Littlewoods and Telegraph Pension Funds

Debate between Nadine Dorries and Steve Webb

Thursday 5th March 2015 Commons Chamber

[The Minister for Pensions (Steve Webb)]

I begin by congratulating the hon. Member for Mid Bedfordshire (Nadine Dorries) on securing this debate. I will focus my remarks on the Littlewoods and Telegraph pension funds and the matters that fall within my responsibility. I hope that I can respond helpfully to her concerns.

The security of pension scheme members’ pensions is always a matter of concern to me and to the House, and rightly so. It might help to clarify one or two points about the regulatory regime and the protection afforded to members, because it differs according to the type of scheme, and the risk of a shortfall differs according to the type of scheme. Within Littlewoods and Telegraph there are different sorts of pension schemes, some of which are at risk of shortfall and some of which are not. It might help if I put that on the record at the outset.

[Nadine Dorries]

May I clarify one point? Although the title of the debate is Littlewoods and Telegraph pension schemes, I deliberately did not speak about the Telegraph pension scheme because it came to my attention today that it is in the process of changing, for whatever reason, its fund managers, so I felt that it was inappropriate to comment on it.

[Steve Webb]

For the record, the Telegraph pension plan is what is called a defined contribution pension scheme, and it is therefore not capable of having a shortfall and there are no pension promises attached to the plan. There used to be a Telegraph executive pension scheme, which is now closed. I believe it transferred into the Telegraph pension plan, so my understanding is that none of the members of those schemes is at risk of shortfall, regardless of the position of the sponsoring employer.

The hon. Lady raised the Littlewoods and Shop Direct schemes. Both of those are salary-related schemes. The Shop Direct scheme, which is separate from the Littlewoods one, covers around 400 staff. I understand that it is closed to new members and for contributions by existing members. Under the regulatory regime, schemes are valued, their assets and liabilities are measured, and if there is a shortfall, plans are put in place to deal with it. I understand that the assets of the Shop Direct scheme at the last valuation were £120 million, with liabilities of £100 million. So the Shop Direct scheme is currently in surplus, which is relatively unusual for a scheme of this sort.

Let me say a little about how the Littlewoods pension scheme operates. The way in which such pension schemes operate is that there is a triennial valuation. The assets and liabilities are valued and the last triennial valuation of the Littlewoods scheme was in December 2012. Obviously, things have moved on since then and the figures arguably are different now. The last triennial valuation gave assets of £1 billion and a deficit—in excess, therefore, of the assets—of around £176 million. The way the regulatory regime works means that that amount does not have to be found overnight—obviously, the liabilities might run on for decades—so something called a recovery plan has to be put in place, and it has to be agreed by the trustees and the sponsoring employer and signed off by the Pensions Regulator. The company is currently five years into a recovery plan that will run until December 2021, and the fact that it was signed off in 2012 means that the regulator was content that it was appropriate to respond to the deficit and the scheme as it then stood. The Littlewoods pension trust has since been paying around £12 million a year into the scheme, in line with the plan, and I understand that from July 2016 that amount will increase to £15 million.

Obviously I cannot comment on the hon. Lady’s wider remarks on corporate structures and various other matters, but I can say that, as far as we are aware, the recovery plan has been adhered to, it was agreed and signed off by the regulator, and the payments in line with the plan have been made.

[Nadine Dorries]

The Minister has rightly detailed the assets, but can he clarify who would have first call on those assets if there was a shortfall in the scheme, if the company was in dire financial straits and if it had £2 billion of debts: the pension scheme or the banks?

[Steve Webb]

As the hon. Lady says, the pension scheme is underwritten by the Pension Protection Fund. There is a regulatory regime to ensure that companies do not hide money, for example. I will say a little more about that, because she raised the issue of money going offshore. Essentially, the regulator has powers to ensure that, when there is an insolvency event and a shortfall in the pension fund, companies cannot simply walk away with money that has been squirreled away elsewhere. The regulator has powers to ensure that money that should be accessible in the event of insolvency is accessible. If there is still a shortfall, the Pension Protection Fund comes into play. I will respond in a moment to her comment that the Pension Protection Fund is essentially a hit on the taxpayer, because the situation is slightly more complicated than that.

Let me return to a point the hon. Lady made about the governance of the schemes. The members’ interests in any pension scheme of that sort are meant to be protected by trustees. I agree that it is important that the trustees are properly appointed and that they do their job in line with the law. With regard to the Littlewoods scheme, by law there have to be member-nominated trustees. My understanding is that there are four such trustees on the Littlewoods scheme and two on the smaller Shop Direct scheme. As far as we can see, the membership of the trustee board is in line with statutory requirements.

All trustees, whether appointed by the company or nominated by members, have the same fiduciary duty to scheme members: however they got on board, they all have the same duty. If the hon. Lady has any reason to think that any member of the trustee board is not fulfilling their fiduciary duty to scheme members, I encourage her to give the names directly to the Pensions Regulator and provide it with evidence for that assertion. Those founded allegations would then be investigated. We certainly believe that trustees have an important job to do. If there are any concerns that they are not doing that job, she should certainly raise them directly with the Pensions Regulator, with names and evidence. The fact that someone has been a trustee for a long time does not in and of itself make them biased or unfit to be a trustee, but clearly the rules require at least a third of the board to be nominated by scheme members. They are not representatives of the members as such, but they all have a legal duty to all the members.

Let me move on to the regulatory regime that is meant to protect members. The key point is that every three years the scheme has to be valued: we measure the assets and the liability. If there is a shortfall, a plan has to be put in place, as it has been for the Littlewoods scheme. Three years later, a fresh action is taken, with assets and liabilities measured. If there is still a shortfall, a revised recovery plan is brought in. The idea is to strike a balance, ensuring that the scheme is properly funded and that, if there is an insolvency event, members are protected and the Pension Protection Fund is protected, but without killing the goose that lays the golden egg.

We do not insist on an excessively rapid filling in of pension scheme deficits, because it might undermine the solvency of the sponsoring employer, which is the best guarantee of getting the pensions paid. We try to strike a balance. A recovery plan is an agreement between the trustees and the sponsoring employer and it is signed off by the Pensions Regulator. As I have said, the last recovery plan is being stuck to so far, so whatever else might be happening in the corporate group or to the funds of the company, the obligations to the pension scheme, in line with the recovery plan, are being met.

The hon. Lady asked, quite properly, what happens if money goes offshore. I assure her that the Pensions Regulator has powers to act if it believes that money that should properly be available to the employer and then to the pension fund is somehow being concealed and removed from the country. The regulator can issue a financial support direction, which requires the employer or a connected or associated person to put in place financial support for the pension scheme. The regulator has demonstrated that it can take effective action against employers, even when an employer is based overseas.

To give an example from January and the Carrington Wire pension scheme, the regulator issued warning notices to two companies based in Russia and subsequently reached an £8.5 million settlement with them. In addition, the regulator has in the past also taken action against companies based in America, Canada and the Bahamas. Although I absolutely understand the concerns that money going offshore inevitably makes things more complicated—I accept that—the regulator’s powers and ability to act are not restricted to the UK. The regulator can take action in other courts and has successfully recovered money when that has proved necessary.

On the case under discussion, I stress that, as far as we can see, there is a recovery plan and the payments are being met. If the regulator had concerns that payments were not being met, it could take action, but as long as the triennial valuations are happening, the scheme is being properly governed and the payments are being made, that is what is required of the sponsoring employer.

The hon. Lady referred to the Pension Protection Fund as a risk to the taxpayer. To be clear, the revenue of the PPF comes from the assets of pension schemes where there has been an insolvency event. The assets go into the PPF, so there is then an investment return on them. The PPF also raises a levy, which is not taxpayer-funded; the levy is on sponsoring employers of remaining salary-related pension schemes. Obviously, the Pensions Regulator is trying to protect the PPF—we do not want any claims, if possible, on the PPF—but in the event of an insolvency the PPF pays members’ pensions with, roughly speaking, 100% for those who have reached scheme pension age and 90% for those who have not, with some limitations on indexation and some caps. Any shortfall between PPF-level benefits and the amount of money that goes in from an insolvent employer and their scheme is made up from the PPF. That money comes from the levy payers, who are sponsoring employers, and not from the taxpayer.

The only indirect impact on the taxpayer, I suppose, could be if someone’s pension is substantially reduced and they are so poor in retirement that they claim means-tested benefits. There could be a marginal impact on the taxpayer, but the way PPF works means that, if schemes end up in it, the cost—for example, through increased levies—is borne by other sponsoring employers. Of course, we care about that. We do not want other sponsoring employers—“good” and solvent employers responsible for final salary pension schemes—to face any bill in excess of that which they need to face. Of course, it matters to us that people meet their liabilities and recovery plans, but that is not something that will have a direct impact on the taxpayer.

It is entirely proper to seek assurances that we are on our guard and protecting the interests of scheme members. The people in place to protect the interests of scheme members are the trustees. We have looked at the composition of the trustees of these pension schemes and, on the face of it, there is nothing irregular or out of line with what they are legally required to do. However, if the hon. Lady has evidence to the contrary, I encourage her to share it with the regulator.

The funding position of many schemes is in deficit, and some have bigger deficits than in the Littlewoods case. As I have said, one scheme is actually in surplus, which is quite unusual. For a scheme in deficit, there is a process of recovery plans that must be adhered to. We take that very seriously, and we would not accept a sponsoring employer saying that it cannot afford to meet the recovery plan if it turns out that it has money stashed somewhere else.

We have powers to intervene in corporate restructurings. If the Pensions Regulator believes that a sponsoring employer is somehow artificially contriving the structure of its business to shield assets and generate insolvency, meaning that there is suddenly no money to be found, the regulator can take pre-emptive action by refusing to clear various forms of corporate restructuring or, more normally, by placing conditions on corporate restructurings, and that sometimes results in a corporate restructuring not happening.

I reassure the hon. Lady that we are not entirely passive in all of this: we do not sit and wait for things to go wrong. There is a systematic three-year valuation process, and there is a process for agreeing credible recovery plans. We do not let such plans run on into the middle distance in the vague hope that in 20 years’ time somebody will have some cash; we make them realistic so that the deficit is recovered in a reasonable period. We try to make sure that schemes are well governed. The regulator has a trustee toolkit to equip trustees and enable them to do their job properly, and it would act on any concerns about trustees not doing their job properly.

I hope that I have been able to respond to the hon. Lady’s concerns. As we have established, the Telegraph scheme is not of the kind that can generate a shortfall, so that issue does not arise. The Littlewoods scheme does have a deficit, but a recovery plan is in place, and as far as we can see it is being adhered to. If it was not adhered to, we would be in a position to take action, and we would do so. I hope that is helpful to the House.

Question put and agreed to.