate throughout the United Kingdom. The same is true of the pension protection fund. It is also currently true of both the Occupational Pensions Regulatory Authority—OPRA—and the Pensions Compensation Board. Those bodies were established on a UK-wide basis, but their functions are bestowed by Westminster for Great Britain and separately by Northern Ireland legislation.

My right hon. Friend the Minister of State, Northern Ireland Office has written to Northern Ireland Members and peers and to the Speaker of the Assembly to advise that the provisions of the Bill that do not extend will be replicated in the Order in Council. That means that when Northern Ireland Members and peers consider the Bill they will do so in the knowledge that corresponding provision is to be made for Northern Ireland by Order in Council.

I accept the arguments that Members have made and their concern that there may be some delay. I shall come to those points in a moment.

With respect to the amendments before us, Government amendments Nos. 97, 98, 119 and 121 are further technical drafting amendments to ensure that the PPF and the fraud compensation fund can operate as two UK-wide funds, rather than having separate funds for Northern Ireland and Great Britain. To do otherwise would result in the board having to manage four separate funds and produce separate accounts and reports, which is neither sensible nor cost-effective. The amendments will ensure that administrative costs are kept to a minimum, thus securing value for money for the levy payer and also ensuring that protection is extended to all citizens of the United Kingdom.

Government amendment No. 165 is linked to a new clause about the pensions ombudsman and the deputy pensions ombudsman, which we debated in Committee on 22 April. It ensures that the reimbursement of expenses incurred by the deputy pensions ombudsman is dealt with in the same way as those incurred by the pensions ombudsman and ensures consistency between the provisions of UK and Northern Ireland legislation.

With respect to the other amendments tabled by hon. Members on both sides of the House, I hope that Members will accept the constitutional situation. I realise that the right hon. Member for Upper Bann does not accept it, but I can assure him that our intention is to ensure that the provisions in the Bill apply to people in Northern Ireland in the same way as they apply throughout the rest of the UK. We want to ensure that that protection is made available to people in Northern Ireland, just as it is throughout the rest of the UK.

David Trimble (UUP, Upper Bann)

At the same time?

Chris Pond (Labour, Gravesham)

The right hon. Gentleman asks from a sedentary position for my reassurance that the intention is that the provision should happen at the same time. I can tell him that my hon. Friends in the Northern Ireland Office have confirmed that all the Bill's provisions will be enacted in parallel and to the same time scale in Northern Ireland. I think that that is the reassurance for which he and other Members are rightly asking. On the basis of the discussions with my hon. Friends in the NIO, I think that I can give that reassurance, so I hope that hon. Members will feel able to withdraw their amendments.

Harry Barnes (Labour, North East Derbyshire)

I am on a hiding to nothing—not just because of what the Whips might do, but because of what might happen in a Division. Furthermore, we have only just over an hour to deal with some important amendments on TUPE, consultation by employers and stakeholder pensions. For those reasons, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 11 — Functions excercisable by the Non-Executive Committee

Clause 14 — Improvement Notices

Clause 15 — Third Party Notices

Clause 20 — Freezing Orders

Clause 21 — Consequences of Freezing Order

Clause 32 — Appointments by regulator

Clause 35 — Contribution Notices Where Avoidance of Employer Debt

Clause 48 — Register of Occupational and Personal Pension Schemes

Clause 58 — Duty to notify the Regulator of certain events

Clause 62 — Inspection of Premises

Clause 63 — Inspection of premises in respect of Employers' Obligations

Clause 66 — Penalties relating to sections 61 To 64

Clause 78 — Publishing Reports etc

Clause 79 — Codes of Practice

Clause 82 — The Regulator's Procedure in relation to its Regulatory Functions

Clause 84 — Application of Standard and Special Procedure

Clause 85 — Standard Procedure

Clause 86 — Standard Procedure: Applicable Cases

Clause 205 — Actuarial valuations and reports

George Osborne (Conservative, Tatton)

I beg to move amendment No. 205, in page 137, line 28, after 'on', insert 'material'.

This is a relatively small amendment—in fact, it would insert one word—but it relates to an important part of the Bill. Part 3 will get rid of the minimum funding requirement and replace it with a statutory funding objective. We had a debate earlier about the funding of pensions and so on. The key requirements in part 3 are that schemes must produce a statement of funding principles and that trustees must provide an actuarial valuation of the scheme assets and the technical provisions—to use a phrase from the EU pensions directive. Trustees must provide an actuarial valuation only every three years if they provide an actuarial report in the intervening years. Indeed, such reports, as defined in the Bill, would cover developments affecting the scheme's technical provisions since the last actuarial valuation was prepared.

Amendment No. 205 would merely insert the word "material". In other words, there would be a requirement to report on material developments that affect the scheme's technical provisions. My hon. Friends and I propose that change because we want to reduce any unnecessary bureaucracy and the burdens on schemes. There is a requirement to produce an annual report as well as the three-yearly valuation only because that is a requirement of the European directive.

I understand that the Government were originally perfectly content just to require a three-yearly valuation, rather than also requiring an annual report. If they are dissatisfied with that, I understand their requirement to implement the European directive, but we should do so with as light a touch as possible and keep the requirement as least onerous as possible—to use a clumsy phrase. That is why we wish to insert the word "material". Actuarial reports would then not need to go into every dot and comma of the changes during the previous year. Of course, the reports would also therefore be cheaper to produce.

The regulatory impact assessment suggests that the annual administrative cost of maintaining scheme-specific funding—compiling annual reports and three-yearly valuations—will outweigh the cost of producing MFR valuations by £16.75 million: a considerable sum. The Government assume that that sum will be more than offset by the savings that come from schemes switching 5 per cent. of their investments from gilts to equities and that that will yield an additional rate of return of 2 per cent., or about £100 million extra for schemes. That is very dodgy accounting. What we know for certain is that a significant extra regulatory burden will be imposed on schemes as a result of that arrangement, and the industry is concerned about that as well.

I wish to mention in passing that the industry has a broader concern that when the Bill becomes law, in effect, the PPF's risk-adjusted premiums will become the de facto benchmark for schemes, replacing the MFR and outweighing the scheme-specific funding in the minds of trustees and others, but that is for another debate.

Chris Pond (Labour, Gravesham)

I wonder whether we are witnessing a small element of parliamentary or legislative history: hon. Members will have noticed the coincidence that we are debating amendment No. 205 to clause 205. That must be worth mentioning.

I do not think that the hon. Gentleman and I will detain the House long, as we agree in principle on the issue, but I will ask him in a few moments to withdraw the amendment—that comes as no surprise to him—because it is not necessary and would not necessarily secure the objectives that we both want to achieve.

Clause 205 requires the trustees or managers of a scheme to obtain regular valuations from the scheme actuary that compare the scheme's assets with its technical provisions. I should explain that the term "technical provisions" is used in the European pensions directive. It broadly means the amount of assets a scheme needs to hold now, on the basis of the actuarial methods and assumptions used, in order to pay its accrued pensions commitments as they fall due in the future.

Valuations are necessary to check the funding position of a scheme and to provide a basis for determining an appropriate level of contributions for the future. However, they are time consuming and expensive. The clause seeks to strike a balance between ensuring sufficiently frequent funding checks and adjustments, and minimising unnecessary administrative costs. The hon. Gentleman and I take the same position on that.

Full actuarial valuations will be required either annually, or every three years when the trustees obtain interim actuarial reports for the intervening years. The provision in clause 205 for interim reports on developments affecting the scheme's technical provisions since the last full valuation reflects a requirement of the European pensions directive. Amendment No. 205 would mean that the actuary would be required to report only on "material" developments since the last valuation—"material" being the single word that the hon. Gentleman's amendment would insert. We are with him in principle, but think that the amendment is unnecessary. Clause 205 sets out the broad framework for obtaining actuarial valuations and reports, but using the power set out in subsection (6), we intend to specify in regulations the detail of what they must contain.

We intend to consult interested parties as we develop those detailed requirements. That will allow us to work closely with the pensions industry and other interested parties to ensure that we get the details right and that the regulations are workable and effective. It will also enable us to ensure that we implement the requirements of the directive in a proportionate way that does not impose undue burdens on business.

For those reasons, and with the proviso that we shall consult on the way in which we meet the objectives that we and the hon. Gentleman share, I ask him to withdraw the amendment.

George Osborne (Conservative, Tatton)

I thought that the Minister imbued the moment with more historical significance than it probably merited. The fact that it is amendment No. 205 to clause 205 is not really up there alongside the arrest of five Members by Charles I, Cromwell trying to remove the Mace or Churchill's rousing speeches. However, I suppose it is a small piece of parliamentary history.

As often happened in Committee, the Minister says that he agrees with me in principle, but he is not prepared to support me in practice. Sadly, I have become all too familiar with that, but I held out hope because he said the same about the proposed measure that he is to introduce as new clause 23. There is always the possibility that my amendment will resurface.

It is good to have on the record assurances from the Minister that the Government will attempt to keep the burden on schemes as light as possible while compliant with EU law. On the basis of those assurances, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 219 — Information and advice to employees

Vera Baird (Labour, Redcar)

I beg to move amendment No. 46, in page 144, line 40, after 'employers', insert 'and annuity providers'.

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss the following amendments:

No. 47, in page 144, line 41, after 'employees' insert 'and annuity purchasers'.

No. 44, in page 145, line 12 , at end insert—

'(f) make provision about the information and advice given to employees and their spouses.'.

No. 48, in page 145, line 12 , at end insert—

'(f) provide that they apply to annuity providers of a prescribed description and annuity purchasers of a prescribed description.

(g) make provision as to the action to be taken by annuity providers to ensure that annuity purchasers and their spouses have signed to confirm that they have received and understood information relating to the annuity purchase.'.

No. 45, in page 145, line 19, at end insert—

'(d) the person who would be affected directly or indirectly by the provision of the information.'.

No. 49, in page 145, line 23, at end insert—

'(7) In this section "annuity provider" means any company selling annuities whether or not resident or incorporated in any part of the United Kingdom.'.

Vera Baird (Labour, Redcar)

The amendments seek out a positive approach from the Government to a difficult problem.

Clause 219 is concerned with the supply of clear, good-quality information so that people are fully informed when they make decisions about their retirement income. The amendments are consistent with that aim and would mean that the employers and companies selling annuities would have to ensure that those buying the annuities and their spouses had signed to indicate that they had received and understood information relating to the purchase.

The amendments drive at the difference between a single life annuity and its impact and a joint life annuity. I am well aware that everyone in the Chamber knows the difference, but I should explain that a single life annuity is paid to the individual taking it out. When that person dies, the annuity income dies too. There is no benefit to the surviving spouse. The joint life annuity, on the other hand, continues to pay as long as one member of the pensioner couple is alive. For that reason, income from joint life annuities is considerably less than single life annuities. The purpose of the amendments is to ensure that on purchase of an annuity by a married person they and their spouse are fully aware of the consequences of their decision to purchase a single rather than a joint life annuity. They are also designed to ensure that on the death of their spouse nobody faces an unexpectedly huge drop in pensioner income.

According to the Association of British Insurers, only 19 per cent. of married people have joint annuities, although it is unclear on what information their decision was based. The amendments require that when a married person purchases a single life annuity their spouse signs a form saying that they have read and understood a leaflet explaining the options. The spouse should also give their consent for their partner to purchase a single life annuity and understand the implications of that decision for their pension income should their partner die before them. If the annuity purchaser decides to buy a single life annuity and not a joint life annuity, the written consent of their spouse to buy such an annuity should be required. If they cannot obtain that consent, the default position should be that they buy a joint annuity.

I emphasise that the amendments are not meant to compel all married people to purchase a joint life liability—the decision would still be theirs. The rationale for people having a right to their spouse's savings when they do not have rights to their earnings is based on the fact that it is women who are primarily disadvantaged by the present position. Women's historical and current difficulties in building up a decent pension mean that they are disproportionately reliant on their husband's pension income. If their husband dies before them, they are reliant on any survivor benefit in their husband's pension, so it is critical that they should be aware of what is happening.

Survivor benefits are particularly important because women have less pensioner income in their own right—on average, it is 57 per cent. of men's pensioner income, and the gap has widened since the 1980s. Less than 12 per cent. of women get a full basic state pension in their own right. Men have high membership rates of pension schemes, and they purchase the majority of annuities. In addition, women are likely to outlive their husbands. Almost half the women over the age of 65 are widows, and a 65-year-old woman can expect to live three years longer than a 65-year-old man. The issue is therefore a pressing one.

I accept that for some couples a single life annuity will be the best option—for example, when both spouses have access to sufficient pension income in their own right or when the survivor is on a low income and receipt of survivor benefits will reduce the amount of means-tested benefits that they receive. That decision, however, ought to be taken jointly, so that at the outset both spouses are aware of the consequences.

As a footnote, I should add that annuities provide non-married or single-sex couples with a good opportunity to make provision for survivor benefits. One of the obvious benefits of a joint life annuity is that an individual can decide to provide survivor benefits for their dependant regardless of the relationship. Occupational schemes often exclude non-married or same-sex partners. Without legal recognition of those partnerships, as is currently the case, it would be inappropriate to enforce a signed waiver of rights, but it would be prudent none the less to ensure that the annuity buyer understands the implications of their decision.

This is an extremely important issue, and there is a good deal of consensus on it among the Fawcett Society, Age Concern and other pressure groups that have sought repeatedly to draw the problem to the Government's attention. I have no intention of pressing the amendments to a vote, but I hope for a positive response from my hon. Friend the Minister.

Steve Webb (Liberal Democrat, Northavon)

I should put on record, for the benefit of the whole House, the Committee's appreciation of the hon. and learned Lady's contribution in Committee, where she secured that a report be made next year on women's pensions issues. This group of amendments represents one of those issues, although obviously it relates to men as well. As she said, this set of amendments refers particularly to women, because if a person buying an annuity—typically, a man—fails to provide for his surviving spouse, it is women, typically, who lose out. In a number of forums—in the House, Westminster Hall and elsewhere—the hon. and learned Lady has stood up for women pensioners in particular and she deserves a great deal of praise for that. [Hon. Members: "Hear, hear."]

I support some of the amendments in the group. Amendment No. 44, which would allow regulations to be made to make provision about information and advice to employees and their spouses, seems entirely appropriate. We need more information and advice. However, I have always felt uncomfortable about the written permission referred to in amendment No. 48. I am trying to work out what it is that makes me feel uncomfortable.

Although the process that the hon. and learned Lady describes is technically gender-neutral, let us take the most common case, in which a man gets to the point where he has to buy or wants to buy an annuity. If the amendment were agreed to, he would be prohibited from buying a single life annuity without the written consent of his wife. That just does not feel right. That is not a very good argument, but it does not feel right that an individual who has saved for their own pension should be prohibited from buying with that pension the particular investment vehicle that they think is right. My worry is the power of veto. I do not have a problem with the amendments that provide for both partners to be given information. One would hope that in a normal relationship they will talk to each other, weigh things up and make a decision. The power of veto would presumably apply where relationships are not working quite as well as that.

Whether the answer is to give one partner a legal block on the other partner's ability to buy a single life annuity worries me. Let me give an example. Suppose—this may be a less typical case—that the man who wants to buy an annuity has a pension pot. That is his entire pension provision for old age, whereas his wife has a fantastic occupational pension—say, she had been a Member of Parliament or something like that. Even though all the annuity will come out of his savings and it is all he has to depend on, he still needs her written permission not to make provision for her. The hon. and learned Lady might well say, "Yes, but being a reasonable woman, she will give it", and she may do so.

Often in legislation we have the concept of what may reasonably be done. If everyone were behaving reasonably, we would not need the provision at all, because they would all talk to each other, they would have been sent the leaflets and they would make a joint decision. We need the power of veto presumably for couples whose relationship is not terribly good. Is it right in all cases to prohibit one partner who may need the money from buying the annuity that serves his—in this case, his—purposes best? Although his wife may subsequently get her very good pension, if the relationship is not terribly good, she may not share it. Obviously, the converse of all those things is true if one transposes the gender, but we are dealing with a typical case.

I think that the hon. and learned Lady would accept that there is a raft of issues to do with women's pensions that need addressing, of which this is one. There is a raft of issues even on the subject of survivors' benefits, of which this is a subset. It would be unfair to criticise the proposals as piecemeal, because we all do things piecemeal—that is all we can do when faced with legislation. We try to make the world a slightly better place where we can.

That is meant not as a criticism, but as an observation that we need a strategy for widows and other survivors that encompasses not only annuities and, hence, money purchase pensions, but occupational pensions, where in many cases there are no survivors' rights, as well as public sector pensions. Until the happy day comes when men and women have accrued enough pension in their own right and we can do away with the concept of survivors' benefits, which must be the goal of pensions policy, we must tackle this huge generational transition. I fully accept the need for a provision such as amendment No. 44, which lays down requirements on information and ensures that both partners know what is going on, but the power of veto seems one step too far.

Vera Baird (Labour, Redcar)

Divorce law establishes that pensions are joint assets on divorce and therefore during marriage. Pensions are analogous with other joint assets such as houses, which cannot be mortgaged without the consent of both parties. Why does the same argument not follow for pensions?

Steve Webb (Liberal Democrat, Northavon)

The point is fair, but one of my worries is that the position is not necessarily reciprocal, because amendment No. 44 relates only to a specific category of pension provision. In my example, the man has a defined contribution pension that must be converted into an annuity, but if the woman has a final salary pension with no survivor's rights, asymmetry would be created.

The hon. and learned Lady argues that the pot of money to buy an annuity is the couple's joint property, but on that basis their joint property should also include the woman's occupational pension. The woman would have the power of veto over the man's pension, and asymmetry would occur because the provision does not include her occupational pension; it is not holistic—the example holds for both men and women if we were to reverse the genders.

The idea is right, but the power of veto is not what we want to introduce when dealing with pensions. We want to make substantial general provision for survivors, who are predominantly women. The hon. and learned Lady was right to table amendment No. 44, and I support some other amendments in the group. I hope that the Minister reassures us that the Government have a broad strategy on survivors' benefits, and if he can do so, the hon. and learned Lady will have done us all a great service.

Chris Pond (Labour, Gravesham)

My hon. and learned Friend the Member for Redcar (Vera Baird) asked for a positive response, which I can certainly give her. I add to the tribute paid to her by the hon. Member for Northavon (Mr. Webb) for her vociferous arguments on the issue.

Clause 219 aims to ensure that where employers contribute little or nothing towards their employees' pensions and where levels of scheme membership are low, employees get access to the information and advice that they need to help them make an informed choice about savings for retirement. As part of that requirement, employees will receive information or advice about annuities, where it is appropriate.

The amendments promoted by my hon. and learned Friend the Member for Redcar work with the grain of both our agenda of informed choice and our determination to ensure justice for women in pensions matters. The amendments would considerably extend the requirements in clause 219, and would, via the Secretary of State's power to make regulations, require employers and providers of annuities to give employees, purchasers of annuities and their spouses access to information and advice about retirement planning and, in particular, annuities.

That fits with the informed choice agenda, but I ask my hon. and learned Friend to consider the practical difficulties, which we must examine in deciding whether we can take the amendment forward. The Government believe that employers have a responsibility to help their employees provide for their retirement, but to extend that responsibility to cover the spouses of employees presents considerable practical difficulties. For example, arranging presentations or one-to-one advice sessions in the workplace for employees' spouses would not be an easy task. Such a requirement would lead to additional complexity and costs that many employers, especially the smallest employers, would find difficult to bear.

In addition, providing information and advice to spouses about annuities and other pensions matters might well raise data protection issues, as well as conflict of interest issues, for providers and employers. We recognise that consumers who are considering retirement and who must purchase an annuity face an important and complex decision. That is why the Financial Services Authority has already introduced changes designed to help people choose the annuity that is best for them.

FSA rules now require providers of personal pensions to give annuity purchasers information about open market options. For example, many issue the FSA leaflet, "Your pension—it's time to choose", which explains in simple language what an annuity is, as well as the options that are available to people and how they can shop around to get a better deal. In January this year, the FSA published further guidance in its "Guide to annuities and income withdrawal", and since the spring of 2003 it has included annuities in its comparative tables to make it easier for purchasers to shop around for the best value annuity available.

Additionally, new rules introduced in this year's Finance Bill will mean that occupational money purchase schemes are required to offer members the opportunity to choose between a scheme pension and a lifetime annuity. If they choose the annuity, members will again be informed about their open market options.

The issue of annuities has been the subject of considerable consultation over the past few years, and the outcome of that consultation has fed into our pensions simplification work. In answer to the hon. Member for Northavon, we are seeking to put in place provisions that will ensure that surviving spouses have support. We are strongly committed to the concept of informed choice, and we are trying to move forward on that. We are also committed to the concept that pension provision should close the inequality that has traditionally existed between men and women. I understand that that is why the Fawcett Society, the Equal Opportunities Commission and Age Concern have supported such proposals, which, although we find them attractive in principle, involve issues of practicality that we need to resolve.

I can assure my hon. and learned Friend that we will keep the need for further annuity-specific information and advice under review and that we will continue to assess how we can move forward on this agenda. I hope that given that reassurance she will feel able to withdraw her amendment.

Vera Baird (Labour, Redcar)

I thank my hon. Friend for that response, which could not be called anything other than positive. Mindful of the care that the Government are taking to ensure informed choice, and cheered by their determination to use pension provision to close the inequality between men and women—a large commitment, but I was pleased to hear it—I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

New Clause 33 — Annual meeting

George Osborne (Conservative, Tatton)

I beg to move, That the clause be read a Second time.

To echo the hon. Member for Northavon (Mr. Webb), I too congratulate the hon. and learned Member for Redcar (Vera Baird), who has pressed this issue hard in Committee and in Westminster Hall debates. In Committee, she was very effective in wringing a concession from the Government on the publication of a report, not least because she managed to persuade some of her fellow Back-Bench Committee members to support her, although I am not sure that they would have had sufficient numbers to win a vote.

New clause 33 is short and straightforward and would help to enhance the transparency and accountability of pension schemes and give their members a chance to find out about any problems before it was too late. It would require an annual meeting to be held at which trustees could answer questions put to them by members. One of the frustrations that Members of Parliament come across on behalf of our constituents is that people are often not kept informed about decisions that can have a profound impact on their pension and retirement. They often find it difficult to get any information out of the scheme when things are going wrong—their telephone calls are unanswered and their letters are not replied to.

The new clause would require trustees of occupational pension schemes to hold an annual meeting that is open to all active or deferred members, although they could include pensioner members if they so wished. That would create a forum that could prove pretty lively if things were going wrong, as sometimes happens in the annual general meetings of big companies when, for example, the remuneration of the chief executive has been placed under scrutiny.

If it is believed that the trustees of a scheme are paying their professional advisers or professional trustees too much, making poor investment decisions, taking risks with the funding and so on, there would at least be an annual occasion when members could turn up and put the trustees on the spot—after all, they are supposed to act on their behalf. We believe that that would help to enhance the transparency and accountability of schemes.

Chris Pond (Labour, Gravesham)

New clause 33 would not only require trustees automatically to hold an open meeting with members every year but it contains a power under which matters to be discussed at the meeting could be prescribed by the Government in regulations. Curiously, the new clause refers to

"all members . . . whether active or deferred".

What happened to pensioner members? I shall leave that question to the hon. Member for Tatton (Mr. Osborne).

Let me say straight away that good communication between schemes and members is vital. None of us would argue otherwise. However, it is overkill for the Government not only to demand that schemes have an annual open meeting, regardless of their size or maturity or the geographical location of the members, but to write the agenda for them. Can the hon. Member tell the House what such a Government-sponsored meeting would discuss and in what order?

Members of occupational schemes are free to communicate with and question scheme trustees, managers and administrators and can communicate with the regulator and the pensions ombudsman if they have a complaint. The communication of information is already required under extensive statutory powers, and notification requirements on the trustees and managers already exist.

The Government believe that those requirements are sufficient and balanced. Moreover, the trustees have an overarching duty to look after the best interests of the members, including pensioners. Obligatory meetings between trustees and members would not necessarily be practicable or produce improved communication. Some members would be unable to attend, in which case the information would still need to be communicated. A meeting might not necessarily be the best way of communicating the information that the statute required to be supplied, while some information is personal to the individual or sensitive. A meeting could not be used for members to witness trustee deliberations on, for example, an ill-health early retirement case.

When trustees' decisions are applicable to the membership generally, such as the annual funding statement or the statement of investment principles, they are required to be sent to all members or at least made available to any member who asks to see them.

We have nothing against schemes choosing to hold annual meetings, but whether they should be held and what should be discussed is a matter of choice and judgment for the relevant trustees, not the Government. That is not to say that we cannot give them some encouragement. As hon. Members know, the new pensions regulator will focus more on promoting good practice and raising standards and he will have a range of tools available, including the power to issue codes of practice.

I am sure that the hon. Gentleman agrees that there are many better ways to promote what is obviously good practice than introducing such a blunt mandatory legislative requirement to hold annual meetings. I hope that, on that basis, he will feel able to withdraw the amendment.

George Osborne (Conservative, Tatton)

The Under-Secretary warmed to my proposal as his response progressed. He started by being dismissive and ended by saying that it could be included in a code of practice. There is a big difference between being sent a letter and having an opportunity to attend a meeting and put questions to trustees on the basis of received information.

Companies have annual general meetings and most pass quickly, without controversy, but when a business such as Marks and Spencer is in trouble, everyone turns up and the meeting provides a focus that enables people to question the directors. We envisaged a similar procedure, whereby most pension scheme meetings would be over quickly and would not cause a great deal of fuss or be difficult to organise. Indeed, we would not expect all members to turn up. However, when problems exist and some of the matters that the Bill tackles—such as freezing orders or schemes being put into the PPF—arise, the trustees should be required to explain themselves in public to scheme members. We think that that would be a good thing, but this is not quite the kind of issue to press to a vote. We also hope that the regulator will bear in mind these discussions when drawing up the codes of practice, and perhaps include similar provisions in them.

I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

New Clause 35 — Auditors' rights to information

Michael Lord (Deputy Speaker, Central Suffolk and North Ipswich)

With this it will be convenient to discuss new clause 36—Internal controls—

'Regulations may provide that trustees of an occupational pension scheme must secure that the scheme has appropriate and sufficient systems of internal control.'.

Steve Webb (Liberal Democrat, Northavon)

I beg to move, That the clause be read a Second time.

I thought that perhaps, after five and a half hours, I ought to move something. I hope that the House will accept that new clauses 35 and 36 reflect my expert parliamentary drafting, although the Institute of Chartered Accountants in England and Wales might also have had a hand in it, somewhere along the line. I was delighted to see that Members on the Conservative Front Bench had added their names to the new clauses.

George Osborne (Conservative, Tatton)

The reason that we added our names is that we got the same letter as the hon. Gentleman.

Steve Webb (Liberal Democrat, Northavon)

I was wondering whether the Conservatives had put their names to the new clauses knowing that they had already been tabled, or whether they got a bit of a shock when they realised that they had put their names to Liberal Democrat proposals. We will draw a veil over that, however.

The Institute of Chartered Accountants has asked us to raise a couple of important issues relating to the audit of pension funds. I should like to deal first with new clause 36, which is very brief. It attempts to mirror the provisions in the European pensions directive, as the Minister will know. Article 14 of the directive, with which the House will be familiar, states:

"The competent authorities shall require every institution located in their territories to have sound administrative accounting procedures and adequate internal control mechanisms."

A number of points have been raised today to which the Government have replied that they are keen to ensure that the Bill reflects the pensions directive as closely as possible, to ensure that the United Kingdom is complying with it. What better way to do that could there be than to take the words from article 14 and incorporate them in the Bill after clause 202? It is the purpose of new clause 36 to ensure that the Bill uses the same terminology as the pensions directive. Given that the Government have said several times today that that is precisely what they want to do, I am sure that the Minister will accept our proposal.

New clause 35 has two parts. It attempts to mirror some of the rights of company auditors, and to apply them specifically to those who audit pension schemes. There are two issues involved here. First, the Companies (Audit, Investigations and Community Enterprise) Bill will introduce rights for general auditors to obtain information from companies, and from a wider group of people involved with those companies, than is now the case, and the first part of new clause 35 would make the same provision for those who audit pension schemes. Auditors would then be able to require information from trustees, managers, administrators, advisers and others.

The second part of new clause 35, by analogy, looks at the requirement on company directors to make a statement in their report that they are not aware of any relevant information that has not been disclosed to the company auditors. Criminal penalties exist for those who knowingly or recklessly mislead auditors. Why should not those provisions apply equally to those who audit pension funds? The trustees should be under an obligation to disclose any relevant information. The penalties would apply only if the trustees had recklessly and/or knowingly failed to disclose information to the trustees. The Government would not want trustees recklessly or knowingly to fail to disclose such information, so I am sure that the Minister will want to accept new clause 35 as well.

Chris Pond (Labour, Gravesham)

I have to tell the House that I have not added my name to the new clauses, not because I did not get the letter that the hon. Member for Tatton (Mr. Osborne) mentioned but because I have certain reservations about the proposals in new clause 35 to introduce new powers and offences in relation to the rights of auditors to obtain information. As the hon. Member for Northavon (Mr. Webb) has explained, the proposals mirror clauses in the Companies (Audit, Investigations and Community Enterprise) Bill, which has now finished its Committee stage in the other place. The purpose of those clauses is to strengthen the rights of company auditors by entitling the auditor to require information and explanations from a wider group of people. It is perhaps understandable that that is being proposed here in relation to pension scheme accounts.

This is a complex Bill, and I am told to say that my officials are talking to officials in the Department for Trade and Industry about the possible application in relation to pension accounts. I suppose I could say that my people are talking to their people. In particular, we need to think about how the measure would interrelate with the existing requirements that we place on the auditors of pensions schemes and the role of the pensions regulator.

Because of the slightly different nature of the relationships between employers, trustees and professional advisers, there is already a legal requirement on employers to disclose to trustees any information that they reasonably require to perform their duties. The trustees have in turn a statutory duty to disclose to their professional advisers, including auditors, such information as may reasonably be required for the performance of the advisers' duties. The trustees also have a duty to make available to their advisers all requisite books, accounts and records as may reasonably be required for the performance of the advisers' duties.

It might well be that the current statutory requirements on the scheme regarding disclosure of information to the auditor and to other professionals for their professional purposes are sufficient. I am not trying to pour cold water on the amendments, as we take the issues they address very seriously and are looking carefully at whether we need to change pensions law as well as company law.

With regard to new clause 36, article 14(1) of the European directive on the activities and supervision of institutions for occupational retirement provision requires us to ensure that every occupational pension scheme has sound administrative and accounting procedures and adequate internal control mechanisms. The effect of the new clause would be to provide a regulation-making power that we could use to require schemes to have appropriate and sufficient systems of internal control. I note that the power does not extend to prescribing what those controls should be or how the requirement could be enforced, and to that extent I am not sure how useful it would be.

There are a great number of procedures and controls in place as a result of current pensions legislation: chiefly the Pensions Act 1995 and the Pension Schemes Act 1993. For example, there are provisions relating to investment, scheme funding, production of audited accounts and annual reports, sending information to members, the appointment of professional advisers and record keeping. All of these are reinforced by a requirement on scheme professionals to "blow the whistle", a requirement that clause 59 of the Bill will extend to others involved in running the scheme.

Earlier today, we dealt with several Government amendments that arose wholly or partly from our work on the directive. The work is ongoing. We are still looking at how the existing raft of requirements fits into the obligations under article 14(1) and the extent to which further action may be necessary. I suggest that it would be premature to accept the need for additional regulations, particularly of the unspecific nature proposed by the hon. Gentleman. On that basis—and on the understanding that we take the matters seriously, but need to work out how they can be brought together practically and properly—I hope that he will withdraw the motion.

Steve Webb (Liberal Democrat, Northavon)

I am grateful for the Under-Secretary's constructive response. My only observation is that he said that the existing obligation is on trustees to make available the information for which they are asked; in other words, to be reactive. I am not sure that there are strong obligations on them to be proactive when they are not asked for information, and to say, "But you need to know this." That is the thrust of new clause 35. But as the Minister has indicated that his people are talking to their people and that he takes the issue seriously—and given the lateness of the hour—I beg to ask leave to withdraw the motion.

Motion and clause, by leave, withdrawn.

Clause 220 — Requirement for member-nominated trustees

George Osborne (Conservative, Tatton)

I beg to move amendment No. 15, in page 145, line 31, after second 'trustees', insert

'and that not less than one third of this number shall be nominated by a recognised pensioners' association and in the case of a closed fund, the majority shall be member nominated trustees'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments:

No. 19, in page 145, line 31, leave out 'and' and insert—

'( ) that those arrangements are fair and open, and'.

No. 16, in page 145, line 33, leave out subsection (2) and insert—

'( ) "Member-nominated trustees" are trustees of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioner members of the scheme are eligible to participate, and

(b) are selected by a process including at least all active and pensioner members.'.

No. 17, in page 145, line 37, at end insert—

'(2A) A "recognised pensioners' association" shall be an organisation that represents at least 25 per cent.of pensioners from a particular occupational pension scheme and is duly constituted for the purpose of representing its members.'.

No. 21, in clause 221, page 146, line 39, leave out 'and' and insert—

'( ) that those arrangements are fair and open, and'.

No. 18, in clause 221, page 146, line 41, leave out subsection (2) and insert—

'(2) "Member-nominated directors" are directors of a pension scheme who—

(a) are nominated as a result of a process in which at least all active and pensioner members of the same scheme are eligible to participate and

(b) are selected by a process including at least all active and pensioner members.'.

George Osborne (Conservative, Tatton)

I am conscious of the fact that two Labour Members want to get on to TUPE and consultation by employers, so I will not detain the House for too long with these amendments—[Interruption.] That is provided that they do not heckle me. The amendments—[Interruption.] I am being heckled from all around now, and I have pages of notes here. The amendments are inspired by the Occupational Pensioners Alliance, which represents more than 1 million occupational pensioners, and concern points that were brought to our attention by Mr. Roger Turner of that alliance. They are designed to ensure that member-nominated trustees reflect the interests of pensioner members as well as active members.

The Minister scored a cheap point on my previous new clause because I had left out pensioner members from my proposal to hold an annual meeting, although I hope that the record will show that I said that they could be invited to that meeting. Perhaps, given that my new clause was defeated, I shall go back and look at that. However, I am more optimistic about these amendments.

Amendment No. 15 would require that of the one third of trustees required to be member-nominated, one third of those should be nominated by a recognised pensioner association. Amendment No. 17 seeks to define that as

"an organisation that represents at least 25 per cent. of pensioners from a particular occupational pension scheme".

That would provide a threshold so that it was clear that the pensioner association genuinely reflected the interests of a number of pensioner members, rather than being a group that had been put together to speak for only one or two members.

It is worth repeating what the Occupational Pensioners Alliance has said on that:

"We are particularly unhappy about the proposals . . . on Member Trustees"

because

"the role of pensioners in the running of their schemes would be even more marginalised than it is now."

The practical upshot of the Bill will be that

"pensioners can be ignored in the nomination and election processes. There is only a duty for 'active members' to be consulted. The OPA believes strongly that representation via the Trustees is essential for good and fair scheme management and we call, in the strongest possible terms, for the Government to re-examine its position on this issue."

The amendment therefore attempts to get the Government to re-examine their position and deal with the under-representation of pensioner members.

As the legislation currently stands, a very mature scheme might have one third of its trustees—the third that were member-nominated—elected by a minority who were the active members. Or there could be a scheme whose trustees were able to choose the member-nominated trustees themselves. The inclusion of pensioner members would help to prevent that abuse, and would also, we hope, lead to a more open, transparent process.

Under amendment No. 16, member-nominated trustees would have to be nominated and selected by a process in which

"at least all active and pensioner members"

took part; at the moment, the requirement is only that active members are involved in the nomination. Amendment No. 18 would extend that to the process for member-nominated directors. Amendment No. 19, on governance, is not only about pensioner members, but is a broader point. It would require the whole process of choosing member-nominated trustees to be fair and open. It would simply insert three words into the Bill, but would give the courts some leverage when dealing with unfair and closed processes. Amendment No. 21 would extend that requirement to member-nominated directors.

Trustees are ultimately the best defence against the mismanagement of pensions, and we believe that member-nominated trustees are the best defence of the interests of members. We think that those members should include pensioner members who, in many schemes, make up a significant number of the scheme's members, and that the process of choosing the member-nominated trustees should be fair and open. It is vital that pension schemes are accountable to all their members, and that all members are treated fairly.

Malcolm Wicks (Labour, Croydon North)

As the hon. Gentleman said, there are colleagues who are hoping to introduce their amendments in due course. If the only heckle that I ever received in my career was to be a called a gentleman, I would rest content. I expect that a certain colleague of the hon. Gentleman, if facing the National Pensioners Convention in Blackpool, would not be heckled quite so politely.

I hope that the hon. Gentleman will forgive me if, in view of the time, I do not consider all his amendments; rather, I shall cut to the quick and concentrate on where I can be helpful. Amendments Nos. 16 to 18 are not ideal. It is far from clear that establishing such a demanding minimum as the involvement of all active and pensioner members in these processes is sustainable. However, the amendments may well be a starting point in ensuring basic equality between active and pensioner members. We want to explore whether that can be done, while keeping the essence of the new legislation in its current form. Of course, we had a useful debate on this issue in Committee.

If the hon. Gentleman is prepared to withdraw the amendment, we will certainly think further about the need to involve pensioners, as well as active members, in the processes for member-nominated trustees, with a view to tabling our own amendments on this issue in another place. I hope that those helpful remarks might encourage the hon. Gentleman to withdraw the amendment.

George Osborne (Conservative, Tatton)

[Interruption.] Yes, as I am advised to say by the Government Whip, that is very helpful. I am glad that the Minister is prepared to consider the case for pensioner members. [Interruption.] The Under-Secretary of State for Work and Pensions says that I should say "Thanks." I shall do so once I have seen the Government amendments in the other place, but I am sure that the Occupational Pensioners Alliance will be extremely grateful. I look forward to the telephone call from the Minister, and with that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 225 — Requirement for knowledge and understanding: corporate trustees

Malcolm Wicks (Labour, Croydon North)

I beg to move amendment No. 123, in page 150, line 14, at end insert—

'( ) In this section "company" means a company within the meaning given by section 735(1) of the Companies Act 1985 (c.6) or a company which may be wound up under Part 5 of the Insolvency Act 1986 (c.45) (unregistered companies).'.

This is a technical amendment that deals with trustees' knowledge and understanding, which is known in the Department as "familiarity with issues". The House is indeed familiar with these issues.

Amendment agreed to.

Clause 229 — Form of protection

John Robertson (Labour, Glasgow Anniesland)

I beg to move amendment No. 53, in page 152, leave out lines 43 to 46 and insert

'is certified by the actuary to be broadly comparable to the occupational pension scheme referred to in section 228(1)(c).'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments: No. 54, in page 153, line 13, at end insert—

' "actuary" means the actuary appointed by the trustees of the scheme referred to in section 228(1)(c), pursuant to section 47 of the Pensions Act 1995;'.

No. 55, in page 153, line 24, at end insert

'but in the case of contributions payable by the employer shall not be less than the contributions paid by employers into the scheme referred to in section 228(1)(c) and in the case of contributions payable by members shall not be more than the contributions paid by members into the scheme referred to in section 228(1)(c).'.

John Robertson (Labour, Glasgow Anniesland)

I begin by offering some criticism of today's debate. We have spent many an hour discussing Government business, yet only 1 hour 50 minutes on amendments tabled by the Opposition and Labour Back Benchers. I know that you look after Back Benchers, Madam Deputy Speaker, and I should point out that we have not had a fair crack of the whip today.

Clause 229 implements the Government's commitment to extending the protection afforded by the Transfer of Undertakings (Protection of Employment) Regulations 1981. The original regulations were drafted in accordance with what was then understood to be the requirements of the acquired rights directive, and they excluded pensions from the requirement to carry over terms and conditions of employment.

The Government's declared objective is very much to be welcomed, but in the event the specific proposals have failed to provide adequate protection for the great majority of members of occupational pension schemes. The Government appear to have more regard for the need for business flexibility than for genuine and worthwhile protection of employees on the transfer of an undertaking.

Clause 229 specifies the pension provision that the transferee or receiving employers must make for employees in TUPE transfers where the conditions in clause 203 apply. Specifically, the employer must offer either an occupational pension scheme or a stakeholder pension scheme. Occupational pension schemes that are not on a money purchase basis—typically, final pay schemes—must satisfy either the reference scheme test for contracting-out purposes or an alternative standard to be prescribed in regulations.

In the case of the money purchase scheme, occupational scheme or stakeholder scheme, the receiving employer must make relevant contributions, which are to be defined in regulations. The explanatory notes say that that means that the regulations will specify that the receiving employer must match the employee's contributions up to a maximum of 6 per cent.

Clause 229 also allows for variation by agreement between the transferee employer and the employee of a contractual term that imposes the requirements. There are many problems for defined benefit scheme members and for money purchase scheme members. I would like to provide much more detail, but I appreciate that other hon. Members want to raise other matters. TUPE is, however, very important and the amendments propose an alternative approach.

The Government's approach is fundamentally flawed, in my opinion, in trying to set a common standard that all receiving employers have to meet, while also trying to avoid placing a burden on some employers. The two standards have been set at levels that mean, inevitably, that the majority of occupational pension scheme members will lose out. What is needed, instead, is a simple requirement that the receiving employer should provide benefits that are broadly compatible with, or of broadly equal value to, the benefits provided by the original scheme. It may be argued that the like-for-like requirement is impracticable, but the public sector has successfully operated requirements of a broadly compatible sort for a number of years, and there seems no good reason why the same should not be extended to the private sector.

An important aspect of the system operated in the public sector is set out in the Cabinet Office document, "Staff Transfers in the Public Sector—Statement of Practice". For any anoraks, there is a website www.cabinet-office.gov.uk/civilservice/2000/tupe/stafftransfers.pdf and, in case anyone did not get that, it will be in Hansard tomorrow: buy your copy at the local Vote Office. A comparison is made of benefits and member contributions and it is made clear that that is the correct approach. In my opinion, though, it is ignored in the Bill. I ask the Minister to reflect on the amendments and to understand that if something is good enough for the civil service, it is good enough for the private service.

Bill Tynan (Labour, Hamilton South)

I want to be brief in order to leave the Minister plenty of time to answer on the important issue of TUPE. We moved a probing amendment in Committee, but I want to go back to 1981 when the transfer of undertakings provisions took effect. One of the major concerns then was the fact that pensions were not included. It came to fruition when we had private finance initiative projects, and the contracting-out of cleaning services, particularly for hospitals, meant that the poorest paid people had lost their pension scheme. Considerable pressure was exerted by Unison at the time to try to reach some accord on how to move forward and cure that anomaly. To the Government's credit, they recognised the need to protect the poorest paid people in the NHS. The public sector, which we are talking about now, had the poorest people. Fair enough. As my hon. Friend the Member for Glasgow, Anniesland (John Robertson) said, if something is good enough for the public sector, why should it not apply to the private sector? As I said, we recognised that the lowest paid workers were suffering the most. Under those circumstances, why should the same not apply to the private sector?

The poorest people often have major problems with their pension provision, although some problems were resolved when the TUPE regulations applicable to private sector employees were transferred to employees in the public sector in the early 1990s. I hope that my hon. Friend the Minister for Pensions will look at the question of TUPE very closely. He gave some commitments in Standing Committee, but it is important for us to get on the record the Government's position on this matter. I hope that the amendment receives a positive response.

Malcolm Wicks (Labour, Croydon North)

Clauses 228 and 229 introduce a minimum level of pension protection where a business transfer occurs and the so-called TUPE regulations apply. This new requirement means that, for the first time, transferee employers will have to offer transferred employees a minimum standard of pension provision, where employees had access to an occupational pension scheme with employer contributions pre-transfer.

I understand the argument made by my two hon. Friends the Members for Glasgow, Anniesland (John Robertson) and for Hamilton, South (Mr. Tynan), but I hope that the considerable progress being made with the Bill will be acknowledged.

Clause 229 sets out the types of pension provision that a transferee employer will be contractually bound to make available to transferred employees when a relevant transfer takes place. These are an occupational salary-related scheme of a requisite standard, an occupational money purchase pension scheme, or a stakeholder pension scheme. Where the transferee employer opts to provide a salary-related occupational pension, it must meet either the reference scheme test or a similar alternative standard that will be prescribed in regulations. Where the new employer opts to provide a money purchase occupational pension scheme or a stakeholder pension, he will be required to match employees' contributions up to 6 per cent, although either party may contribute more at their own discretion.

Amendments Nos. 53 and 54 would require that, rather than meeting those statutory standards, the scheme offered should be broadly comparable to the previous employer's scheme. The comparability would have to be certified by the actuary of the previous scheme, regardless of whether or not that scheme was salary related. Amendment No. 55 stipulates that the contribution to be paid by the new employer should be no less than that paid by the old employer, and that contributions payable by the employee should be no more than were paid into the old scheme.

First, I should like to deal with the question of comparing different types of scheme. Extensive consultation took place on our proposals, and on earlier proposals from the Department of Trade and Industry, for pension provision following a business transfer. Those consultations helped to identify the genuine obstacles in comparing different pension schemes. There are real difficulties for actuaries in attempting comparisons of contribution levels in money purchase and salary-related occupational pension schemes.

In salary-related schemes, the level of employer contributions at any point in time will depend on a number of factors, including the funding position and the age profile of the overall membership. In short, there is no straightforward read-across from what an employer could contribute to a salary-related scheme to what an employer should contribute to a money purchase, occupational or stakeholder scheme.

Our approach—a simple, stand-alone requirement on all employers—means that there is no incentive on the transferor employer to reduce the level of pension contributions to make the business more attractive to potential purchasers.

A requirement to provide a broadly comparable scheme of the same type could prevent a transferee employer from placing transferred employees into the existing pension scheme, and oblige that employer to run two or more schemes in parallel. That is precisely the sort of extra, multiple requirement that encourages employers to pull out of pension provision altogether. We should remember that the new legislation to protect employees involved in business transfers cannot, and is not intended to, prevent the employer from making changes to the pension scheme in the future.

In Committee, my hon. Friend the Member for Cardiff, West (Mr. Brennan) asked why we do not provide full protection for the value of the pension scheme after a transfer. The reason is that we want to avoid an approach that could require transferee employers to have to set up and fund an occupational final salary scheme from scratch. That could act to prevent employers from buying businesses, or parts of businesses, where the employees had occupational pension provision.

That would not be in anyone's interest: transfers can often save businesses, where the alternative for employees is redundancy. Nor is it sensible to increase costs so much that employers are encouraged to withdraw pension provision. The approach in the clause sets a simple minimum standard and allows employers to determine whether and how they go beyond the statutory standard, depending on their needs and priorities. For the first time, it will ensure that employees benefit from a statutory level of pension protection after transfer and stop transfers being used as an excuse to scrap pension contributions.

I appreciate the arguments that my colleagues have made. We need to keep the new arrangements under review, and I promise that the Government will do that. This is a social advance and I hope that that will be recognised. Therefore, I ask my hon. Friend to consider withdrawing his amendment.

John Robertson (Labour, Glasgow Anniesland)

I thank my hon. Friend the Minister for his answers. While he may not have convinced me completely, he has convinced me enough not to cause him any undue hassle at this time of night. However, I hope that those in the other place are taking note of what has been said here today. There is much more mileage in this argument. TUPE is far more important than the 10 or 15 minutes that we have given it in this Report stage, and I hope that those in the other place have listened to what has been said and will take on board the points that I have made. With that, I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 230 — Consultation by employers: occupational pension schemes

John Robertson (Labour, Glasgow Anniesland)

I beg to move amendment No. 51, in page 153, line 44, at end insert—

'(3A) Where an employer has failed to comply with the requirements of this section, a complaint may be presented to an employment tribunal on that ground—

(a) in the case of failure relating to representatives of a trade union, by the trade union,

(b) in any other case, by any of his employees who are affected employees.

(3B) Where the tribunal finds a complaint under subsection (3A) above well-founded it shall make a declaration to that effect and may order the employer to pay appropriate compensation to such descriptions of affected employees as may be specified in the award.

(3C) In this section—

(a) "appropriate compensation" means such sum not exceeding thirteen weeks' pay for the employee in question as the tribunal considers just and equitable having regard to the seriousness of the failure of the employer to comply with his duty.

(b) "affected employee" means an employee who is a member of the scheme or who would have been eligible to become a member if a prescribed decision within the meaning of subsection (1) had not taken effect.

(3D) Chapter 2 of Part 14 of the Employment Rights Act 1996 shall apply for calculating the amount of a week's pay for any employee for the purposes of subsection (3C) above.'.

Sylvia Heal (Deputy Speaker, Halesowen and Rowley Regis)

With this it will be convenient to discuss the following amendments:

No. 52, in clause 231, page 154, line 7, at end insert

'; or

(c) proposes to reduce the contributions which the employer pays to the personal pension scheme,'.

No. 42, in clause 232, page 154, line 25, after 'ballots', insert

'where it is necessary for the purpose of selecting employee representatives'.

No. 50, in clause 232, page 154, line 44, at end insert—

'(4A) Consultation regulations shall require that—

(a) the employer consults any recognised trade unions with a view to seeking their agreement to the measures to be taken;

(b) in the course of those consultations the employer shall—

(i) consider any representations made by the recognised trade unions; and

(ii) reply to those representations and, if he rejects any of those representations, state his reasons.

(4B) For the purposes of subsection (4A) above a recognised trade union is an independent trade union recognised to any extent for the purpose of collective bargaining in relation to the employees concerned.'.

John Robertson (Labour, Glasgow Anniesland)

I will try to make this short. In fact, I will not try; given the time, it will be very short. I thank the trade union Amicus for all the help and support that is has given me and my hon. Friend the Member for Hamilton, South (Mr. Tynan) and many other Labour Members. I think that we can safely say that, by the end of this week, we will have left pensions in a much better state—some might say that the situation could not have got worse.

The purpose of amendment No. 51 is to suggest that a clear sanction should be specified and that there should be a ready route through which complaints can be brought. It is important that those who do not consult in a proper manner are brought to book and complaints taken care of properly. In Committee, I discussed for at least 10 minutes what the word "consultation" meant. We should bring people to book for not consulting properly and the amendment would take care of that.

Amendment No. 52 specifies that, where an employer reduces a contribution to a personal pension, the consultation arrangements will apply. Why the arrangements would not apply, I cannot imagine. It seems sensible to me that whoever has a pension should be told if the contributions are to be reduced. To reduce the contributions without telling someone, or at least seeking their opinion, strikes me as bizarre.

Amendment No. 50 is intended to ensure that consultations are meaningful and undertaken with a view to seeking agreement. It would oblige the employer not just to consider but to respond to representations before a decision is taken. That goes along with the previous amendment. It is important not only that people have the opportunity to make representations but that they receive an answer.

Malcolm Wicks (Labour, Croydon North)

The key principle that we intend to enshrine in regulation is that, where trade unions are recognised by an employer, the only circumstance in which an employer will be able to consult on pension changes using another mechanism will be where employees have specifically agreed an approved alternative approach to information and consultation.

The role of trade unions is crucial. We take the issue seriously and we will consult trade unions and others in developing these ideas and drawing up regulations. It is right that workers and their trade unions are consulted about this vital element of the industrial package. Given the spirit of my remarks, I ask my hon. Friend to withdraw his amendment—

It being 7 o'clock, Madam Deputy Speaker, pursuant to Order [this day], put forthwith the Questions necessary for the disposal of proceedings to be concluded at that hour.

Amendment negatived.

Clause 233 — Modification of subsisting rights

Clause 240 — Debt due from the employer when assets insufficient