Postal Services Bill [HL]

Committee (2nd Day)(Continued)

20:31:00

Amendment 50

Moved by

50: Clause 16, page 8, line 40, at end insert— “( ) If a new public scheme is wound up, its liabilities shall be guaranteed by the Treasury.”

Lord Clarke of HampsteadI am grateful for the dinner break, which gave me a chance to sort out some of these papers. Amendment 50 proposes a guarantee, which would mean an obligation made by the state to underwrite the new public scheme if it is wound up. In the case of an ordinary private sector scheme that is wound up, members have a right to their pension benefits, which would be enforceable against the trustees and not the employer. The trustees have a right to make the employer pay whatever is needed to fund those benefits.

This situation is similar. Under Clause 16(2), members’ accrued rights are transferred to a “new public scheme”, which will be run by the Secretary of State or his delegates. It transfers the right to a pension to the scheme and not to the Government. Members’ rights are enforceable against the scheme and not the Secretary of State. The new public scheme might be funded or unfunded. Either way, nothing in the Bill says that it could not be wound up. This clause makes explicit what seems to be assumed. If the scheme is wound up, it will not be wound up in deficit. If a segment of the Royal Mail went bust or insolvent, what would be the position of other segments? Would they stand alone or would they be dependent on each other? What happens to the pensions of people in that segment?

Is Amendment 55 mine as well? I think it is. Oh, no, it is not. I beg to move.

Lord SkelmersdaleI am afraid that we on this side, the very few, cannot agree with either of the amendments tabled by the noble Lord, Lord Clarke. We do not support the extension of a full government guarantee for any future failure of the ongoing RMPP. Instead, we hope that the reorganisation and part-privatisation of the company in Part 1 would ensure that such a guarantee would never be needed. Indeed, as I said earlier, if that eventuality ever came to pass, we think that a new and separate piece of primary legislation would be needed and, on reflection, I believe that the noble Lord, Lord Clarke, would agree. However, the amendments give us the opportunity to probe exactly what guarantee the Government are offering to pensioners whose rights have been transferred over to the new public scheme.

The Minister and indeed the Secretary of State have chosen not to set up a new scheme under the Superannuation Act 1972, which leaves the question of exactly what guarantees the new public pension scheme will have, so I go along with one of the questions asked by the noble Lord, Lord Clarke. Am I right in believing that the ongoing liabilities remaining in the RMPP will be subject to a guarantee from the Pension Protection Fund as any private sector DB pension scheme would be? The fund protects only 90 per cent of core pension rights. Do the Government intend to guarantee the new public scheme only up to that limit or will it be 100 per cent guaranteed? Will this be the only public sector pension scheme that could have recourse to the Pension Protection Fund, or does, for example, the United Kingdom Atomic Energy Authority scheme have the failsafe of the PPF? Moreover, are there any other schemes in the public arena which have that recourse?

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord McKenzie of Luton): Some interesting issues have been raised. Perhaps I can say first to my noble friend Lord Clarke that Amendment 55 is grouped with this amendment and extends the proposition in respect of the guarantee not just to look at the new public scheme, but that:

“If the RMPP or any section of the RMPP is wound up, its liabilities shall be guaranteed”.

I will address those issues, even if my noble friend did not actually touch on them. I shall deal specifically with his query about whether, if a section of the RMPP did go bust, it would affect other sections. The intention is that sections of the RMPP that the Government create are fully segregated so that there is no cross-subsidy or cross-fertilisation, as it were.

I can also say up front to the noble Lord, Lord Skelmersdale, in regard to the Pension Protection Fund, that if the RMPP in its funded guise were to suffer circumstances where the employer had an insolvency event and therefore began to wind up an insolvent position, the PPF would kick in. But there is a big “if” about the insolvency of the employer because in those circumstances we would have to look separately at the Post Office and Royal Mail. The Government have said that they intend to take responsibility for members’ historic rights accrued up to 16 December 2008, including the pension deficit currently estimated to be in the order of £6 billion. At the point of transfer of any liabilities and assets to the Government, the sections of the RMPP would be left with sufficient assets to cover their liabilities. Let me make it clear that the Government are not proposing to make any changes to individual pension entitlements for either past or future service, and decisions on future pensions provision will continue to remain with Royal Mail Group Ltd and Post Office Ltd. As such, it is right that responsibility for funding future service entitlement should remain with those two companies. The Government’s proposals would facilitate a strategic partnership with Royal Mail, and both companies—Royal Mail Group Ltd and Post Office Ltd—would be in a much better position to support members who want to continue to build up pension benefits in the company-backed scheme. In the unlikely event of the insolvency of either sponsoring employer, as I have just said, members would be eligible for protection from the Pension Protection Fund. However, as the noble Lord, Lord Skelmersdale, noted, for pensioners in those circumstances the benefit would be 100 per cent on a PPF basis, which does not necessarily equate to a strict comparability with the benefits from the scheme for someone who has not yet reached normal retirement age at the date of the assessment. When payment is made it would be at 90 per cent, but with the detriment of the cap. As I have said, however, it would require the unlikely event of the insolvency of the sponsoring employer for that to happen.

Amendment 50 would require the Treasury to meet any outstanding liabilities to the public service scheme were it to be wound up. Such provision would, however, be applicable only to a scheme operated on a funded basis, and that is not what the Government are proposing. As public service schemes operate on a pay-as-you-go basis, the liabilities that would be transferred to the new scheme are in effect already guaranteed by the Treasury because the Government are responsible for paying the benefits when they fall due. So what my noble friend is seeking is certainly met in practice in respect of the new scheme.

Amendment 55 would go further and essentially provide a government guarantee to the whole of the RMPP, including any future service rights accrued after 16 December 2008. Under the amendment, if the company and trustees decided to wind up the scheme, the Government would have to meet any shortfall in funding. I should clarify that if the Government established a new section in the RMPP for qualifying accrued rights—the fallback option if a new scheme is not established—the liabilities in this section would already fall directly on the Government, who would meet the costs of paying the benefits as they fell due. So, in essence, that would equate to the situation if a separate scheme was set up.

The guarantee arrangements of the proposed sections for employees of Royal Mail Group and Post Office Ltd could have a number of adverse effects. First, they would, in effect, make winding up much more likely to happen because of the undertaking that there would be no additional costs to the sponsoring employer. Secondly, and related to the first point, because the winding up is not contingent on Royal Mail’s own insolvent liquidation, it would represent a significant and potentially unfair subsidy to Royal Mail and Post Office Ltd and the European Commission would be likely to view this as incompatible aid. Thirdly, it would result in the prospect of a further potentially significant burden on taxpayers for an indefinite period into the future. Ultimately, taxpayers would be underwriting the decisions taken by the trustees and the company with no influence over their actions. For these reasons the amendment is not appropriate.

The Committee will be aware that the Government have to balance protecting the universal postal service, members of the pension scheme and the interests of taxpayers. For members, the RMPP will be left in a much better position than it is at present and we are not proposing any changes to individual pension entitlements. I hope that my noble friend will find a degree of comfort within that and feel able to withdraw his amendment.

Lord Clarke of HampsteadI thank the noble Lord for his courtesy in referring to Amendment 55, which, because of my ineptitude or stupidity, I did not speak to in a meaningful way. I saw the links between the responsibility for any scheme that was wound up as being much the same and I used a bit of shorthand. If I had not had some good news from the House of Commons Business and Enterprise Select Committee earlier today, I would have given more time to making sure that the Committee had the benefit of my comments on Amendment 55. I am tempted to go over it again but I shall not do so because, when we come back on Report, we will have the chance to give these matters another airing.

I was interested in the assurance about the segment that might go bust. As I understand it, the Secretary of State has one of the segments and one belongs to the privatised company and others. I am concerned about a private company having the same moral obligations that the Secretary of State would have by introducing this scheme. On the 90 per cent, is it right that the employer will be required to pay into that protection fund?

Lord McKenzie of LutonPerhaps I may help my noble friend on two points. On the issue of the Secretary of State having a section of the RMPP fund, I stress that that is a contingency provision if it is not possible to set up in the time available a separate scheme, which is the objective we seek. It is only if that does not come about that a section of the RMPP for accrued rights would be the responsibility of the Government.

The PPF would require a qualifying insolvency from the sponsoring employer before it kicked in. At the moment the PPF is funded partly by a levy on schemes, partly by the assets that it takes in from schemes and partly by the investment return that it gets on them. It is not directly funded by employers, although some employers top up the contributions that they make to schemes to enable the levy to be paid. I hope that helps my noble friend.

Lord Clarke of HampsteadThat is very helpful. Another consequence of a segment going bust is the fact that the Pension Protection Fund, as I understand it, would limit any increases to 2.5 per cent. If that is wrong, perhaps my noble friend will tell me. I am grateful for the information about how the Pension Protection Fund is funded. As I say, there is plenty of time for us to debate this at greater length at a different hour of the day on Report. In the mean time, I thank him again for his courtesy about Amendment 55 and look forward to reading what he has said and coming back. I beg leave to withdraw the amendment.

Amendment 50 withdrawn.

Clause 16 agreed.

Amendment 50A

Moved by

50A: After Clause 16, insert the following new Clause— “Trivial portability The Secretary of State may by order make provision for trivial qualifying accrued rights— (a) that would not otherwise be transferred by an order under section 16(2), to be transferred; or(c) that would otherwise be transferred by an order under section 16(2), not to be transferred.”

Lord SkelmersdaleI have tabled this amendment to suggest a small aspect of the new public pension scheme and its relationship with the RMPP that would be of benefit to both. It would establish that any trivial liability relating to a member who remained in one scheme, while the huge bulk of their pension liability fell into the other scheme, could be carried across. That may seem to be a small suggestion and, given the quite enormous powers that these clauses give to the Secretary of State, I would be astonished to hear that it was not already possible under current drafting, but I thought I would make the case for this level of portability none the less.

The administrative saving could be considerable. As the Minister knows, there are plenty of precedents for the use of both portability powers and the calculation of triviality, both of which we have discussed at various times in recent years. The latter could of course be specified in relation to the triviality limits set out in the Finance Act 2004. A trivial-portability provision would also have the advantage of reducing the number of people receiving their pension benefit from two sources.

While we are on this group, will the Government give some indication of whether any thought is being given to how the new public pension scheme will pay out the benefit? Will there be any liaison with the RMPP about the timing of the arrival of the cheques? The ideal situation would be that each pensioner received their benefit from one source. I hope the Minister will be able to tell us that the Government intend to make it possible for the company handling the RMPP payments to handle the new pension scheme’s payments as well.

While I am on that subject, I wish the noble Lord, Lord Clarke, would stop referring to a “privatised company”. It is nothing of the sort. It remains a public company. Outside money will be coming into it but very much at its head, under the proposed structure, are Her Majesty’s Government, under whom comes Royal Mail Holdings plc. The only bit of the Post Office network that the Bill covers is Royal Mail Group Ltd, which is letter and parcel post, and Post Office Ltd—that is where the commercial relationship comes into play. There are three other firms within the group, including Royal Mail Estates Ltd, Royal Mail Investments Ltd and, as the noble Lord will know well, the fairly new General Logistics Systems firm. I am sure that the Minister will agree with me that under the Bill it is not, and never will be, a privatised company. I beg to move.

Lord McKenzie of LutonI am happy to address the interesting point that the amendment raises in relation to the position of members of RMPP who retain small, or trivial, amounts of accrued benefit within the scheme after the transfer of their qualifying accrued rights to the new public service scheme.

When a clear dividing line between the qualifying accrued rights that transfer to the new public service scheme is set, some members may be left with a relatively small amount of benefit in the RMPP. However, that does not outweigh the benefits of having a clear dividing point that provides certainty for scheme members and protection for taxpayers. The challenge is to ensure that any adverse effects can be adequately addressed.

One of the principal concerns in relation to small benefit entitlements is the cost of administration. Following the transfer of liabilities to the new scheme, the administrative costs associated with payment of benefits to pensioners and deferred pensioners will fall entirely to the new public service scheme and not to Royal Mail. For individuals who were active members as at 16 December, the additional administrative cost in respect of the payment of benefits relating to their qualifying accrued rights will fall to the Government, not the RMPP. The Government’s impact assessment estimated that the net increase in administrative costs, taking into account the savings to the RMPP, would not exceed £2 million per annum on an ongoing basis after implementation.

The Government are determined to ensure that administrative arrangements are as efficient as possible, that unnecessary duplication is avoided, and that there is effective co-ordination where an individual member has accrued rights in both schemes—the very point that the noble Lord pressed. That principle applies as much to members with small accrued rights as to those whose accrued rights are much greater.

We are in discussion with the RMPP trustees concerning how administration of the two schemes should best be co-ordinated. Although no final decisions have been made, the options include initially contracting administration of the new public scheme directly to the RMPP administrators—one could see the obvious benefits of that.

The noble Lord’s amendment has other effects with which the Government have some difficulty. It raises the prospect of members with small amounts of qualifying accrued rights being treated on a fundamentally different basis from others who do not fall into that category. The Government cannot support this difference of treatment or the basis for it. It would also raise significant uncertainties for members who may be affected.

Equally problematic is the suggestion in the amendment that other trivial accrued benefits within the scheme could be included in the transfer order, even if they were accrued after the qualifying time; that is, the 16 December cut-off point that has been set by the Government. This undermines a key principle of the Government’s proposals: that there should be a clear cut-off between the liabilities that transfer to the new public service scheme and the liabilities that remain with the RMPP. In so doing, it would increase the costs and risks that fall upon the taxpayer.

For these reasons, the Government cannot support the noble Lord’s amendment. In light of the assurances that I have been able to provide in respect of future administrative arrangements, which are key here, I hope that he will feel able to withdraw it.

Lord SkelmersdaleI think that it is the first time that I have heard the Minister say that this was an interesting idea—or at least words to that effect. I am delighted to hear that some thought is being given to the administration of payments. With a bit of luck, it will be resolved before the Bill completes its passage in another place. I hope that the Minister agrees with that ambition, even if it does not come to fruition.

There is a small problem with those post office employees who were employed a year before the new DC scheme came into effect as a result of negotiations in April 2008. I note that the Minister said that my idea as enumerated in this amendment would rather complicate the issue. None the less, we might both reflect on the position of those people with very small amounts of benefits.

Lord McKenzie of LutonI do not quite see the connection with the new DC scheme. The noble Lord is right that the current scheme is closed to new entrants but, if somebody is in the RMPP scheme, whether by a year before the new DC scheme or not, they obviously continue to accrue rights under that scheme, albeit that in terms of future service it may be on a different basis—on career average and, shortly, with a different normal retirement age. But I am struggling to understand its juxtaposition with the DC scheme.

Lord SkelmersdaleAs I understand it, although I am perfectly willing to be corrected, when the agreement of April 2008 was set up, part of that agreement was that if you were already in the DC scheme, you would continue in the DC scheme. Sorry, I have got it the wrong way around. If you were on the DB scheme, I mean, you would continue on the DB scheme as long as your employment lasted. If, however, you were a new entrant, it would be a direct contribution, which is of course a different cup of tea. What I have been trying to talk about is small amounts of money accumulated under the DB scheme, which, in part, are the responsibility of the new government scheme and will then become, for the rest of the career, the responsibility of the Post Office scheme. I was trying to find a way in which to roll the two into one; that seems a perfectly sensible suggestion, even if the Minister does not think that it is practical. Perhaps we could both consider the matter further. In the mean time, I beg leave to withdraw the amendment.

Amendment 50A withdrawn.

Clause 17Division of the RMPP into different sections

Amendment 51

Moved by

51: Clause 17, page 8, line 42, leave out subsection (1)

Lord SkelmersdaleMy Amendment 51 is a probing amendment about the ongoing state of the RMPP. The noble Lord, Lord Clarke of Hampstead, who has Amendment 52 in the group, will probably be just as interested in the answer as I will be. Indeed, my amendment raises many of the same questions that his amendment does.

As we have already discussed somewhat tangentially, the RMPP covers many different schemes and benefits. There is the ongoing DB scheme, the relatively recent DC scheme, and all the top-ups and AVCs available to both. There is also the senior executive pension plan, a DB scheme which the Government are leaving behind in the RMPP. After the reorganisation, there is a case to be made for expanding the number yet further. Since Post Office Limited will no longer be a subsidiary of the Royal Mail Group, it can become the sponsoring company to its employees, in a separate section to the Royal Mail employees pension scheme. Subsection (1) of Clause 17 certainly seems to prepare the way for something of that sort. I should be grateful for some clarification from the Minister on the Government's intentions. As I said on the previous amendment, there are some five totally separate entities within the group, and the Bill allows each to have its own sub-pension scheme.

On the first day of Committee my noble friend raised some concerns about the ongoing relationship between Post Office Limited and the Royal Mail and many of these concerns are relevant to their pension arrangements too. Currently, I understand that it is perfectly normal to transfer between the Royal Mail Group and Post Office Limited as an employee—and, indeed, the other companies in the group. If the pensions for all these companies have been held in one pot, this is easy to accommodate, but how will the arrangements work after the re-organisation? If an employee is transferred between companies, will his pension be moved with him or will he be counted as a new employee of his new company and so miss out on the benefits of working there for a long time? That point is particularly relevant if he was employed, of course, before April 2008 and so is currently in the defined benefit scheme that is closed to new members. I beg to move.

21:00:00

The Deputy Chairman of Committees (Lord Faulkner of Worcester)I must advise the Committee that, if this amendment is agreed to, I am unable to call Amendment 52 for reasons of pre-emption.

Lord Clarke of HampsteadAmendment 52 seeks to extend Clause 17(1) by adding, at the end of line 4, two specific points that will make the intention of the clause easier to understand. The first is:

“If an order is made under subsection (1) which includes a provision for the division of the RMPP into different sections, it shall provide that the sections are segregated”.

The second point is:

“For the purposes of subsection (1A), the sections of the RMPP are segregated if—

(a) any contributions payable to the scheme by an employer in relation to the scheme or by a member are allocated to that employer's section; and

(b) a specified proportion of the assets of the scheme is attributable to each section of the scheme and cannot be used for the purposes of any other section”.

Proposed new subsection (1C) makes it clear that:

“For the purposes of subsection (1B), the Secretary of State shall be deemed to be an employer".

Before I forget, I want to address the comment made to me by the noble Lord, Lord Skelmersdale, about my reference to privatisation. The Secretary of State can speak about public ownership until he is green in the face, but I will continue to describe the selling-off of part of Royal Mail as privatisation. It is all right to shake heads, but anybody with any interest in this matter will see that it is the thin end of the wedge. That is why some of us will fight to the end to prevent the privatisation of Royal Mail.

To return to Amendment 52, which deals with segregation, Clause 16 is the method flagged up by the Government for dealing with the deficit. Assets of the scheme will be taken into the Consolidated Fund and matching liabilities paid through a new public scheme. Clause 17 provides an alternative. The existing Royal Mail pension plan will be carved up into sections like the segments of an orange. Each employer would have his own section for future service provision. Past service liabilities would be transferred to a further section sponsored by the Secretary of State. Something very similar was done when the railways pension scheme was set up. Each employer had his own section but there was a further section just for pre-privatisation pensioners and deferred pensioners, which the Government were responsible for.

The point of the amendment should be uncontroversial. If a pension scheme is carved into sections, the sections can be segregated or remain unsegregated. Segregation means that the assets and liabilities of each section are ring-fenced. If the sections are not segregated, the assets of one section can be used to cross-subsidise another one. Amendment 52 requires a sectionalised scheme to be segregated. That means that if a section for qualified accrued liabilities is sponsored by the Secretary of State it cannot be cross-subsidised by the Royal Mail or Post Office companies. That means that the new companies, once they have their own sections, cannot be made responsible for the deficit that the Secretary of State has taken on. That is exactly what happened in the railways and electricity suppliers’ scheme. I beg to move.

Baroness Turner of CamdenI support my noble friend Lord Clarke of Hampstead’s amendment. He is attempting to deal with the problem also raised by the noble Lord, Lord Skelmersdale, in his amendment, but I find this rather more acceptable. It accepts that this section of the Bill allows for the RMPP to be divided into different sections. It then ensures that if a pension scheme is carved into sections, the scheme is segregated. The segregation, as I understand it, means that the assets and liabilities of each section are ring-fenced, and that is important.

The amendment requires a sectionalised scheme to be segregated, which means that if there is a section for qualifying accrued liabilities sponsored by the Secretary of State, it cannot be cross-subsidised by the Royal Mail or post office companies. My noble friend Lord Clarke of Hampstead has found quite an ingenious way of dealing with the issues he raised when speaking to his amendment. I commend it to Members of the Committee.

Lord SkelmersdaleBefore the Minister answers, is this a case where “may” means “shall”?

Lord McKenzie of LutonThe hour is too late. I start by picking up on the point made by the noble Lord, Lord Skelmersdale, about the current nature of the RMPP. The senior executive scheme is outwith the RMPP and not covered by the Bill, as with the DC scheme. Furthermore, although the RMPP scheme is described as divided into five sections, those are in fact just descriptions of the different pension arrangements in the plan. It is not currently divided into separate sections but is one plan.

Clause 17, particularly subsection (1), allows the Secretary of State, by order, to divide the existing RMPP into different sections, for different participating employers to be in the different sections, and for assets and liabilities in the RMPP to be divided between the different sections. The Government intend that responsibility for rights accrued prior to 16 December 2008 will be transferred to the Government. We also intend that the strategic partnership will not include Post Office Ltd, which, in contrast to Royal Mail Group, will remain 100 per cent in public ownership. As a result, when the transfer of responsibility for qualifying accrued rights to the new government scheme and the restructuring of the Royal Mail Group take place, the RMPP will need to be divided so that there is a section for Post Office employees and another for Royal Mail Group employees. These sections will contain rights built up after the cut-off date for the transfer of liabilities to the Government. Post Office and Royal Mail Group will each be responsible for their own section.

I should add that Post Office Ltd is currently staffed with people seconded from the Royal Mail Group, who participate in the current unsectionalised RMPP scheme. As part of the restructuring, such persons will be transferred to Post Office Ltd, and their pension provision in respect of benefits that arise after the qualifying time will be in a section of the RMPP for Post Office Ltd employees funded by the Post Office. After separation into sectionalised schemes, the transfer of employees between Royal Mail Group and Post Office Ltd will be an operational matter for the company.

At the point of any transfer to a new government scheme, it is the Government’s intention that the new sections for Post Office and Royal Mail Group will have sufficient assets to cover their current liabilities at that date. Clause 17 also provides the Government with a power to create further sections, separate from the sections containing the ongoing pension liabilities of Post Office and Royal Mail Group. This power could be used, as we have discussed, to create a section which contained qualifying accrued rights, defined in Clause 15.

It is not the Government’s intention to use the power for this purpose, other than in circumstances where it proved that the power provided in Clause 16 to transfer the qualifying accrued rights to a new scheme could not be implemented. A section created for this purpose would operate on a similar basis to the public service scheme created under Clause 16, and would not hold any assets. Benefits would be funded directly by the Government as they fell due, as provided for in subsection (2).

The existence of this power is purely a contingency measure should, for whatever reason, the Government’s preferred option prove impossible. Creating a new section for qualifying accrued rights would be quicker than creating a separate scheme under Clause 16, and there may be circumstances where this additional flexibility is advantageous. The remainder of the provisions in Clause 17 relate to the establishment of the new subsection for qualifying accrued rights.

On Amendment 51, we need the power to sectionalise the RMPP to provide for different Post Office and Royal Mail Group sections. Maintaining Post Office Ltd in 100 per cent government ownership is a key part of the overall restructuring of Royal Mail. The Government therefore need the ability to ring-fence the Post Office and its pension liabilities. Amendment 52 concerns the segregation of the sections of the RMPP created by the Secretary of State. Under the Government’s proposals, the sections would contain rights built up after the cut-off date for the transfer of liabilities to the Government. Post Office Ltd and Royal Mail Group would each be responsible for their own section. I reassure my noble friend that it is the Government’s intention that any such sections would be segregated, with no scope for cross-subsidy so that, for important areas such as scheme funding and Section 75 debt legislation, each section will be regarded as an effectively separate pension scheme. This is very important, and the rules of the RMPP on sectionalisation will be amended to meet the conditions in the scheme funding, Section 75 and other pensions legislation that recognises that segregated sections in a sectionalised scheme are to be treated as separate schemes.

Post Office Ltd should not, therefore, be liable for the Royal Mail Group’s pension arrangements. Similarly, it would not be acceptable for the Royal Mail Group, including a partner, to be liable for pension arrangements relating to the Post Office. Neither the Royal Mail Group nor Post Office Ltd should be liable for any section containing qualifying accrued rights, which would be the responsibility of the Secretary of State.

At the point of any transfer of liabilities and assets to the Government, the Government intend to leave the sections of the RMPP with sufficient assets to cover their liabilities at that date, as I have stated. Going forward, the intention is that the assets and liabilities in each section will be attributable only to that section, and that each section would carry out its own separate actuarial valuations. Assets in one section should not be transferable to any other section.

The Government intend to discuss with the trustees and the company the most appropriate governance for the new sections going forward before a final decision is made. One option is that the existing trustees of the RMPP continue to act as trustees for the different sections of the RMPP, which involves the least change for members, with members of the Post Office section represented on the trustee board.

I hope that for once I have been able to satisfy the proposition that each noble Lord has advanced in dealing with these amendments. Therefore, I am confident that the amendments might not be pressed.

Lord SkelmersdaleTo sum up, “may” does mean “shall”. Good, at least we have got that clear. The Minister has indeed satisfied me, except in one major respect: he has not settled the argument between the noble Lord, Lord Clarke, and myself on whether we will end up with a privatised company. The Minister is an accountant so he should know exactly what a privatised company is as opposed to a public company. Having said that, I hope that he will satisfy me on that point on another amendment. In the mean time—

Lord McKenzie of LutonTo clarify that point, the Secretary of State speaks for the Government on that issue.

Lord SkelmersdaleIt is very unlike the noble Lord to duck a challenge like that. I beg leave to withdraw the amendment.

Amendment 51 withdrawn.

Amendment 52

Tabled by

52: Clause 17, page 9, line 4, at end insert— “(1A) If an order is made under subsection (1) which includes a provision for the division of the RMPP into different sections, it shall provide that the sections are segregated. (1B) For the purposes of subsection (1A), the sections of the RMPP are segregated if— (a) any contributions payable to the scheme by an employer in relation to the scheme or by a member are allocated to that employer’s section; and(b) a specified proportion of the assets of the scheme is attributable to each section of the scheme and cannot be used for the purposes of any other section.(1C) For the purposes of subsection (1B), the Secretary of State shall be deemed to be an employer.”

Lord Clarke of HampsteadI should like to comment on this amendment. I do not know whether that is out of order; I shall be told if it is. I thank my noble friend Lady Turner for once again showing her years of experience of dealing with these matters at the TUC and for bringing that useful experience to the debate. In the mean time, I shall look at what has been said.

Amendment 52 not moved.

Amendment 53

Moved by

53: Clause 17, page 9, line 5, leave out subsection (2)

Lord SkelmersdaleAmendments 53 and 54 probe the provisions in the Bill providing for further payments from the Secretary of State to the RMPP. I am sure that the Minister has eagerly anticipated this debate because it is one area of the Bill where I am sure that his Back-Benchers will agree with him, and oppose the Opposition—I am speaking for the Opposition—which must be a pleasant change.

With this Bill we are spending billions of pounds of taxpayers’ money to rescue a company that has allowed its pension fund deficit to grow to completely unmanageable proportions. Earlier in our debates the noble Lord, Lord Hoyle, commented on two past events that affect that deficit. The first was the pensions holiday, which was not brought in by the Government of the day but was insisted on by the then Inland Revenue, otherwise it said that it would tax the surplus, which was not considered by the Post Office or any other pension scheme to be a reasonable thing to do.

21:15:00

Lord HoyleMy whole point about the pension holiday was that it went on far too long.

Lord SkelmersdaleIt is easy to be wise after the event. Had we known what the effects would be, I do not think that any of us would have resiled from giving the Inland Revenue the instruction not to be so silly. I think we have all learnt from those days. I, for one, hope that it will never happen again, and I hope that I have agreement across the Committee on that.

The second point that the noble Lord was making—I cannot remember the exact phrase that I used to use 20-odd years ago—was on the £300 a year that the Post Office paid into the government coffers. Again, that went on for some years—

Noble LordsIt was £350 million.

Lord SkelmersdaleI am talking entirely from memory. Again, that was seen to be a mistake and was eventually stopped.

Lord HoyleWhen I was in the other place and it appeared before the Trade and Industry Committee, we always used to complain about what the Treasury was doing in relation to that.

Lord SkelmersdaleThat may well be, but that is not part of my experience, unlike that of the noble Lord. Surely to goodness, as time goes on we should all learn from our mistakes, whether we were in opposition and are now in government or the other way around. I hope that the noble Lord, Lord Hoyle, would agree with me on that.

With this Bill, we are spending billions of pounds of taxpayers’ money to rescue a company that has allowed its pension fund to grow to completely unmanageable proportions, not only for those reasons, but for others. The deficit is the largest accounting deficit of any FTSE 100 company, and it is being carried by a postal company with the lowest operating profit margin in western Europe; both those points are according to Hooper. I suppose I am about to be challenged by the noble Lord, Lord Clarke, on that as well, in which case, I shall await the challenge.

We agree with the Government that the rescue is necessary; the alternative, of sitting on our hands and letting a major pension fund close, possibly bringing down the PPF with it, is completely unacceptable. This regrettable necessity does not mean that we are particularly happy about having to spend billions of pounds of taxpayers’ money in this way. The Secretary of State has accepted that the price for this bail-out is the part-privatisation of Royal Mail. One would hope that the company is transformed sufficiently to prevent this ever happening again. We on this side of the Committee agree that after this Bill is passed and the reorganisation is completed, Royal Mail should be able to fund the remaining liabilities in its fund and successfully manage the new ones that it will accrue over time. The Secretary of State’s policy paper said that,

“taxpayers will have the certainty that it is Royal Mail that will bear the full cost of future pensions provision for its current employees and costs relating to future salary increases”.

Again, we agree that this certainty is a critical part of the Bill. What are these powers for? The provisions as they stand make a nonsense of that certainty. Why is the taxpayer continuing to fund the RMPP? Once again, the Bill’s supporting documents are rather unhelpful. The memorandum to the DPRRC speaks of this power being used to comply with EU state aid requirements and gives no other possible use. Frankly, the possibility that the Government’s policy will need to be altered because of EU rules is becoming an excuse for an awful lot of the very wide and very worrying provisions in this part of the Bill.

The memorandum is further confused by a throwaway reference, concerning Clause 15, to the possibility that the Secretary of State will set up a section of the RMPP to hold qualifying accrued rights that will be paid off by the Government. Thus it appears that the Government are not even wedded to the idea of a Clause 16-based new public scheme.

I am desperately confused, and this level of confusion and contradiction, unless explained, is unacceptable. If the power is to be used only for tidying up, it should be limited to such a use. However, if the Government intend to allow further subsidy of the RMPP beyond what they have announced, they should be honest about that, and above all, should place restrictions on this power in order to ensure proper scrutiny. I beg to move.

Lord Clarke of HampsteadI did not interrupt the noble Lord, Lord Skelmersdale, although I was invited to do so. However, unlike others who do not accept a challenge, I do.

The question was asked about why the taxpayer should pick up the tab for the deficit. It is a legitimate question. On Second Reading, my noble friend Lord Haskel said:

“If the Government are going to fund the pension scheme deficit, they should do so because it is morally right because of responsibility and because of undertakings given in the past”.—[ Official Report , 10/3/09; col. 1084.]

That was well said.

Reference has been made in this short exchange to the pensions holiday. I have referred to this on a number of occasions and it bears repeating. There is much talk about the poor old taxpayer. I sympathise with anybody who pays tax, especially in these times of credit crunch. However, the responsibility lies clearly with both the former Tory Government and the Labour Government for allowing the pensions holiday to go on.

It was said as an aside that we learnt too late. However, within one year of that holiday, I was on my feet with the Royal Mail and the pension fund, saying, “This is wrong. You should be putting away that money for a rainy day”. My general secretary pulled me up on one occasion for being—unusually for me—quite direct to the employer. I said clearly, “This cannot go on. Our members are paying 6 per cent of their wages every week. You are giving nothing. If you are making this money, put it in a pot so that when there is a rainy day, we will be able to use it”—as the trust deed stipulated.

For 13 years, post office workers paid. They also contributed large amounts of money through the external finance limit. In my time as an officer of the union, it was £2 billion. If you consider that alongside the pensions holiday, and the political pressures on tariffs, and the pressures on managers, you do not ask, “Why should the taxpayer pay?”, but say, “Thank goodness that somebody had the sense to see, as the noble Lord, Lord Haskel, said, what is morally right”.

The Secretary of State replied to my noble friend Lord Haskel. His answer was not so clear-cut, but he started by agreeing that:

“My noble friend Lord Haskel rightly suggested that as a Government we are morally obliged to fund this pensions deficit”.—[ Official Report , 10/3/09; col. 1132.]

There is no dispute. The Government have a moral obligation, yet this clarity is immediately muddled. Noble Lords in the Chamber have listened to talk about taxpayers, with whom I sympathise—especially because, at this period of our economic history, there is not much money about. However, one has to balance this with the sacrifices made over those years, and the absolute stupidity of management and both Governments who did not see that they were frittering away money that would have been very useful when the rain started to pour.

Lord McKenzie of LutonThis has been an interesting debate which has strayed beyond the specifics of the amendment. I shall just say this in relation to the pensions holiday: it was my understanding that the legislation of the previous Government put pension schemes in this position. That may have not been dealt with early enough by a subsequent Government. I was interested in the comment that the position was forced upon the Government by the Inland Revenue. That was an interesting perspective put by the noble Lord.

The pensions holiday is a matter of fact. There was a long period during which contributions were not made into the scheme. It is difficult to discern what the subsequent funding arrangements might have been after the 2003 triennial valuation, had there been more funds in the scheme in the interim. However, that is history and we are where we are.

The noble Lord, Lord Skelmersdale, talked about longevity. If you look at the pensions landscape, we know that the challenges facing DB schemes generally have been created by issues around longevity and a period of unrealistic expectations from asset prices. The commission of the noble Lord, Lord Turner, made that very clear, but we are where we are. The big challenge regarding the RMPP, whether or not it had been fully funded on day one, is the size of the scheme in relation to the business supporting it. For these arrangements to renew, for the Government to take over accrued rights, to slim down and to fully fund the scheme are very important to sustain opportunities going forward.

Let me deal with the detailed amendments. The Government’s intention is for qualifying accrued rights to be transferred from the RMPP to a new public service scheme. Subsection (2) covers the scenario whereby if qualifying accrued rights remain in a section of the RMPP, the Secretary of State is allowed to make provision for the making of payments to the trustees on a pay-as-you-go basis in relation to qualifying accrued rights. As I explained earlier, the existence of this power is purely a contingency measure should, for whatever reason, the Government’s preferred option prove impossible. Creating a new section for qualifying accrued rights would be quicker than creating a separate scheme under Clause 16, and there may be circumstances where this additional flexibility is advantageous.

The remainder of Clause 17 relates to the establishment of the new subsection for qualifying accrued rights. That is why those provisions are there. It is not for other sections of the RMPP. For example, subsection (3) allows the Secretary of State to include provision for increasing the benefits payable in respect of qualifying accrued rights in prescribed circumstances. This is similar to the equivalent provision at Clause 16 and is required to match the indexation of benefits currently provided for under the RMPP.

Subsection (3)(c) is needed to allow the Government to make payments to the trustees to cover any additional discretionary benefits for members. Discretionary benefits include agreements to grant members enhanced benefits as regards ill health or early retirement. The exercise of discretionary powers by the trustees would require the Secretary of State’s consent under subsection (3)(b).

I should stress that these provisions relate only to a new section of the RMPP created for the purpose of containing the qualifying accrued rights and for no other purpose. They do not relate to the other sections of the scheme relating to Royal Mail Group and Post Office Ltd. The ability to create a new section for the qualifying accrued rights is an important contingency measure, but it is not the Government’s preferred option. If the Government are able to transfer the QARs to a new scheme, as envisaged under Clause 16, these provisions will not be required.

I hope that that explanation will help noble Lords and will enable the noble Lord, Lord Skelmersdale, to withdraw the amendment.

Lord SkelmersdaleWe have had an occasion where “may” meant “shall”, and now “may” means “could”. The noble Lord suggested in relation to the first of these amendments that subsection (2)(a) could be advantageous in certain circumstances, but he neglected to give me an example of circumstances where it could be used and could be beneficial. I grouped these amendments because you cannot have subsection (3)(c) without subsection (2)(a). They are inextricably entwined. I think that I now understand what subsection (2)(a) is getting at, although at some point, either now or later, I should be interested in an example, if the Minister can give it, of when such a thing could be advantageous.

21:30:00

Lord McKenzie of LutonPerhaps I may try now. To recap, Clause 17 is about the division of the RMPP into different sections because of Post Office Ltd and so on. However, it is also about having, on a contingency basis, the ability to create a section of that scheme if, for practical or other reasons, it is not possible to set up a separate government scheme. If the unfunded scheme in respect of accrued liabilities cannot be put into a separate scheme, it may, or should, be possible to do it through a separate section of the RMPP. Obviously if that happens, given that that section will not have any investments in it, its ability to deal with those accrued liabilities will depend on the Government putting money into it and then dealing with increases. That is why it is structured on that basis. I hope that that helps the noble Lord. I can see that the alternative can be confusing, but it is an important fallback position, should we not be able to set up that separate scheme.

Lord SkelmersdaleI am grateful to the Minister. I think that I now have it, and I beg leave to withdraw the amendment.

Amendment 53 withdrawn.

Amendments 54 and 55 not moved.

Amendment 56

Moved by

56: Clause 17, page 9, line 20, after “RMPP” insert “if the exercise of that power would increase the qualifying accrued rights of any member”

Lord Clarke of HampsteadAmendments 56 and 57 are linked and they relate to the next group. Clause 17(3) would allow the Secretary of State to veto any discretionary decision made by a trustee of the Royal Mail pension plan. Discretionary decisions are decisions to amend the rules or increase benefits. They would include not only a power to grant an additional pension for reasons which might be viewed as suspect—for example, paying off a chief executive—but also decisions to grant an ill health pension on genuine medical grounds or to allow an immediate pension on the standard, more favourable terms already permitted by the Royal Mail pension plan that apply in the event of redundancy. It would include decisions made by a trustee, an employer or even a doctor.

With the amendments, I accept that the Secretary of State’s consent should be obtained if the cost imposed on him to fund qualifying accrued liabilities is directly increased. Any other discretion should remain with the trustee and/or employers participating in the scheme in the same way as currently exists under the rules. If the Secretary of State is not paying for the exercise of the discretion, why should he have a veto power? I beg to move.

Lord SkelmersdaleThe noble Lord, Lord Clarke, rightly raises the possibility that the Bill would allow the Secretary of State to interfere in the RMPP to quite a significant extent. I agree that that is dangerous, so I should be interested to hear from the noble Lord, Lord McKenzie, just how much involvement he anticipates the Secretary of State having once the dust has settled. If these are to be emergency powers, designed to allow the Secretary of State to step in as the last resort, that is one thing. If, however, the trustees are to have the Government watching over their shoulder and trying to micromanage every decision they make about the ongoing scheme, that is quite another. For once, the noble Lord, Lord Clarke, and I must be in agreement on this.

Lord McKenzie of LutonI thank my noble friend Lord Clarke for explaining his amendments. The intended use of subsection (4), like subsections (2), (3) and (5), is to cover the scenario of qualifying accrued rights remaining in a separate government-sponsored section of RMPP, as we have just discussed. This is the fallback position, not our preferred option. Qualifying accrued rights would be protected in this section with the Government making payments to the trustees as benefits fall due. We intend that subsection (4) would be used only in relation to this government-backed section of the RMPP. It allows for the Secretary of State by order to require his consent to the exercise of discretionary powers and amendments made to the scheme rules. The Government have no intention of applying this power of veto to the separate Royal Mail group and Post Office Ltd sections.

Subsection (4)(a) concerns the exercise of discretionary powers. The trustees currently have discretion over the level of certain benefits that are paid to members. For example, under the RMPP rules, members can give up part of their pension in exchange for a lump sum, and the trustees have discretion over how that lump sum is calculated. Other discretionary powers include the power to grant early payment of a pension on grounds of ill health and the calculation of transfer values when a member chooses to move benefits to another scheme.

In a section containing qualifying accrued rights that are paid for by Government it is appropriate that the Secretary of State’s consent to the exercise of these discretionary benefits is required both to protect members’ interests and the taxpayer. Amendment 56 recognises the need for the Secretary of State’s power of consent but restricts it to where the exercise of discretionary power increases the qualifying accrued rights of members. However, this is not sufficient to protect the Government from incurring additional costs relating to the RMPP. An important distinction needs to be made that the RMPP does not define a level of qualifying accrued right that the trustees can then vary up or down but, using the example of a member exchanging his pension for a lump sum, a member’s qualifying accrued rights will be the right to an additional lump sum assessed on a basis to be determined by the trustees. However the trustees decide to calculate the lump sum, qualifying accrued rights have not increased or decreased. For that reason we do not think that Amendment 56 is workable or provides sufficient protection for taxpayers and so the Government cannot accept it.

Amendment 57 refers to subsection (4)(b). Currently the principal employer, which is Royal Mail Group and the trustees, may make amendments to the rules of the scheme. Going forward we would not expect Royal Mail Group to have any interest or powers in a section containing qualifying accrued rights, which will instead be backed by the Government. Without subsection (4)(b) the trustees would have unilateral powers over this section but there would be no protection for the Government and the taxpayer. Amendment 57 would again restrict the Secretary of State’s power of consent to where amendments to the RMPP rules would increase the qualifying accrued rights of any member. The Government believe that that is too restrictive. The trustees could potentially amend the RMPP rules in a number of ways that would not increase a member’s qualifying accrued rights but which would potentially impose a cost on Government. For example, the trustees could decide to make changes to the dates that payments are made to members or similar administration changes that do not increase a member’s qualifying accrued rights, but which impact on the arrangements that the Government have for making payments to the trustees. It is appropriate that the Secretary of State can agree that the changes are sensible.

I hope that I have reassured my noble friend that the Government intend to use the powers in subsection (4) only in relation to a government-backed section containing qualifying accrued rights. Given the difficulties with the amendments, I ask my noble friend not to press them.

Lord Clarke of HampsteadI thank the Minister for his reply. I have said that I would take away what has been said and think about it. On this occasion I should like the Minister to think again about this power which I perceive to be a power of veto by the Secretary of State. If the new scheme is to be seen as transparent, fair and balanced, we must make sure that we do not give the impression of a veto power that lies in the hands of the Secretary of State, not in the hands of the trustees.

In the spirit of the debates this evening, I ask my noble friend to think about what has been said about the amendment, with a view to making it absolutely clear that we are not giving the hand of government, whomever it happens to be, the power to administer things that really should be a matter of joint exercise and consultation between the parties before the powers are used.

Lord McKenzie of LutonI very much understand my noble friend’s point; perhaps I may reflect on whether we can have some enhanced reassurance.

Lord Clarke of HampsteadOne cannot ask for anything more. I beg leave to withdraw the amendment.

Amendment 56 withdrawn.

Amendment 57 not moved.

Amendment 58

Moved by

58: Clause 17, page 9, line 22, leave out “may” and insert “shall”

Lord Clarke of HampsteadAmendment 58 requires services contracted out to maintain a dispute resolution procedure, which I should have thought is fairly straightforward. Amendment 59 requires that the Royal Mail pension plan remains an occupational pension scheme under trust. We had a debate on that earlier.

Clause 17(5) as drafted allows, but does not require, the Secretary of State to include provision allowing the scheme to remain contracted out and salary-related, and to have a dispute resolution procedure. There are two points here. First, a decision to contract in, to change the scheme to a defined contribution scheme, or to change the dispute procedure, should be made by the trustee as a rule amendment. The order should not interfere by permitting the Secretary of State to provide that it is not contracted out or not salary-related, or does not have a dispute process. That is why Amendment 58 states that “may” should be replaced by “shall”.

The second point is more important. Nothing in Clause 17 prevents the Secretary of State from changing the character of the Royal Mail pension plan as an occupational pension scheme established under trust. The pensions legislation applicable to pension schemes depends on whether the scheme is trust-based. A statutory scheme, such as the local government pension scheme, is not trust-based and has no trustees. Among other things, that would have the effect of stripping away the requirement to have member-nominated trustees. Amendment 59 limits the Secretary of State's power, so that he cannot make such a change. The scheme would have to remain trust-based and not become a statutory scheme or some other type of beast.

I do not think that that is controversial. All similar schemes in the rail, coal, electricity, gas and water industries remain trust-based, even when they are sponsored in part by the Government. As matters currently stand, members have rights under a scheme sponsored by a limited company, and Royal Mail is wholly owned by the state. Royal Mail could conceivably go bust, but it is highly improbable.

Such things must be taken into consideration and I hope that the Minister sees exactly why I believe that trusts, rules, regulations and governing bodies of pension schemes should be fair, even-handed and transparent. I beg to move.

Lord McKenzie of LutonWe have been discussing the Government's intention in Clause 17 to enable the Secretary of State to divide the existing Royal Mail pension scheme into sections. I have made it clear that the primary purpose of that is to allow the creation of a separate Post Office Ltd section to isolate the new partner from any of those liabilities. However, Clause 17 also provides the power to create a new section to contain the qualifying accrued rights. As we have discussed, that is a contingency option that would be adopted only if the establishment of a new scheme as envisaged under Clause 16 proved impossible to achieve on the required timescale.

I welcome the intent behind Amendments 58 and 59 to Clause 17 at line 9 on page 22, both of which seek to clarify that, following a division of the RMPP into sections, the RMPP will remain a contracted-out, trust-based occupational pension scheme under the Pension Schemes Act 1993. However, having reviewed the effect of these amendments further, let me explain why they are unnecessary.

Amendment 58 would make it a requirement on the Secretary of State to include a provision in any order that divides the RMPP into separate sections to ensure that the RMPP remains contracted out and to ensure that the order makes provision for determining a manner for settling any questions that arise under it. However, it may not be necessary for an order made under Clause 17 to require the RMPP to remain contracted out. This is because if, as is the Government’s preferred option, the order were made solely to create a new Post Office section, and Post Office Ltd were to apply for a contracting-out certificate in the usual way, there would be no need for the Secretary of State to make any provision for this in the order. In those circumstances, the requirement implied by the amendment is unnecessary.

If the Government were to adopt their contingency option in respect of the qualifying accrued rights and transfer these to a new section in the RMPP, the Secretary of State would need to ensure that that new section remained contracted out. This power would be required because, unlike the existing scheme or the proposed new sections for Post Office Ltd and Royal Mail Group employees, any new section for the qualifying accrued rights would not be established by an employer for its employees. As we discussed earlier in our debate on Clause 16, the HMRC would not normally issue it with a contracting-out certificate. If the new section was not contracted out, that would restrict the transfer of contracted-out benefits between the RMPP and the new section. It would also prevent transfers between the new scheme and other contracted-out schemes—as would be required if a member of the new scheme wished to transfer their accrued benefits to another scheme.

The existence of the option to create a new section in the RMPP for the qualifying accrued rights, and the fact that it is only an option, means that the powers in the Bill give the Secretary of State the ability to make provisions for contracting out but do not require it. In other words, the amendments would require the Secretary of State to make a provision that may not be needed.

Similarly, the Government envisage that existing requirements for a dispute resolution process could continue to apply to the RMPP after it is split into sections and have no intention of changing this process under the RMPP. Subsection (5)(b) is intended to provide a facility to help to determine questions that might arise: for example, over which assets, liabilities or benefits fall to be paid from which section of the scheme. It is not intended to override more general dispute resolution procedures.

Amendment 59 would require that the RMPP remains a trust-based occupational pension scheme, as defined in the Pension Schemes Act 1993, after sectionalisation. Again, we see no need for such a requirement. We envisage that the RMPP will continue to be an occupational pension scheme. There are no powers in Clause 17 that enable the Government to change the current trust basis of the RMPP, and there would be no reason for the Government to take any such action in connection with an order under Clauses 16 or 17. I reassure noble Lords that the Government have no intention of requiring a change to the current trust structure of the RMPP. I hope that that provides my noble friend with the reassurance that he seeks through his amendments.

Lord Clarke of HampsteadThe Minister has reassured me that I was on the right track before. He has not changed his position, and I have not changed mine. This should be a trust-based scheme. There may be an opportunity a bit further down the road to do this. It is a bit odd when a Government such as ours cannot see the need to have a dispute resolution procedure as Amendment 56 suggests. I make no bones about it. These amendments are intended to restrict the powers of the Secretary of State.

To my certain knowledge, we have had 63 years of political interference in the running of the Post Office. If these powers are unrestrained then there will be further interference. If I am wrong about that, I would simply ask the Government to include in the legislation a form of words that can dissuade me and others of like mind that this provision will not give undue powers to the Secretary of State to the detriment of the trustees or the members of the scheme. The Minister has not convinced me. I did not think that he would. I suppose that he is not surprised that I am not convinced. Having said that, I will look at what the Government say in trying to assuage the fears of those who do not want this super-power to be invested in the Secretary of State. I nearly said the Superman but will quickly retract that. For the moment, I beg leave to withdraw the amendment.

Amendment 58 withdrawn.

Amendments 59 and 60 not moved.

Clause 17 agreed.

Clause 18Amendments of the RMPP

Amendment 61

Moved by

61: Clause 18, page 9, line 37, at end insert— “( ) No order may be made under this section unless— (a) the consent of the trustee of the RMPP has been obtained, and(b) the Secretary of State has consulted the members of the RMPP and such representatives of members of the RMPP as appear to him to be appropriate.”

Lord Clarke of HampsteadThis may take longer. Amendment 61 is necessary because under Clause 18 the Secretary of State is given the power to amend the RMPP without constraints. The apparent purpose is to permit him to amend the scheme so that service before and after transfer is treated as one. The amendment would give the trustee a veto power. If the amendment is in the best interests of the scheme or the scheme members, the trustee’s consent will be forthcoming. I am sure that we are all reasonable people. It would impose an obligation to consult, which is no more than the statutory obligation that already exists if an amendment affecting benefits were to be made by the trustee rather than the Secretary of State.

The source of this obligation is the Occupational and Personal Pension Schemes (Consultation by Employers and Miscellaneous Amendment) Regulations 2006. I said that this amendment may take some time. That is because last Tuesday we had some exchanges on consultation. The Minister, the noble Lord, Lord Tunnicliffe, said that “while the sentiment” behind the amendment on consultation,

“is worthy, we think that it is unnecessary and burdensome”. At the time we were talking about TUPE, but what concerned me then, and what concerns me now, was when he said:

“This consultation is carried out by the relevant employer. This is the correct level for such consultation. To require the Secretary of State to consult the company and its employees over and above this would only cause unnecessary delay and uncertainty for those affected”.—[ Official Report , 24/3/09; col. 646.]

We heard quite a lot earlier about the need to keep people informed. We should do anything we can to assist in consultation and understanding. In that debate, I said:

“It is paradoxical for a member of the Labour Party like myself, with a long history of being a member of a trade union, to find that the Government resist Amendment … which simply calls for consultation”.—[ Official Report , 24/3/09; col. 648.]

It is simpleyou talk to people, you work out the differences and you come to conclusions. Consultation is often misguided. In a number of places, it is dictation. The guise of consultation is used, but people ultimately take it or leave it. I believe that consultation in the proper sense is necessary.

I said to the noble Lord, Lord Hunt of Wirral, that the Bill should address consultation and the vital need for the exchange of information and for understanding. I said it then and I repeat it now. At col. 648 I declared that if he walks through the Lobby in pursuit of consultation, I will join him “shoulder to shoulder”, because it is that important.

Later on, the noble Lord, Lord Hunt of Wirral, moved his amendment to Clause 8 on consultation. My noble friend Lord Tunnicliffe tried to be helpful to the noble Lord by saying:

“I am not giving a general statement on the extent to which there will be wider consultations with employees when the restructuring takes place. That is obviously something that we will consider in the light of this debate and in the light of how the project develops. I hope that that allows the noble Lord to delay seeking to test the opinion of the Committee”.—[ Official Report , 24/3/09; col. 649.]

It did not persuade the noble Lord, Lord Hunt, at the time and it certainly would not have persuaded me. A Division was called, and lo and behold, with the Government pushing this privatisation Bill—I expect that my saying that will upset the noble Lord, Lord Skelmersdale—they managed to get a majority of five votes. At least five of my colleagues, including me, abstained. If it comes to it, I will be there pursuing the principle of consultation. It is a vital part of any industrial relations activity and important to most of society when contracts are being worked out. There is nothing wrong with consultation; it is not something that is naughty, indeed it is essential. I beg to move.

Baroness Turner of CamdenI rise to support my noble friend’s amendment because, as he points out, the powers that are given to the Secretary of State are quite unconstrained, and I do not think that that is acceptable in the present circumstances. Even if my noble friend does not like the exact wording of the amendment, I hope that he will consider that something has to be done to amend this part of the Bill. It is not acceptable to have a situation where the power to amend the RMPP is entirely without constraint. Apparently its purpose is to permit him to amend the scheme so that the service performed after the transfer is treated as one. Whether that is the reason, I do not know, but simply to have a provision conferring a totally unconstrained power to amend the RMPP is not acceptable. I also support what my noble friend said about the right and the necessity to consult. Particularly as far as pension provision is concerned, you simply cannot have a situation where the scheme can be amended without any constraint at all.

Lord SkelmersdaleWhat makes it even worse is that it would be amended by negative resolution. So I agree with the point just made by the noble Baroness, Lady Turner. My amendments in this group also deal with the issues of transparency and scrutiny. I have mentioned these issues already today in respect of several specific parts. Amendment 79 is a general catch-all amendment to raise the issue of the complete lack of any parliamentary role in the taking of decisions that affect not only the amount of liability the taxpayer takes on but also the ongoing health of the RMPP. Many of the powers in this part are, as we have heard, intended to be used for adjustments and technical matters. If that is the case, I agree that the negative procedure is correct, although we will continue to try to persuade the Minister that the purposes of each part should be much better clarified. However, many of these powers are enormously influential and their initial use will be critical, especially in view of the extraordinary amount of flexibility that the Government are insisting on in these provisions. It is our view that these crucial powers should be subject to the affirmative resolution procedure to give Parliament the chance to assess the effectiveness of the new public scheme and to ensure that the Clause 19 safeguard has been met.

Amendment 78 relates to the requirement in Clause 24 that the Secretary of State should consult the trustee of the RMPP before making any order under Clause 16(1) or (2) or under the other clauses in this part. My amendment seeks to ensure that the results of any consultation are made public. It should be made clear if the Secretary of State is knowingly going against the trustees’ recommendation.

The amendment in the name of the noble Lord, Lord Clarke, goes a little further than my Amendment 78 by requiring not only consultation with the trustees but their consent. As I have said, it is a serious matter if the Secretary of State disregards the advice of the trustee charged with protecting the interests of the members. However, a requirement for the Secretary of State to consult individual trustees of the various schemes and to get their consent is probably overkill. In what circumstances can the Minister imagine acting without consent?

Similarly, we have already discussed the concerns felt among current members because of the Government’s inconsistency about their intentions. We should certainly ensure that members are properly informed about any changes in future. I may have more to say, depending on the Minister’s answer.

22:00:00

Lord RazzallWe ought to have consensus in your Lordships’ House on this issue. I do not know whether the drafting is correct or whether the amendment tabled by the noble Lord, Lord Clarke of Hampstead, meets the point that the Government should concede, but I hope the Government will take on board the general principle enunciated by the noble Lords, Lord Clarke and Lord Skelmersdale. As the noble Lord, Lord Clarke, and the noble Baroness, Lady Turner, have indicated, consultation in the context of these quite delicate but important issues for pensioners is an important principle. If the Government do not like the wording of the amendment, I hope that they will come back on Report with one that reflects that point. There is consensus here, and I hope that the Government will feel able to reflect that.

Lord McKenzie of LutonWe should differentiate between consultation and the concept of consent. The noble Lord, Lord Skelmersdale, picked up that particular sticking point in my noble friend’s amendment. The Government agree with the importance of consultation around these issues, and I will come on to that in a moment.

With great respect, I disagree with my noble friend Lady Turner, who said that the power to amend the RMPP was unconstrained; it is not. Clause 18 states that it can be amended but only in connection with an order made under Clauses 16 or 17, and the provisions under Clause 18 are constrained by the protections in Clause 19. So it really is not right to say that the power is unconstrained.

As we have heard, Amendments 61 and 78 both relate to the consultation the Government intend to undertake in implementing these pension proposals. Amendment 61 refers to the powers under Clause 18 that allow the Secretary of State to make the necessary amendments to the RMPP in connection with the transfer of qualifying accrued rights to a new public service scheme and the creation of a new Post Office section. These powers are needed to ensure that the changes are fully effective and that the overarching requirement for the protection of scheme members against adverse treatment can be fully met. I am sure noble Lords will welcome that.

For example, the creation of a new section for Post Office employees will require a number of changes to address the funding, investment and governance arrangements for the new section. Amendments to the rules are likely to be needed to confirm that Post Office Ltd rather than Royal Mail Group will exercise the powers and have the obligations of a sponsoring employer under that section, and that none of the Post Office section assets can be used to meet Royal Mail section liabilities and vice versa. To safeguard members still in service it will be necessary to amend the rules of the RMPP to ensure that the overall payments to members from the RMPP and the new scheme are at least as good after the transfer as they were prior to it. The amendment quite rightly seeks to probe the Government on how they intend to consult before making any such amendments.

Clause 24 already provides that, before making any order to amend the RMPP, the Secretary of State must consult the trustees of the RMPP. That applies in the same way as it does to other orders under Part 2 of the Bill. I reassure the Committee that the Government have every intention of working very closely with the trustees, and indeed have already been in regular discussion with them on the detailed proposals provided for in the Bill. That will continue as the relevant secondary legislation is drafted, which we envisage will be starting soon.

In addition to consultation, Amendment 61 would require the consent of the RMPP trustees before any amendments could be made to the plan. That would place a significant onus and responsibility on the individual trustees of the RMPP to make a decision in relation to an order proposed by the Secretary of State. We do not consider that to be appropriate; the ultimate decision on the detail of an order laid by the Government must rest with the appropriate Secretary of State. As I have said, it is absolutely right that in taking that decision the Secretary of State must consult the trustees.

The second part of the amendment seeks to require the Secretary of State to consult directly, as he or she considers appropriate, members of the RMPP and representatives of its members. I should start by saying that the Government have already met representatives of current employees and pensioners to explain the proposals in the Bill, and intend to keep these organisations informed as the Bill progresses. Furthermore, as I have just explained, we are consulting the RMPP trustees. The trustee body currently includes five member-nominated and union-nominated representatives, and I am sure that the trustees already have mechanisms in place for communicating with scheme members. We continue to discuss with them and Royal Mail how they should best engage with current employees and other scheme members. It would not make sense for the Government to duplicate such activity.

I turn to Amendment 78. The requirement in Clause 24 for consultation with the trustee of the RMPP is an important safeguard for members of the scheme. It reflects the trustee’s key role in ensuring that current members of the RMPP are protected, the Government’s need for assurance that the proposed measures will be fully effective and the need for close co-ordination between the new public service scheme and the RMPP in future, particularly in respect of active members of the RMPP.

As I said, the Government are working closely with the trustee in relation to the development and implementation of the detailed proposals provided for in the Bill. That will continue as the relevant secondary legislation is drafted, which we envisage will be starting soon. We will welcome the detailed scrutiny and engagement of the trustees as part of that process.

The Government will summarise the key points of that consultation and its outcome in the relevant Explanatory Memorandums that will accompany any statutory instruments, in line with the guidance in Statutory Instrument Practice . However, we do not support the effect of Amendment 78. The process of consultation must be effective and meaningful and the results should be properly understood and disseminated, but the Government would not wish the process of detailed consultation with the trustees on the draft regulations to be distorted by a rigid process around the preparation of formal proposals and responses, as this amendment effectively proposes. In our view, that would act as a constraint on both parties and would add little value to the process. Instead, for consultation to have the benefits that are intended, it will need to be detailed and continuous. There will need to be effective engagement and ongoing dialogue between the trustees and the Government, including at a technical or working level. That is certainly our expectation, and we believe that it also reflects the expectations of the trustees. That is also consistent with the Government’s Code of Practice on Consultation . I turn to the detail of Amendment 79. In consideration of earlier clauses in Part 2, the Government have explained the reasons why it is necessary for much of the detailed implementation of their proposal in respect of pensions to be through secondary legislation that will be made by the Secretary of State. I hope that the detailed scrutiny of the powers has been helpful in explaining how and for what purpose it is intended that those powers should be exercised. In addition, it has highlighted the significant protection for members offered by Clause 19, which directly constrains the key order-making powers.

The amendment proposes changing the procedure for parliamentary approval of orders made under Part 2 from negative to affirmative. The Government do not consider the affirmative procedure to be the better option and cannot support the amendment. They believe that the negative procedure is justified by the significant protections in the Bill relating to how and for what purposes those powers can be exercised. It is also consistent with the procedure used for comparable measures in earlier legislation; for example, Section 106 of the Electricity Act 1989 and Section 33 of the British Telecommunications Act 1981.

The Government’s proposals for use of the negative resolution procedure in this respect have been endorsed by the Delegated Powers and Regulatory Reform Committee, a committee by which I know the noble Lord, Lord Skelmersdale, places great store. Noting the arguments both for and against the use of a negative procedure, the committee concluded in its report that,

“in view of the great majority of precedents, the Committee is content that the negative procedure is not inappropriate for instruments under these powers”.

In light of my explanation, I invite noble Lords not to press their three amendments.

Lord SkelmersdaleI am not surprised that the Minister referred to the report of Delegated Powers and Regulatory Reform Committee, but given that the Government will not, for quite acceptable reasons, accept my Amendment 78 to Clause 24, Amendment 79 becomes even more important. The DPRRC noted that the provisions are “slightly unusual” and that,

“the pension arrangements have attracted a certain amount of public attention”—

you can say that again. It confirmed that there was a case for the first use of the more significant powers needing the affirmative process even if there are enough precedents of the negative procedure to make it difficult for it to insist. Is the Minister giving a commitment that he and his colleagues have decided that they will always follow the DPRRC’s recommendations in future? We frequently hear from Ministers about why there are certain exceptional reasons for the committee’s recommendations to be disregarded—the Government frequently break with precedent by forcing through extensive and unprecedented Henry VIII powers, for example. Is the Minister now insisting—I cannot resist this final tease—that the committee’s arguments were wrong?

Lord McKenzie of LutonIf the noble Lord is asking whether we should always follow the recommendation of the committee, I am bound to say that there are bound to be exceptional circumstances where one might take an opposite view. I would not accept that this is one of them.

Lord SkelmersdaleIt is not a time of night to divide the Committee, but I am extremely tempted to do so on the question of whether the first use of the regulations should be affirmative and thereafter negative. However, this group of amendments is headed by that of the noble Lord, Lord Clarke. It will be interesting to hear what he has to say, but I would advise him that this is not the right time to divide the Committee.

Lord Clarke of HampsteadCould the noble Lord repeat that? It is not the right time to do what?

Lord SkelmersdaleI said that I would advise the noble Lord, and he is perfectly free to ignore my advice, not to divide the Committee at this point.

Lord Clarke of HampsteadAs if I would ever ignore the noble Lord’s advice. It has been a good debate. Courtesy dictates that I should thank those people who have contributed to it. My main concern was the powers of the Secretary of State. I say with respect to my noble friend Lord McKenzie that Clause 18(1) grants a pretty sweeping power. It states:

“The Secretary of State may by order make such amendments of the RMPP as the Secretary of State considers appropriate”.

That is pretty powerful stuff, for somebody to be able to go and do these things unrestrained, but it is late and we have to get on to some very meaty stuff later on.

I am sorry that the Secretary of State is not here, because I have drafted a number of questions about consultation between him and the chairman of the Post Office pension fund. I shall return to them, because they need to be answered. A sequence of events surrounding the letter from Miss Jane Newell and her subsequent retraction of some of its implications needs to be aired publicly and responded to. That is for another time, but the Minister might like to tell his colleague that that is coming later.

The noble Lord, Lord Razzall, as usual put a very important point. If there is a desire to be open and transparent, consultation is vital. I welcome the idea that, if there is consensus, we should put it in the Bill. We do not need Explanatory Notes or someone to give us guidance; we want it in the legislation that consultation on a number of issues that we have dealt with so far is important and essential if we are going to make this thing work.

I am not going to go on. So many things have been said. I certainly will not be dividing the Committee tonight, although if the noble Lord, Lord Hunt, was to tempt me by going through on consultation I probably would, because I abstained last time, which is a bit of a cowardly way of doing things. That may happen, if push comes to shove and the Government cannot see this—especially a Labour Government, based on the traditions of the interchange of ideas and listening to people. We used to say that we were a listening party, like that bank that was always listening to somebody, although the banks have not listened very much recently. I suggest that the Minister goes away and brings back something in the Bill that guarantees consultation on these vital points.

Lord McKenzie of LutonI do not want to end on a point of confrontation, but Clause 24 says:

“The Secretary of State must consult the trustee of the RMPP before making—

(a) an order under section 16 which contains provision establishing a new public scheme … or

(b) any order under any other provision of this Part”.

The idea is embodied there, and we need to take the opportunity to flesh out the process of all that. I am happy to work with my noble friend to do that. There is a requirement in the Bill at the moment, and I urge him not to overlook that fact.

Lord Clarke of HampsteadI thank the Minister for that. Of course, I would not overlook it. If you went through the Bill you might find one or two things that you could pray in aid on this one, but in Clause 18(1) the Secretary of State has the only power to make these amendments. However, as it is getting late and we want to get on to other matters, I beg leave to withdraw the amendment.

Amendment 61 withdrawn.

Amendment 62 not moved.

Clause 18 agreed.

Clause 19Protection against adverse treatment

Amendments 62A to 69 not moved.

Clause 19 agreed.

House resumed.

House adjourned at 10.18 pm.