My Lords, the Committee should thank the noble Lords, Lord Vaux and Lord Balfe, for having enabled this debate. One gets a high quality of debate on pension Bills; it is very well informed indeed.
We have been left with three questions. Is there a problem? Is it getting worse? And what are we going to do about it? I think there is a pretty much unanimous view around the Committee that we have a problem and that it is not going to disappear. As more DB schemes close, they will pay out more in pensioner payments, leaving them less to invest and reap returns, so they will start de-risking their remaining investments. This is the moment we have to address that.
We know that there is a problem. As my noble friend Lady Drake said at Second Reading, the Work and Pensions Select Committee report highlighted that half of FTSE 350 companies paid out 10 times more to shareholders than to their DB pension schemes. However, in some ways the key issue is the ratio, which was touched on by a couple of noble Lords. TPR certainly mentioned it in its annual funding statement, and it drilled down in its Tranche 14 Analysis for DB pension schemes, published last May. It looked at the FTSE 350 companies that sponsor DB schemes as the main or primary sponsoring employer and said that it found that
“The median ratio of dividends to DRCs”—
deficit repair contributions—
“has increased from 9.2:1 in 2012 to 14.2:1”,
in the latest figures available, so it has gone from nine to 14 between 2012 and last year. Clearly, this is going in the wrong direction. It noted:
“This is mainly driven by the significant increase in aggregate dividends over the period, without a similar increase in contributions.”
Therefore we have a problem. The regulator itself said in its last funding statement that it remains
“concerned about the disparity between dividend growth and stable DRCs”,
and it highlighted recent corporate failures. If the regulator is concerned, then the Minister should be concerned.
The Minister’s argument may be that the regulator already runs an internal control system, where it flags high dividend payments. A number of noble Lords, however, made the point that it is retrospective and that, depending on the valuation, it may not pick up all the areas where there is a problem. Noble Lords also cited TPR’s funding statement, which set out the key principles behind its expectations about what should happen when an employer is weak, the ratio is high, or the employer cannot support the scheme.
Can the Minister assure us that there are not more cases coming in with high ratios and long recovery plans? The TPR says it is going to stop that. Is it not a
problem anymore, or is there a target for when it will not be? TPR could refuse to agree a funding strategy for a scheme in various ways but, as my noble friend Lady Drake pointed out so clearly, that is, first, retrospective; secondly, what happens if the money goes overseas? I would be grateful if the Minister could pick that up.
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We all think there is a problem; the question is how we go about addressing it. The noble Lord, Lord Balfe, said that his was a strong way to attack it, and the noble Lord, Lord Vaux, has come up with the notifiable regime as a way to do it. Whatever the Government are going to do, they need to do something about this.
Perhaps I could highlight some areas where action is needed, where dividends are high relative to deficit payments in DB schemes. There are particular circumstances: for example, where there is a real risk that money in dividends is an effective form of employer debt avoidance; where it downgrades the status of the pension scheme as a creditor to which the employer owes money; or where it raises the risk that the dividend payments are at a level that they could materially threaten the strength of the employer, which will in turn risk the strength of the scheme. We know that this is a problem because the regulator has had to deal with real, high-profile cases.
The questions for the Minister are: does she accept that there is a problem, and does she agree with the regulator that it is getting worse? If the answer to both those questions is yes, what is she going to do about it? Does she like the way forward proposed by the noble Lord, Lord Balfe, or does it feel too intrusive? Would she prefer that of the noble Lord, Lord Vaux, or does she think that would not work? That leaves her with only two possibilities. One is that she thinks that the powers the regulator has now, or will have soon, are enough. In which case, can she tell us how that will solve the problems described here? The other is that she has another way of dealing with it, which we do not yet know about. Which of those is it?
I urge the Minister to think hard about this because if the next scandal, one comparable to BHS or Carillion, turns out to be a company that shipped a load of money out the door just before it went down, it will not look very good if the Minister has had the opportunity to tell us how to solve it and has been unable to do so.