Draft Marine Navigation Bill (HC 709-ii) Transport Committee 25 Jun 2008

Q110 Mr. David Clelland: Can you explain how the significant deficit in the GLA's [General Lighthouse Authorities] pension fund occurred?

Mr Gorman: We have always had a pension deficit in as much as our pension scheme has always been on a pay-as-you-go basis so the responsibility has been to ensure that sufficient light dues have been collected to pay pensions as they fall due. Where the deficit arises is because it is a pay-as-you-go fund there are no assets specifically set aside to meet the pension liability.

Q111 Mr. David Clelland: Is it a growing deficit?

Mr Gorman: Actually it reduced slightly in the latest evaluation; it is £348 million for the three authorities.

Q112 Mr. David Clelland: It is still a significant deficit. How is it possible to carry that deficit and yet cut light dues?

Mr Gorman: Because of two issues. The first one is the immediate effect on light dues is to be able to finance pensions as they fall due, so what the secretary of state takes into account when setting the rate of light dues each year is the requirement to pay pensions along with other operating costs, so the ability to pay pensions is that we have been able to fund that through light dues. The deficit is looking at the potential total liability so if we ever at some point had to settle up the pension deficit it would be £348 million, but the other issue is being able to meet the pensions as they fall due and that is taken into account in setting the rate of light dues each year.

Q113 Mr. David Clelland: The Bill does not provide for any additional funding to address the deficit so where would the money come from?

Mr Gorman: What we are seeking is a long term solution. At the moment the General Lighthouse Fund is used to pay all pensions; what we want to do over the longer term and probably for new entrants, new employees, is to eventually have a funded pension scheme that would allow us, from contributions from employer and employee, build up the assets in line with the growing liability, so over time - and it will take a long time - we would end up with a situation where we had a separately funded pension scheme in a perfect world where the assets equal the liabilities and, therefore, the responsibility for paying pensions as they fall do has moved from the General Lighthouse Fund to a separately financed pension scheme.

Q114 Mr. David Clelland: How likely is it that Parliament will at some stage be invited to approve additional expenditure to bail out the GLF pensions in the terms of the letter of comfort?

Mr Gorman: What this will do is probably make that more remote because what it is doing is that by building up the assets in line with the liabilities it is managing it more effectively, but I do stress that it is a long term solution that will take several years to build up.

Q115 Mr. David Clelland: What about the pension arrangements for new employees, will they be significantly less attractive than those existing today?

Mr Gorman: In the preliminary work we have done to look at what the new pension scheme may look like we have taken that into account. It is an important part of the remuneration package and what we have said as our planning assumptions is the amount of money that notionally we would have to pay - the commitment for the General Lighthouse Fund to contribute to pensions remains, it is just the method of paying it that will change, so we have said that we still want to basically keep the same amount of money being allocated to pensions, but manage it better, and we want as far as possible to ensure that the new pension scheme is as close as the current employees enjoy. The one thing that will change will be that we would expect a higher contribution from the employees. At the moment that ranges between 11/2% and 31/2% depending on what scheme they are in; the total notional cost if we were not a pay-as-you-go scheme, if we were paying contributions, is about 22%, so we would see part of that being to increase the employee contribution for the new scheme.

Q116 Mr. David Clelland: What implications might that have for retention and recruitment?

Mr Gorman: We would have to look at that extremely closely. One of the reasons we have gone for only applying this to new employees is that we are making it very clear that when somebody joins us they know exactly what the remuneration package is and what the pension package is. We did look at the possibility of other arrangements and that is why we decided the current employees should be allowed to stay in the existing pension scheme and that would eventually reduce over time. To answer your question, a new employee would up front know exactly what their remuneration package was and it would be our job to make that as attractive as possible to recruit and retain people and the future employee can make the decision on the offer made.

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Q125 Mr. David Clelland: Could I also ask you about the Merchant Navy Officers Pension Fund which also has a deficit or a liability, whichever word you want to use; how much are the GLAs likely to have to contribute towards that?

Mr Gorman: All three authorities are participating employers within it; the Northern Lighthouse Board slightly different because we actually have officers who are active members, i.e. they are currently employed in the scheme. Where the liability lies is as a participating employer you have a responsibility even if the officers have retired or whatever to contribute to that deficit in proportion. To give you an idea, for the latest deficit that was recorded in March 2006, the Northern Lighthouse Board paid extra contributions of around £88,000 as a one-off payment and that was the biggest of the three authorities.

Q126 Mr. David Clelland: Is there any limit in principle to the GLA's liability to the Merchant Navy Officers Pension Fund?

Mr Gorman: It is being reduced in as much as what we are doing is the Commissioners of Irish Lights and Trinity House do not employ anybody who is a Merchant Navy Officers Pension Fund member and as the Northern Lighthouse Board we now offer our own pension scheme so we have only got two employees that are members of it, but as participating employers we have to meet demands if there is a deficit to help fund that in proportion to our liability.

Q127 Mr. David Clelland: In principle there is no limit to that.

Mr Gorman: That is being managed by the trustees, yes.

Q128 Mr. David Clelland: The Draft Bill includes the power for the secretary of state to allow GLAs to make contributions to third party pension funds.

Mr Gorman: Yes.

Q129 Mr. David Clelland: Presumably that does not apply at the moment so on what basis have you been contributing to the Merchant Navy Officers Pension Fund?

Mr Gorman: Where this cropped up was in terms of getting some legal advice and the legal opinion suggested that we should look very closely when we pay out because their strict interpretation of the current 1995 Act is that pension contributions have to be paid into the General Lighthouse Fund and the pension has to be paid out of it, so they were suggesting that it potentially could be ultra vires if the Northern Lighthouse Board paid employer's pension contributions to the Merchant Navy scheme and the Merchant Navy Officers scheme paid a pension to the retired officer because it should come in and out of the General Lighthouse Fund, so part of that is just to be sure of the wording beyond doubt, that we can where we think it is appropriate make contributions to other pension schemes as fit our needs.

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Q150 Mr. David Clelland: Can I ask you about the GLA pension scheme? Many employers are now moving from defined benefit pension schemes to a defined contribution scheme; why should the GLA not do that as well?

Mr Graveson: Chairman, if I first may declare an interest, I am a trustee in the Merchant Navy Officers Pension Fund. Looking to the proposals, they are very skilfully crafted, a point we have made in our written submission and clearly would like to see the continuation of payments into the Merchant Navy Officers Pension Fund, albeit there are very few people actually in that fund across the GLA today; it is a closed fund. It appears to be quite attractive to have a fully funded scheme on the face of it, but when you look somewhat more closely, when you move away from a final salary scheme to a money purchase scheme the pensioner suffers. If you have a steady income stream and you can satisfy the outgoings of a pension fund the question is why change it? The old age pension in this country is funded in such a way from an income stream from taxation. It would appear that in many cases this is actually moving along with the fashion of the decade, it is also very convenient for accountants to take these liabilities off the books as well but again are they liabilities in the strictest sense - one needs to look at it a lot more carefully.

Q151 Mr. David Clelland: You think that the current GLA pension arrangements are sustainable.

Mr Graveson: Are they sustainable?

Q152 Mr. David Clelland: Yes. You seem to be saying that there is nothing wrong with the scheme, carry on as it is.

Mr Graveson: I have not sufficient evidence to know whether it would be sustainable into the future; having said that the number of employees has significantly reduced across the GLA over recent years, therefore the number of pensioners ultimately will be less. Having said that, there are a lot of factors that come into play, particularly the longevity of pensioners as I know myself - that is certainly concentrating the minds of actuaries at present and that has the potential therefore to increase the outgoings, but providing you can sustain your income fro revenue that should not present a problem.

Q153 Mr. David Clelland: In your submission, Mr Graveson, you talked about the "flexibility" that might be provided in changes to the pension arrangements in the future. What are your concerns about that?

Mr Graveson: One concern is where do you start and where do you finish off? It can be for new employees originally and we can get some drift that can start to creep into this. I was certainly reassured by some of the comments that were made earlier by those from the GLA making representation; however, it does have some concern and the devil is always in the detail. Here we are dealing with a Bill, to become an Act, but it is when we actually get down to the secondary legislation if that is it or indeed the pension fund itself, and who is actually going to negotiate this on behalf of the employees.

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Q196 Mr. David Clelland: If you are so keen on safety, as I am sure you are, Minister, why are you not making the Port Marine Safety Code mandatory rather than voluntary?

Jim Fitzpatrick: We think that the introduction has been successful in terms of the safety arrangements being updated previously. We are trying to make sure there is a national standard. We believe that, because of the different arrangements port by port, by making it voluntary, each harbour authority will want to make sure that they have the safest possible environment in terms of local control and knowing what the dangers are and knowing that those dangers shift in terms of tides, sands and the way the ports operate, the size and type of vessel which come in and change. Putting it as a voluntary code and putting it in the hands of the harbour authorities seems to make more sense, but clearly outlining the guidance which the department will provide will ensure that the standards are, as much as possible, heightened right across the country. Certainly the experience from my understanding of the introduction of the codes in recent years has been a positive one.

Q197 Mr. David Clelland: It could not be anything to do with cost, could it? Have you estimated the cost of making this scheme mandatory?

Jim Fitzpatrick: It is not a question of cost. We think on a voluntary basis, much as we conduct a lot of safety business based on risk assessment and giving the power to those in charge of managing the risk the ability to then be able to deal with that, it is very much delegating power to local areas, to local harbour authorities and those who are very much in charge and know their area much better than trying to manage it directly from the department. We will be issuing guidance and Cameron will issue a little bit more now.

Mr Clark: Effectively, what we are doing is concentrating our resources on those ports that we need to look at. The vast majority of ports comply with the Port Marine Safety Code and there is no problem. They are able to take from it whatever is appropriate to their own local situation. Through the proposed clause seven, the Secretary of State's power of direction, what we are doing is to take a power for the Secretary of State to direct any harbour authority that is not complying with the code to improve its operations and to do whatever is necessary. Effectively, we are making the relevant parts of the code mandatory on those ports where they are failing to comply with it, but what we do not want to do is to take a one size fits all code and impose it regardless on every harbour authority in the country. We are trying to tackle any problem that does exist without imposing undue burdens on the harbour authorities that are doing perfectly well and do not need intervention.

Q198 Mr. David Clelland: Is there not a danger that you could get cowboy operators who are ignoring the code and thereby undercutting those operators who do abide by the code?

Jim Fitzpatrick: If that were to be the case, that would be highlighted through normal reporting mechanisms, either through people complaining to the department or complaining to the MCA, the MCA themselves spotting things. In the event of accidents, then obviously the Marine Accident Intervention Board investigating would be punching out recommendations and saying, "This is not working", or not in that territory as has been described. The code is working relatively well. We are reserving the power to be able to keep the power of direction for the Secretary of State. Were things not to be working as they should be and that evidence was there, we do have the power to say, "This is how you are going to operate and this is how it is going to apply in your harbour area." Given that the overall experience so far has been a positive one, we do not see the need to go into mandatory territory at this point.

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Q228 Mr. David Clelland: How would you ensure fairness in cases concerning the suspension or revocation of PEC certificates?

Jim Fitzpatrick: On the basis of the rights of the individual to appeal against the decision and the arrangements we spoke about earlier on for the award of compensation should the revocation or suspension prove to have been unfounded.

Q229 Mr. David Clelland: There will be an appeals mechanism?

Jim Fitzpatrick: There will be an appeals mechanism, details have to be worked out but certainly it is our expectation that the appeals procedure will have to be very much part of the arrangements otherwise individuals certainly would not have confidence in the ability to be treated in a fair way.

Q230 Mr. David Clelland: Is it fair, for instance, that a PEC holder could be penalised if someone else used his certificate without his knowledge?

Jim Fitzpatrick: One would imagine in the event that an individual had their PEC revoked or suspended there would have to be a demonstration that they were the individual concerned and there was an entitlement. I cannot imagine anybody accepting suspension or revocation because it could and more likely would affect their earning capacity, therefore it would be very much in their interest to challenge it and to make an appeal. On that basis evidence would have to be brought forward, whether it be a case of impersonation or whatever, then clearly that would mean in the event that the individual was unfairly treated, compensation could very well be a matter of entitlement.

Q231 Mr. David Clelland: How is it fair to make compensation in the event of wrongful suspension or revocation of PEC certificates discretionary?

Jim Fitzpatrick: I guess discretionary does sound as though the individual maybe treated unfairly and may not have their recourse to an appropriate mechanism whereby they will receive compensation but the discretion element --- forgive me for a second, Mr Clark, escapes me, the reason for discretion within the arrangements?

Mr Clark: In most cases, probably in all cases, the harbour authority will want to manage its port so that it maximises traffic, people using it, because that is where its income comes from. It will not want to discourage people from using the port unless it has got a very good reason. If they feel that they have treated somebody badly, if they feel that by doing so they might well encourage that person to use a different port, they will want to do what they can to make amends for their mistake or whatever it was. In those circumstances we feel that it will be common sense for them to offer to pay compensation if they have been found to be in the wrong.

This is an uncorrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee. Neither witnesses nor Members have had the opportunity to correct the record. The transcript is not yet an approved formal record of these proceedings.

The full transcript may be read here.