§ '(1) This section applies in relation to an occupational pension scheme other than—
- (a) a money purchase scheme, or
- (b) a prescribed scheme or a scheme of a prescribed description.
§ (2) The Regulator may make a restoration order in respect of a transaction involving assets of the scheme if—
- (a) a relevant event has occurred in relation to the employer in relation to the scheme, and
- (b) the transaction is a transaction at an undervalue entered into with a person at a time which—
- (i) is on or after 11th June 2003, but
- (ii) is not more than two years before the occurrence of the relevant event in relation to the employer.
§ (3) A restoration order in respect of a transaction involving assets of a scheme is such an order as the Regulator thinks fit for restoring the position to what it would have been if the transaction had not been entered into.
§ (4) For the purposes of this section a relevant event occurs in relation to the employer in relation to a scheme if and when on or after the appointed day—
- (a) an insolvency event occurs in relation to the employer, or
- (b) the trustees or managers of the scheme make an application under subsection (1) of section 116 or receive a notice from the Board of the Pension Protection Fund under subsection (5)(a) of that section (applications and notifications prior to the Board assuming responsibility for a scheme).
§ (5) For the purposes of subsection (4)—
- (a) the "appointed day" means the day appointed under section 113(2) (no pension protection under Chapter 3 of Part 2 if the scheme begins winding up before the day appointed by the Secretary of State),
- (b) section 110 (meaning of "insolvency event") applies for the purposes of determining if and when an insolvency event has occurred in relation to the employer, and
- (c) the reference to an insolvency event in relation to the employer does not include an insolvency event which occurred in relation to him before he became the employer in relation to the scheme.
§ (6) For the purposes of this section and section [Restoration orders: supplementary], a transaction involving assets of a scheme is a transaction at an undervalue entered into with a person ("P") if the trustees or managers of the scheme or appropriate persons in relation to the scheme—
- (a) make a gift to P or otherwise enter into a transaction with P on terns that provide for no consideration to be provided towards the scheme. or
- (b) enter into a transaction with P for a consideration the value of which, in money or money's worth, is significantly less than the value, in money or money's worth, of the consideration provided by or on behalf of the trustees or managers of the scheme.
§ (7) In subsection (6) "appropriate persons" in relation to a scheme means a person who, or several persons each of whom is a person who, at the time at which the transaction in question is entered into, is—
- (a) a person of a prescribed description, and
- (b) entitled to exercise powers in relation to the scheme.
(8) For the purposes of this section and section [Restoration orders: supplementary]—
assets" includes future assets;
transaction" includes a gift, agreement or arrangement and references to entering into a transaction are to be construed accordingly.
§ (9) The provisions of this section apply without prejudice to the availability of any other remedy, even in relation to a transaction where the trustees or managers of the scheme or appropriate persons in question had no power to enter into the transaction.'.—[ Malcolm Wicks.]
§ Brought up, and read the First time.
Madam Deputy Speaker
With this it will be convenient to discuss the following:
Government new clause 13—Restoration orders: supplementary.
Government new clause 14—Content and effect of a restoration order.
Government new clause 15—Contribution notice where failure to comply with restoration order.
Government new clause 16—Content and effect of a section [Contribution notice where failure to comply with restoration order] contribution notice.
Government new clause 17—Debt due from the employer in the case of multi-employer schemes.
Government amendments Nos. 74, 75, 77, 88, 100, 107 to 110. 112 to 118, 127, 128, 133 and 136 to 142.
§ Malcolm Wicks
These new clauses represent a further tranche of provision designed to mitigate the risks of moral hazard for the pension protection fund. They add to and complement the new powers introduced in Committee that aim to safeguard the integrity and sustainability of the PPF and avoid placing an unfair burden on responsible levy payers.
As I said in Committee, there are a number of forms of moral hazard that we must address. The admissible rules and "recent discretionary increases" provisions in schedule 7 of the Bill are designed to protect the PPF against actions taken by schemes in order to increase the benefits that could be payable by the new fund. New clauses 20 to 22, which we will debate later today, also bolster that aspect of protection.
Clauses 35 to 46, which we introduced in Committee, are designed to protect the PPF and scheme members from another type of moral hazard: the risk posed by unscrupulous employers who might seek to use company structures and business transactions as a cover for side-stepping their pension obligations. Many of the amendments in this large group follow on from those new clauses and make consequential amendments to other aspects of the Bill to ensure consistency.
The purpose of new clauses 12 to 16 is to protect the PPF against actions that reduce the assets in a scheme that could potentially be taken into the PPF. The clauses allow the regulator to issue a restoration order directing that the position of the scheme be restored where the scheme has entered into a "transaction at an undervalue" within a two-year period leading up to an insolvency event—as set out in clause 110—or application or notification under clause 115. The clauses provide for enforcement of the restoration order, if necessary, via a contribution notice.
900 A transaction at an undervalue is exactly what it says—a transaction involving scheme assets that results in the scheme receiving no consideration, or consideration that is less than the market value, in return. That could include, for example, trustees being persuaded to purchase a property on the basis of planning permission for a development that does not actually exist, or a director of a company persuading trustees to offer him a transfer on a very generous basis to prevent his benefits being reduced by the compensation cap should the scheme enter the PPF.
There is currently provision in insolvency legislation retrospectively to undo "transactions at an undervalue" involving company assets, which occur in the run-up to insolvency. New clauses 12 to 16 introduce similar provision in respect of transactions involving scheme assets, in order both to protect scheme members from having the assets of their scheme unfairly depleted and to guard against the possibility of the PPF having to assume responsibility for such schemes where it otherwise would not have done so.
In common with the anti-avoidance provisions introduced in Committee, the new clauses will be operated and enforced by the regulator in the context of meeting its objectives to reduce calls on the PPF and protect the benefits of scheme members. The pensions regulator will have the intelligence and expertise as a result of day-to-day monitoring work on pension schemes to deal proactively with the risks of moral hazard. The powers in new clauses 12 to 16 are reserved to the determinations panel and exercised by standard procedure; they are also subject to the powers to vary and revoke contained in clause 90.
In line with clauses 35 to 38, which give the regulator power to issue contribution notices where there is evidence of avoidance of employer debt, the power to issue restoration orders where there is a scheme transaction at an undervalue will apply to actions taken after 11 June 2003, when the proposal to introduce the PPF was announced. It will ensure that where a transaction at an undervalue has taken place since that date, the scheme's position can be restored and members' pensions protected. As my right hon. Friend the Secretary of State clearly warned:We will have to introduce protection against engineering designed to circumvent the intent of our proposals."—[Official Report, 11 June 2003; Vol. 406, c. 696.]New clause 17 enables us to take forward the proposal to reform the position in relation to the application of debt on withdrawal from associated multi-employer schemes that I announced in Committee. The provision complements the new powers in clauses 39 to 46, which allow the regulator to issue financial support directions where an "insufficiently resourced" or service company is the sole sponsoring employer of a pension scheme.
The current legislation on withdrawal from multi-employer schemes provides for circumstances where, provided there are other companies left in such a scheme, a company can withdraw from the scheme and cease to be a sponsoring employer so that it will not be liable for any shortfall if the scheme winds up in the future. Currently, employers can do that relatively cheaply, as the withdrawal debt is based on the minimum funding requirement—the MFR.
New clause 17 introduces a new provision that enables section 75 of the Pensions Act 1995 to be modified to provide flexibility in calculating the section 901 75 debt when a participating employer withdraws from a multi-employer scheme with associated employers. The detail of that provision will be set out in regulations; that mirrors the approach taken in legislation governing multi-employer schemes where provision is made in secondary legislation to reflect the diverse and complex nature of such schemes.
The regulation-making powers in new clause 17, which will not be retrospective, will provide that a full buy-out debt should be triggered unless an appropriate support arrangement is put in place and approved by the pensions regulator, in which case the debt will be recalculated and a scheme-specific debt will be payable.
The financial support arrangements will be similar to those outlined in clauses 39 to 46. For example, joint and several liability for pension liabilities could be applied across the whole company group, so that the debt on the employer in the event that the scheme should wind up in the future could be claimed against any member of the group. Alternatively, the ultimate parent company in the group, whether or not participating in the scheme, could agree to meet the withdrawing employer's pension liabilities if the scheme were to wind up in the future.
In addition, there will also be the option to transfer pension liabilities to an appropriate new scheme when the employer withdraws. That would also reduce—in some cases, to zero—the debt payable, as any member's liabilities actually transferred out of the scheme will be included in the calculation of the debt.
Regulations under the new clause will provide that any person identified in the withdrawal arrangements must consent to them and that any breakdown in the withdrawal arrangements may lead to a contribution notice being issued to those identified in the arrangements.
In tandem with clauses 39 to 46, new clause 17 is designed to avoid situations where, whether by chance or design, withdrawal from multi-employer arrangements leaves pension liabilities in a company that is substantially weaker than the rest or other parts of the group. Such a situation increases the risk that the scheme will be abandoned without being able to recover the full scheme costs from the employer, leaving the PPF to pick up the bill and the risk that certain members will have their benefits cut, even if other parts of the group could meet the cost.
Finally, this group contains a number of technical amendments, consequential on clauses added in Committee. Those amendments will ensure consistency between the new moral hazard provisions and the rest of the Bill. For example, amendments Nos. 112 to 118 will ensure that amounts recovered in respect of debts due under any of the moral hazard powers can be subsumed into the pension protection fund once the PPF board has assumed responsibility for a scheme. Amendments Nos. 136 to 142 will add those new powers in relation to moral hazard that are reserved to the determinations panel under schedule 2, which lists the reserved regulatory functions.
902 Hon. Members will appreciate how important it is that the regulator has the right tools to enable him properly to protect the PPF from abuse, and I urge hon. Members to accept these new clauses and amendments.
§ Mr. David Willetts (Havant) (Con)
I assure the Minister that, yes, we do understand the need to protect the PPF from exploitation and abuse. Indeed, I checked the original statement on the creation of the fund, made back in June 2003, and we specifically raised that issue with the Secretary of State for Work and Pensions. We understand the overall purpose of the provisions, but this is an example of the dangers of legislating in haste and repenting at leisure, because there is growing concern in the business community about the effects of some of those provisions.
I hope that the Minister is at least willing to undertake to consider the provisions further in the light of some of the representations that he has received and which we have received as we11. Perhaps I can briefly give some examples of those concerns.
The PPF and the regulator will have draconian powers. In practice, a new contingent risk will be placed on companies, company directors and shareholders. Those in the business community are concerned that that will put at risk capital, shareholders' capital and dividends in a way that they had not expected. Does the Minister accept that he should consider not just the protection of the PIT', but the proposals' effect on the ability of British business to raise capital and reward capital, given the new risk to directors and the providers of capital?
That raises a specific point that has been made to us and, I am sure, to the Minister. Will the regulator solely take account of the PPF and the need to protect its finances or will he also be able to take account of the financial position of the employer and the parent company? Is that a relevant consideration for the regulator in exercising the powers set out in the new clauses? For example, what would the position be if the exercise of the power in the new clauses were to tip a company over into bankruptcy? Is that a relevant consideration for the regulator or is it beyond the focus that the new clauses give to him? It would be helpful if the Minister could comment on that.
The Minister referred particularly to new clause 17, so may I press him on that? Like the Minister and Members on both sides, we have been approached by the Association of Consulting Actuaries, which is unhappy about the provision for multi-employer schemes. We rather like multi-employer schemes and, given the Minister's affinity for the co-operative movement and continental industry-wide schemes, I presume that he likes them too. However, the provisions are quite tough for such schemes and the ACA has suggested thatthe proposal that any employer within a group of associated employers be compelled to make up…some or all of a scheme shortfall should be restricted to the scheme shortfall over PPF level benefits, and not the full scheme shortfall.It will be interesting to hear him comment on that, because the ACA's proposal would limit the burden that is imposed by these provisions.
I also want to ask the Minister about retrospectivity. Does he believe that these provisions, which go back to 11 June 2003, are retrospective and fully covered by the 903 statement that was made then? That is what he appeared to maintain earlier. Again, lawyers are concerned that these provisions would be difficult to defend and would be open to challenge under human rights law on the grounds that they are retrospective and constitute an unjustified risk to people's ability to enjoy their property. We would also appreciate the Minister's comments on the human rights aspects of the provisions.
§ Mr. Webb
As ever, it is a pleasure to welcome the hon. Member for Havant (Mr. Willetts), with his insightful contributions, back to our proceedings.
I always get the sense of playing catch-up when the Government try to close a loophole that they fear they have just created. They have created the PPF and, quite properly, they do not want it to be abused because of the knock-on effect that that would have on the levy on employers. Having created this thing. they have sat down to think how people might abuse it. They therefore introduce provisions to second-guess the way in which the fund might be abused and to close each possible loophole in turn.
I think that I am right in saying that these new clauses are the third set relating to moral hazard. We had ones quite late in Committee to do with not putting a pension fund in the hands of an employer who had virtually no assets, because he would almost inevitably make a call upon the PPF. However, I have a slightly nagging fear. Although the Government might have correctly guessed the most obvious ways of dealing with the matter, ingenious employers, accountants and—dare I say it?—even actuaries might think of new ways of circumventing the Government's intentions. We now have an open book with a pen in the Minister's hand so that, every time the Department thinks of another clever wheeze, it can write half a dozen new clauses to stop it. However, what will happen when the ink is dry, the Bill has become an Act and a clever financial wizard comes up with another moral hazard to put an unfair burden on the PPF?
In Committee, we asked the Minister whether there should not be a stronger anti-moral hazard provision in the Bill. The Government who, with the best advice in the world, are unlikely to foresee the next clever wheeze to create a burden on the PPF, are unlikely to have enough parliamentary time to introduce primary legislation to deal with such a wheeze, which could leave the fund open to abuse. When I made that point to the Minister he offered a human rights defence and said that we could not have a general anti-avoidance rule because it might be draconian and contravene human rights legislation. Has he had a chance to reflect on that argument, and is that still the Government's position? Each group of new clauses appears to be satisfactory—no one wants assets to be sold at an implausibly low value, thereby weakening the pension scheme or the position of the employer and leading to an unnecessary claim on the PPF—but they deal only with individual examples. The Minister said that in each group of new clauses the Government have given themselves broad powers, which is mildly reassuring, but it is not reassuring enough. Is the piecemeal approach of
904 anticipating the nasty schemes that nasty people might devise and trying explicitly to prevent them necessarily the right way to deal with such issues?
§ Kevin Brennan (Cardiff, West) (Lab)
Does the hon. Gentleman agree that if we were talking about housing benefit instead of pension protection we would call such activity fraud, not moral hazard? People claiming housing benefit would be deemed to be doing things to take advantage of the system and would be banned from making a claim. Just because it is big business, that does not mean that we should not face up to the problem and say that anything that is done simply to take advantage of the scheme or to rip it off should be banned.
§ Mr. Webb
Indeed, that is the general thrust of my argument which, however, was not expressed quite as forcefully as the hon. Gentleman's contention—I was tiptoeing around the issue. There are general presumptions about the nature of housing benefit fraud. Lying on the form is obviously fraud, but artificially depressing one's earnings to get more housing benefit is less clear-cut. However, there should be a presumption that artificial activities, the principal or sole aim of which is to make an unnecessary claim on the PPF, should be prohibited in general, rather than being prohibited individually, as there will always be others that we have not thought of. I should be grateful for further reassurance from the Minister on that point.
The hon. Member for Havant made a fair point about retrospection. The Minister read out a general hint from the Secretary of State on 11 June 2003 about the undesirability of certain actions. I doubt, however, whether that would stand up in court. We might want an employer to be caught by an anti-avoidance law, but none the less he might argue that in the past 12 months his firm undertook some asset transactions and that the Secretary of State's remarks on 11 June could not be interpreted as making that an unlawful avoidance of a restoration notice.
I am also worried about the two-year limit. First, does there need to be a date at all? If an employer at any point artificially depresses the value of a fund, should we not take action? Why do we want the two-year cut-off? If it can be demonstrated that the action taken was entirely artificial, why does it matter whether it took place two years and a day earlier or one year, 364 days earlier? The fund was artificially depressed and its position was weakened. Even if a claim is made on the pension protection fund just over two years later, the PPF has still suffered. It may be argued that once two years have elapsed it is hard to prove that something was done in response to something else, but the two-year limit is entirely arbitrary. Can the Minister therefore explain why it was selected?
We do not want any action to be taken that leads to an artificial claim on the PPF, so why two years? Is there some other part of pensions legislation that uses two years, or is there just a broad-brush assumption that once two years have gone by, one can no longer prove the case? Surely these matters should be judged on the merits of each individual case, which would imply that the fixed two-year rule is removed and replaced by a 905 general provision that if anything that was done artificially reduced the value of the fund, leading to a claim on the PPF, and if it can be demonstrated that that is why it was done, the regulator is allowed to make some sort of restoration order.
I appreciate that that falls foul of the point made by the hon. Member for Havant about the open-ended nature of the liability on the directors and so forth, but clearly if something had occurred more than two years previously, it would be difficult to prove. If it could be proven that the effect on the fund was completely artificial, the people responsible should not be allowed to get away with it.
As ever, the spirit of the new clause is right. We want to close the loopholes, but I am not convinced that the piecemeal approach to closing loopholes is the way that we should be going.
§ Mr. Michael Fallon (Sevenoaks) (Con)
I shall speak on Government amendments Nos. 74 and 75 as they apply to clause 35. Amendment No. 74 qualifies the retrospective date of 11 June to a certain extent, but does not deal with some of the wider concerns about clause 35, which I think the Minister will concede was added at a very late stage in the proceedings on the Bill. In my view, the clause needs substantial redrafting. As my hon. Friend the Member for Havant (Mr. Willetts) said, it goes far too wide in its scope and may well end up discouraging investment in precisely those companies where investment is needed, not least to address any weaknesses in the pension fund.
First, I fully understand the concerns that led to the clause. I say that to the Minister straight away. I do not doubt the abuses that occurred, and I do not doubt that he is right to try and tackle the issue of moral hazard. It is one thing to impose further duties on directors—I declare an interest as a company director, recorded in the register, of course—as directors accept their responsibilities for the company of which they are directors. However, the clause goes very much further than directors and could catch not just shareholders and investors, as my hon. Friend the Member for Havant said, but any person associated with them—in the words of subsection (3)(b),a person connected with, or an associate of, the employer".I should like the Minister to explain what that means. Does it mean a friend of the employer? Does it mean a fellow member of a racing syndicate or a fellow owner in a holiday complex? Does it mean just a very good friend of the employer? The way the clause is drawn, it goes far too wide. It could mean that a contribution notice is addressed to almost anybody, and the regulator will therefore not only be able to go on a fishing expedition among the directors or former directors of a company, or among the shareholders and business investors or business angels behind the company, but after any friend of the employer. That goes too far.
Secondly, the test of reasonableness that is laid down in the clause is ultimately self-serving. It seems to be reasonable so long as the regulator thinks it is reasonable. There appears to be no appeal provision. The Minister may correct me if I am wrong, but in the hatch of new clauses that he has produced today or 906 those that he produced at the very end of the Committee proceedings, I can see no appeal provision. In other words, the action of the regulator does not even have to be reasonable. It has to be reasonable only in the regulator's opinion. Again, that goes too far.
Finally, the regulator will be free to go after that person's assets—as I said, not simply a director, a shareholder or an investor, but an associate of the employer. The regulator will be able to go after his house, his shares and his assets. There is no limit to the sort of liability of a person who happened to be associated with the employer.
§ Kevin Brennan
First, what would such people have to fear from, as the hon. Gentleman describes it, a fishing expedition? Secondly, the pensions regulator would, of course, be subject to judicial review if he acted unreasonably.
§ Mr. Fallon
I accept the second point, but it would be hard for the Minister to rely on the provision being subject to judicial review in the courts. What is reasonable should be set out in statute and not simply left to the regulator's opinion. The hon. Member for Cardiff, West (Kevin Brennan) says that even a friend of an employer should be pursued to the ends of the earth, but I do not agree. A connection should be proved, preferably involving the directors of the company, but certainly involving somebody who has been legally associated with that company and its affairs.
The provision is also too wide because it covers not only actions, but failures to act. It is difficult to be sure that one has failed to do something, and it is certainly difficult to be sure that one has failed to do something in a period that has already passed. If someone wants to correct an error with a pension fund, it is now too late to do so because the provision is, of course, retrospective to June 2003, which will cause a few problems.
If shareholders, investors, directors or friends of directors are personally liable and may have their assets seized to make good a pensions deficit in a subsidiary of a company that happened to belong to a friend of theirs, they are surely less likely to invest in or be involved with such companies. That might well discourage overseas investment, which the Minister may want. Those involved in running companies where a difficulty has occurred with the pension fund face a dilemma: if the liabilities mount up and they declare the company insolvent, they become personally liable up to the extent of their assets—houses and wealth—for any apparent deficiency, and the only way in which they can avoid that and protect their personal assets is to trade fraudulently.
I do not doubt the Minister's intention, and he is right to tackle moral hazard, but he must bear in mind that hard cases sometimes make bad law. The provision is too widely drawn, and, to his credit, he admitted that in Committee. He said:We have deliberately framed the powers broadly." —[Official Report, Standing Committee B, 27 April 2004; c. 776.]If he will not reflect on how the powers are framed, I hope that the other place will have more time than us to ensure that the provision is more equitable for those involved in business and that it is fit for the worthwhile purpose for which he designed it.
§ Mr. Frank Field
I support the Government, who must draw a certain satisfaction from the fact that 907 although detailed criticisms are being made, no one is speaking against the provision's drift, which is that we should protect the fund.
I share the anger felt by my hon. Friend the Member for Cardiff, West (Kevin Brennan) on behalf of constituents who believe that their pension savings were stolen by the actions of their employers, which should be judged in the courts. It is proper for the Government to try to close as many loopholes as possible and, presumably, to make amendments in the other place, but I have a couple of warnings. Although my hon. Friend the Member for Cardiff, West and I represent constituents who have lost all or part of their pension savings, the Government's responsibility in framing the measures is greater than simply bringing our constituents retrospective justice.
As I see it, the Government's proposals face two danger zones. Those relate not so much to what has happened in the past—because under new clause 34 a group of people who have been badly treated will get some redress—as to what some employers may try to do between now and the fund coming into operation, and what might happen in the very early stages of its life. I assume that the Government's great concern is not that if we go on fishing expeditions we might be able to land a few people in court, but that them may be one or more major closures between now and the early stages of the fund that swamp the finances of that organisation.
I am sure that my hon. Friend the Minister, who has been listening carefully to the debate, takes considerable pleasure in the support that has come from Members on both sides of the House in agreeing that we must close as many loopholes as possible. However, I hope that in devising ways of doing so he will not be blind to the danger zone that we have now entered, whereby unscrupulous employers may try to offload some very significant liabilities on to the fund. If they were successful in doing so, its life might be crippled and limited. Although these debates are important, we should focus our vision on the period from now until the vesting of the fund, and then to the early stages of its life.
§ Malcolm Wicks
This has been a useful discussion. I heed the warning from my right hon. Friend the Member for Birkenhead (Mr. Field). We need to be smart and astute about how those with poor intentions may read these debates about our intentions, because we must be ahead of the game. That is partly why we have opted for fairly broad powers, despite gentle criticism that they might be too broad, as well as some criticism that they may be insufficient to keep up with events. I do not think that I should apologise for that.
After I spoke, the debate was led by the hon. Member for Havant (Mr. Willetts), who previously spoke memorably of the need to protect against companies thatshed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a company without pensions." —[Official Report. 11 June 2003; Vol. 406, c. 685.]Indeed, my right hon. Friend the Secretary of State gave a similar warning. The debate therefore centres on whether we have got this broadly right or wrong.
In response to the hon. Member for Havant, the regulator will have the power to issue a contribution notice to a person, but only in certain circumstances: if 908 that person was a party to an act or a failure to act, the main purpose of which was to avoid any section 75 debt or to reduce such a debt or prevent its becoming due; the person was the employer in relation to the pension scheme, or connected or associated with the employer at the time of the act or failure to act; and the regulator thinks it reasonable to impose liability on that person. We are then mindful of several other criteria. When deciding whether it is reasonable to impose liability on any person, the regulator will have to consider a range of factors such as the degree of involvement of that person in the act or failure to act, and the financial circumstances of that person—for example, if the person is a company, whether the sum required would make it insolvent.
Those are important issues, although I am bound to say that the best way of not getting involved in this no doubt nasty business with the regulator is to be an honest and proper person. Those who behave honestly will have nothing to fear. The existing body, which will become the regulator, the Occupational Pensions Regulatory Authority—OPRA—is aware of possible cases where, in spite of the Secretary of State's warning, it appears that some employers may have already taken action to dump liabilities on the pension protection fund.
The new clauses are designed to guard against such manipulation and will apply to actions that are taken after 11 June 2003, when the proposal to introduce the PPF was announced. The Government believe that that limited retrospection is proportionate as a matter of law. If some people are wringing their hands because of the retrospection, I am glad about it. They have every reason to wring their hands and we have every reason to ensure that they do not overcome Parliament's will, hence the limited retrospection.
The hon. Member for Havant asked reasonable questions about multi-employer schemes. The current position, which allows companies to leave a scheme and its pension liabilities behind, is unfair because it leaves the other employers to pick up the bill. Those employers may not be able to afford that, leaving members and the PPF to pick it up in future. The new clauses provide for flexible arrangements to allow companies to pay a lower debt, including, for example, the company that transfers its liabilities to a new scheme.
I want to clarify one of the remarks in my opening speech. I left out a vital negative.
§ Malcolm Wicks
I was disappointed that no one noticed; indeed, I was disappointed that I did not notice. I should have said that new clause 17, which amends section 75 of the Pensions Act 1995, provides for any members' liabilities that are transferred out of the scheme not to be included in the calculation of that debt.
The hon. Member for Northavon (Mr. Webb) asked about new wheezes. I suppose that it is a reasonable description in this period of hayfever. We are advised that a general, continuing moral hazard power is inconsistent with human rights. That remains the case. Some of us in some political parties must have regard to
909 human rights and we believe that the new clauses are sufficiently broad to cover all circumstances. However, I take seriously the hon. Gentleman's anxieties, which my right hon. Friend the Member for Birkenhead echoed. We need to be careful and ahead of the game.
§ Mr. Frank Field
Did my hon. Friend notice that the plea for general powers came from the Liberal Democrat Benches? He said that they might go against the European convention on human rights, yet the Liberal Democrats are the strongest defenders of the European conventions.
§ Malcolm Wicks
Life is full of joyful irony and I am pleased on this occasion to be regarded as something of an old-fashioned Liberal.
We were asked why a time of two years had been set. There will never be a clear scientific answer to that sort of question about where to draw the line. The power is primarily intended to protect the PPF and scheme members from transactions that occur when the scheme is or may be in jeopardy. Establishing a broad and flexible power creates a balance between certainty and protection. It should allow the regulator to achieve protection, but limits the time scale when the power can be exercised. A scheme's funding position is most likely to be in jeopardy in the period before an insolvency. The insolvency may be the trigger for the involvement of the new PPF. Outside that period, the regulator may use the power in clause 17, which has more limited scope.
Let me deal with the points of the hon. Member for Sevenoaks (Mr. Fallon) —now sadly only one oak, due to natural calamity. I believe that others have been planted. I hope that that is the case, otherwise we shall table a new clause to that effect. He expressed a proper concern about whom we mean by connected or associated persons. As an old-fashioned Liberal, I believe that we should not be draconian about that. I am advised that section 435 of the Insolvency Act 1986 defines the relevant test. It provides that the regulator may require a contribution to be paid only when it is reasonable to do so. Subsection (5) deals with factors to assist in determining who may reasonably be required to pay. Let me try to reassure the hon. Gentleman that this is not an unreasonable catch-all. We only want to go after the people whom we are required to go after. Perhaps I can spell that out to the hon. Gentleman in a letter, to give him reassurance in response to his perfectly reasonable questions. Indeed, I think he raised some other points to that effect.
Within the new regulator, we shall have the admittedly slightly quaintly named determinations panel, which will be at arm's length from the main regulator's powers, and which will provide a check and a balance. As my hon. Friend the Member for Cardiff, West (Kevin Brennan) said earlier, if people are not satisfied with a decision, they may seek permission to appeal to the Court of Appeal on a point of law. I hope that I have covered most of the points that have been raised and I urge the House to accept the new clause.
§ Question put and agreed to.
§ Clause read a Second time, and added to the Bill.