PENSION LIBERATION: REPATRIATION ORDERS

HL Deb 08 July 2004 vol 663 cc187-236GC

1. Subsections (2) and (3) apply where—

1. a restraining order has effect, and
2. the Regulator is satisfied that the restrained account contains an amount of money liberated from a pension scheme.
3. The Regulator may by order—

1. direct the deposit taker concerned to pay from the account a sum not exceeding that amount—

1. towards a pension scheme,
2. towards an annuity or insurance policy, or
3. to the liberated member, and
4. where it makes an order under paragraph (a)(i), direct the trustees or managers of the scheme to apply the sum, in such manner as the Regulator may direct, for the purpose of providing benefits under the scheme to or in respect of the liberated member.
5. If it appears to the Regulator, on taking an overall view of transactions taking place before the restraining order was made, that there are two or more individuals each of whom is a person who is or may be the liberated member in relation to some of the money, the Regulator may determine the sums to be paid from the restrained account under subsection (2) on any basis that appears to the Regulator to be just and reasonable.
6. Regulations may modify any of the provisions of the Pension Schemes Act 1993 (c. 48) as it applies in relation to cases where an order is made under subsection (2)(b).
7. Section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to a deposit taker who, without reasonable excuse, fails to comply with a direction given to him under subsection (2)(a).
8. If the trustees or managers of a pension scheme fail to comply with a direction given to them under subsection (2)(b), that section applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
9. In this section "restrained account" has the meaning given by section (Pension liberation: restraining orders)."

On Question, amendments agreed to.

Clause 19 agreed to.

Clause 20 [Freezing orders]:

Lord Skelmersdale moved Amendment No. 53: Page 12, line 10, leave out "freezing" and insert "risk

The noble Lord

said: This time I have done a personal naughty, which is to seek to leave out the word "freezing" from as many places as I could find in the next few clauses and to replace it with the word "risk". I do so because I am not sure that these orders really are freezing; that is, locking the situation in ice. I say that because in Clause 21(2), we find that a freezing order does not, to use the draftsman's thinking, lock the scheme in ice at all because it states that a freezing order would not prevent any increase in a benefit from being accrued. The clause also appears to say elsewhere that benefits in payment may continue to be paid.

The order is an emergency procedure, and I understand why the regulator needs it. However, I would rather it was called something else. I am not particularly stuck on the word "risk"; I could cope with "emergency" or anything else. I am not sure that we can describe it as a "freezing" order. I beg to move.

Lord Borrie

It is an odd series of amendments. The word "risk" is vital: it is the reason for the order. It is the risk to members' interests that moves the regulator to make a freezing order.

There is a certain simplification about using a single word. I think that the word "freezing" gives the gist of what the order does, even if it does not cover it entirely, as the noble Lord, Lord Skelmersdale, rightly pointed out. There are one or two uses of "may", rather than "must" and so on, but the term is as near to a convenient, short-form phrase as one could get. I certainly do not think that "risk" is better.

Lord Lucas

If the fund is not quite frozen, we could call it a slush fund.

Baroness Hollis of Heigham

Are there any more offerings? I am sure that they will be gratefully received, reviewed and discarded.

The clause provides for a power to freeze an occupational pension scheme. Basically, it is a pause button. At the moment, OPRA does not have such a power; all it has is the power to wind up a scheme, which is a draconian measure. Freezing a scheme is a less drastic option, and we hope that, as a result, we will be able to reduce the number of schemes that the regulator has to wind up. There is a power to freeze a scheme for up to six months.

We think that the name "freezing order" is appropriate, as my noble friend Lord Borrie said. The name "risk order" is not helpful. It does not describe the effect of the order, merely the context in which the order is made. It may suggest that the scheme is at risk and that the order puts the scheme at risk, when the purpose of the order is merely to pause the scheme to ascertain whether it should continue or be wound up. That does not necessarily equate to risk. There are no minimum requirements for a freezing order. The rest are, as the noble Lord, Lord Skelmersdale, said, discretionary powers that the regulator can add as appropriate. There has been widespread support for the proposal as something that will provide a breather so that it can be decided whether it is possible to keep the scheme going without the company toppling over into insolvency or facing some of the dilemmas that go on behind the scenes. We think that the word is appropriate and that everybody will understand what a freeze is; we live in the video era. To use the word "risk" is to confuse—I refer to the debate the day before yesterday—the target with the objective.

Lord Skelmersdale

I am probably grateful to the Minister. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 54 to 60 not moved.]

Clause 20 agreed to.

Clause 21 [Consequences of freezing order]:

[Amendments Nos. 61 to 65 not moved.]

Baroness Hollis of Heigham

moved Amendment No. 66: Page 14, line 35, leave out from "prevent" to end of line 37 and insert"—

1. giving effect to a pension sharing order or provision, or
2. giving effect to a pension earmarking order in a case where—
1. the order requires a payment to be made if a payment in respect of any benefits under the scheme becomes due to a person, and
2. a direction under section 20(4)(d) or (e) does not prevent the payment becoming due."

The noble Baroness said: In moving Amendment No. 66, I shall speak also to Amendment No. 68.

Clause 21 deals with the consequences of a freezing order on a scheme. Amendment No. 66 is required because pension-sharing orders and earmarking orders work in different ways. I shall explain the difference between a pension-earmarking and a pension-sharing order. With a pension-sharing order, we take the value of the asset. According to how someone decides to apportion that matrimonial property on divorce, it may offer a clean start sum. Earmarking tends to be an attachment at the point of retiring so that a portion of the income flows after retirement. Very broadly speaking, that is the situation.

It is therefore necessary to make a distinction legally between these two because they come under different pieces of legislation. Indeed, many of my noble friends were involved when we tried to get pension sharing included in the family law legislation. When we could not achieve that, we got family law included in a Pensions Bill. Thanks to Lady Seear and Lady Young we actually succeeded. It was one of the triumphs of the women's network in the Lords against all-comers. We need to make the relevant distinction for freezing purposes. The policy is that freezing orders should not interfere with the trustees' or managers' obligations under a pension-sharing order which has been made by the courts. This does not force the trustees or managers to make a transfer payment in respect of a pension-sharing order—the trustees or managers still have the statutory right to apply to the regulator under the Welfare Reform and Pensions Act 1999 and subsequent legislation to ensure that there is an extension of time in which to pay the pension credit.

The trustees could apply for such an extension where paying out the pension credit would adversely affect the benefits of the generality of the members. If, for example, there were only four members and two of them were the employer and his spouse and she had been acting as the company secretary and that took out a huge chunk, that might deleteriously affect the other two members of the scheme who might be siblings or whatever.

Clause 21(5) merely confirms that the freezing order itself does not prevent the trustees complying with the court order. To have a blanket prohibition would be unnecessarily limiting. The money need not be paid out, but if the trustees think that it can be done we should respect the court order and the parallel activity of matrimonial proceedings. With that rather abbreviated explanation, I hope that the Committee will accept what we are seeking to do. I beg to move.

4.30 p.m.

Lord Skelmersdale

I have a very quick question. Paragraph (b)(ii) of Amendment No. 66 states that, a direction under section 20(4)(d) or (e) does not prevent the payment becoming due". I understand that, but could it prevent the payment being paid, which is rather different?

Baroness Hollis of Heigham

Yes. I hope that I said that. It can be paid. In other words, the presumption is that the court order will be respected. However, if in so doing the scheme is heavily top-sliced of its resources so that other members, perhaps of a small family company, would be deleteriously affected, it could come within the framework of a freezing order. One can make the decision that the court order proceeds in the usual way. However, if that has a deleterious effect on other members of the scheme, it is caught in the freezing activity.

On Question, amendment agreed to.

[Amendment No. 67 not moved.]

Baroness Hollis of Heigham

moved Amendment No. 68: Page 15, line 15, after "20(4)(f)" insert, "(g)

On Question, amendment agreed to.

[Amendments Nos. 69 and 70 not moved.]

Clause 21 agreed to.

Clause 22 [Period of effect etc of freezing order]:

[Amendment No. 71 not moved.] Clause 22 agreed to.

Clause 23 [Validation of action in contravention of freezing order]:

[Amendment No. 72 not moved.]

Clause 23 agreed to.

Clause 24 [Effect of determination to wind up scheme on freezing order]:

[Amendments Nos. 73 and 74 not moved.]

Clause 24 agreed to.

Clause 25 [Effect of winding up order on freezing order]:

[Amendments Nos. 75 to 77 not moved.]

Clause 25 agreed to.

Clause 26 [Effect of assessment period under Part 2 on freezing order]:

[Amendment No. 78 not moved]

Clause 26 agreed to.

Clause 27 [Power to give a direction where freezing order ceases to have effect]:

[Amendments Nos. 79 to 83 not moved.]

Clause 27 agreed to.

Clause 28 [Notification of trustees, managers, employers and members]:

[Amendments Nos. 84 to 86 not moved.]

Lord Lucas

moved Amendment No. 87: Page 18, line 25, at end insert "and (c) the scheme auditor and scheme actuary,

The noble Lord said: I beg to move Amendment No. 87. Why not?

Baroness Hollis of Heigham

That is a charming way to move an amendment. Giving the noble Lord the benefit of the doubt, I assume that he must think that the measure is so overwhelmingly reasonable that no explanation is needed, in which case I am surprised that he did not seek to persuade me of his case. Alternatively, he is so convinced of the amendment's weakness that he thinks that further exposing it would not benefit his cause. I do not know which of those two it is.

Lord Lucas

I did not wish to delay the Committee longer than it ought to be delayed.

Baroness Hollis of Heigham

The way to do that is not to move the amendment at all rather than moving it and sitting down. I would like to know what concerns the noble Lord. I presumed, in my most courteous style, that I would have a full speech directed at me, and I am happy to give a reply. It may answer the points, and, if not, perhaps we can continue the discussion more conversationally.

Clause 28 introduces the mechanism whereby the employer, trustees and the members are informed about any order made under the freezing provisions imposed on the scheme. We propose that the regulator informs the trustees or managers of the scheme and the employer as soon as is reasonably practicable of the effect of any orders made under the freezing provisions.

This requirement is in addition to the obligation on the regulator to inform all directly affected parties of any order it makes under Clauses 90 and 92, whereby the regulator must send out either a warning notice or a determination notice to all directly affected parties.

The amendment proposes extending the regulator's duty so that it informs the scheme actuary and the scheme auditor of a freezing order, irrespective of whether the order has a direct effect on their work and duties in relation to the scheme. The general duty to keep all advisers, which includes a wider class than auditors and actuaries, such as lawyers and administrators, informed of the circumstances of the scheme, should clearly rest with the trustees of the scheme as they have stewardship and responsibility for the freezing order and the scheme.

If the freezing order directly affected the work and duties of either the scheme actuary or the scheme auditor, the regulator would already be under an obligation to inform them under Clause 90(2)(a), if the freezing order was made under the standard procedure, or Clause 92(2)(a), if made under the special procedure. We think, therefore, under those circumstances, where it affects their work, they will already be notified under the Bill. We therefore think that it is unnecessary and inappropriate to put this additional duty on the regulator in a more general way. I could go on, but I hope, on that basis, that the noble Lord, Lord Lucas, will feel able to withdraw his amendment.

Lord Higgins

I thought that my noble friend was right in moving this amendment very briefly, since its intention seemed pretty obvious. I did not quite catch the reference which the noble Baroness made to an earlier clause. I think it was Clause 90(2)(a).

Baroness Hollis of Heigham

Yes, it was Clauses 90(2)(a) and 92(2)(a), on page 63 of Volume I of the Bill.

Lord Higgins

I think I have it. We are, to some extent, dealing with schemes which are not being properly organised with regard to both the company concerned and the trustees. As the noble Baroness pointed out earlier, in some small schemes, the division between those two sets of responsibilities may be somewhat vague. I see that she is indicating assent. As the regulator has to make these notifications as soon as reasonably practicable, I should have thought that he should also inform the auditor and the actuary, since they both have very important roles to play in the operation of a scheme of the kind which I have just described.

I should have thought it was advantageous for the auditor and the actuary to be informed by the regulator the moment this kind of thing was being done—otherwise the company or the trustees might not inform them for some while, or not at all. However, as the other clause makes the same provision, as the noble Baroness said, the amendment would not be necessary. That the auditors and the actuary should be informed as soon as practicable seems an admirably simple amendment.

Baroness Hollis of Heigham

Could I suggest that the noble Lords, Lord Higgins and Lord Lucas, look at Clauses 90 and 92, which deal with situations in which the actuary has a need to know and should have a right to know? In those circumstances the auditors and actuaries would be directly affected and therefore notified. The noble Lord's amendment would imply that where they are not directly affected they would still be notified. We simply believe that that is unnecessary.

If Members opposite feel that on reflection Clause 90—and not Clause 92—does not cover all the circumstances and care to write to me, I shall look at the matter again.

Lord Oakeshott of Seagrove Bay

Methinks the noble Lady doth protest too much here. I cannot for the life of me see how it would be inappropriate—her word—to tell the scheme auditor and the scheme actuary that this order was being carried out. Anyone who knows how things work, knows that that is palpable nonsense. It may be unnecessary but why be so pedantic about it? It is a perfectly reasonable thing to ask, and I cannot see any reason not to include it.

Baroness Hollis of Heigham

The provision is already covered by Clauses 92(2)(a) and 90(2)(a).

Noble Lords

No, it is not.

Lord Skelmersdale

With great respect, Clause 90(2)(a) states that, the giving of notice to such persons as it appears to the Regulator would be directly affected". It may not be auditors at all. That is for the regulator's judgment. He might decide something entirely different. So the matter is not covered.

Baroness Hollis of Heigham

I do not want to make heavy weather of the issue.

Lord Oakeshott of Seagrove Bay

You are.

Baroness Hollis of Heigham

Heavy weather seems to consist of refusing or agreeing to an amendment moved by the Opposition. I have heard nothing to tell me that Clauses 90 and 92 will not cover the situation where it is right that the actuary or the auditor should be informed. I invite the noble Lord to write to me with the circumstance where that may be the case. As I said, if there are cases where it is in my view appropriate that they should be informed, which are not covered by Clauses 90 and 92, I shall be very happy to look at the matter again.

So far no one has produced a single example, despite the noise from the other side, of where that might be the case. There may be a case; I do not know. Noble Lords have not made that point but merely want the words put into the Bill. It is not my job to take in extra words unless they have a weight that strengthens the Bill which would otherwise be missing. That, I would suggest to the Committee, has not yet been established.

Lord Higgins

There is no need to write to the noble Baroness; we are making the point now. It is even quicker than sending an e-mail.

Baroness Hollis of Heigham

I want an example where Clauses 90 and 92 will not cover the situation.

Lord Higgins

I sought to give an example. The noble Lord, Lord Oakeshott, made the point that in Clause 90(2)(a) and so on, the matter is left to the discretion of the regulator. Surely it should be absolutely clear to the regulator not that he should decide whether or not to tell the auditor and the actuary, but whether he should be obliged to do so. They need to know, and for the reasons I gave by way of example earlier, they may not know or may not know in time. That is why it is more appropriate in this clause because of the term "as soon as reasonably practical" than it is at Clause 90.

I would hope that the noble Baroness would not need a letter if she would just say that she will look at the issue between now and Report.

Lord Oakeshott of Seagrove Bay

I invite the noble Baroness with the full resources she has to write to us to set out a situation where it is inappropriate—her word—to notify the scheme auditor and the scheme actuary.

Baroness Hollis of Heigham

This applies to a freezing order. Do noble Lords propose that the same should apply to all other clauses exercising this power by the regulator?

Lord Oakeshott of Seagrove Bay

Write to us on this one.

Baroness Hollis of Heigham

The point is that the freezing order contains an array of powers for the regulator to deal with the trustees. Third party notices, improvement notices and restitution notices were to be inserted into the freezing order. I do not know; is it proposed that the same thing should apply to all of them? In which case, perhaps the Committee will decide under what circumstances that should be proposed.

At the moment noble Lords have singled out only one power to be exercised by the regulator in which he must notify the scheme auditor and actuary. In a situation of such gravity where the issue is likely to be involved with a freezing order, it seems to me the matter is covered by Clauses 90 and 92. One could even argue that there may be a strong case for exercising powers other than the freezing order where Clauses 90 and 92 may not come into effect. As I say, I invite noble Lords opposite to write to me, and I will be perfectly happy if there seems to be a good case to consider the matter further. I have to say that I have not heard one from the evidence today.

4.45 p.m.

Lord Hunt of Wirral

Perhaps I may intervene as there is an amendment in my name to the same effect. I have sat down with the Society of Turnaround Professionals, R3, which is the Association of Business Recovery Professionals, and with the CBI to talk through the practical effects of what we are debating. The freezing order is a particularly key moment. There is a need for what I would describe, and have had described to me, as key professionals who, particularly in the case of actuaries, are often closely involved in the affairs of a scheme on a regular basis.

They have made the point to me that this is a practical amendment which they believe is necessary to ensure that those involved in the affairs of a scheme on a regular basis are directly notified in a timely way. If the whole system is to work, certainly the professionals regard this as a very important amendment.

As I understand the position, those professionals have been to see the Minister's officials to explain matters and to give examples. If the Minister looks at the transcript of the meetings that have been held, I do not think that she will conclude that there is a need for any further written evidence. All that is now required is for her and her colleagues to consider very carefully the points made in this debate and then to respond to them.

Lord Lucas

I am very grateful to all those who have spoken. Clearly, we shall have an opportunity to pursue this matter between stages—maybe at the next stage. For now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 28 agreed to.

Clause 29 [Sections 20 to 28: supplementary]:

Baroness Turner of Camden

moved Amendment No. 89: Page 18, line 40, at beginning insert "Subject to subsection (3),

The noble Baroness said: In moving Amendment No. 89, I shall speak also to Amendment No. 91. Amendment No. 89 is really a paving amendment for Amendment No. 91.

We debated freezing orders a little earlier, but there seems no doubt that they will be considered by the regulator only if he is concerned that there is a risk to members' interests. Clause 20 states that a freezing order can be made if the regulator is satisfied that, it is necessary to make the freezing order in order to protect the interests of the generality of the members of the scheme".

The idea of Amendment No. 91 is to ensure that there are arrangements in the Bill which specify that there must be consultation before the orders are made. Indeed, as we know from our debates on Second Reading, the Government have been quite happy to arrange for consultation in various parts of the Bill—with organisations representing membership interests, and so on—and we applaud that.

The aim of the amendment is to ensure that if a change of this kind is contemplated by the regulator, there should be an obligation upon the regulator to consult any trade union recognised by the employers in relation to the scheme or, if no trade union is recognised, such other person or organisation whom the regulator believes is representative of the interests of the members and former members of the scheme.

That seems to me and, I think, to my noble friends to be entirely reasonable. I hope, therefore, that the Minister will feel inclined to accept, if not the wording of the amendment, at least the principle of what we are trying to achieve. I beg to move.

Lord Skelmersdale

Again, I shall be very brief. I am sure that it is not right to allow the regulator to issue the freezing order off his own bat without consulting anyone. I certainly agree with the noble Baroness, Lady Turner. Surely it would be far better for the administration of pensions regulation if the regulator came clean and told scheme managers to get their house in order otherwise he will use his emergency powers. It cannot be such an emergency in many cases. I accept that that will sometimes be the case, but surely not always.

Baroness Hollis of Heigham

The noble Lord, Lord Skelmersdale, has put his finger on the point. To reach the stage of a freezing order, the regulatory system must believe that the scheme is seriously at risk. It is our experience—noble Lords will be aware of this—that when a scheme is at risk there is sometimes a quick winding-up sale by directors who try to extract as much as they can, thus reducing the assets available for other members. Despite what the noble Lord has just said, freezing orders—in particular under the special procedure whereby they can be invoked at great speed; that is, in as little as 24 hours—can be absolutely essential if resources are not be lost by being spirited away to, say, Luxembourg, Lichtenstein or another offshore account. That is why speed is crucial here.

We believe that freezing orders are very likely to be made under the special procedure set out in Clause 92 because it is often imperative that they are made quickly and can take immediate effect. For the most part they would be needed at the end of a long process rather than something applied to a scheme out of the blue. By that point we would be trying to ensure that the money is not lost to the fund. Where the special procedure is used, the regulator will undertake a compulsory review of the decision to make the order as soon as practicable under Clause 93. All directly affected parties will be able to make representations at that review, and the regulator will be able to vary, amend or revoke any order it has made. Further reference could then be made to the Pensions Regulator Tribunal under Clause 97.

The freezing order is put in place first because speed is of the essence. Consultation is then undertaken, through to a right to appeal to the Determinations Panel and so forth subsequent to the order. If it is not done that way, and if it concerned a large scheme in which many members had to be notified, key assets could be lost. That is the point of the provision. We are not trying to exclude consultation but to make sure that, I am afraid, in special, emergency situations, consultation should follow rather than precede the freezing order, otherwise the order would lose a lot of its effectiveness.

Baroness Dean of Thornton-le-Fylde

I hear what my noble friend says and it sounds entirely reasonable. Although I have not tabled an amendment, I am somewhat concerned about subsection (3) which states: The Regulator may by order direct the trustees … to notify—

1. all the members of the scheme, or
2. the members of the scheme specified in the order".

At the moment there is no specific requirement for the regulator to direct the trustees to tell the members of the scheme. A freezing order could be drawn up without some of the employees knowing what had happened to their own investment, their pension fund. I think that the intention behind Amendment No. 89 was to bridge that gap, although I do not know.

I understand the point about speed because the instances mentioned by my noble friend are not just hypothetical examples or anecdotal evidence; they are factual. Personally, I accept what my noble friend has said. However, it may be necessary to look again at subsection (3), which we have not done today. Perhaps we can return to it at a later stage.

Baroness Hollis of Heigham

My noble friend is absolutely right. The question to ask is: what is the point of a freezing order? The order activates a pause button by which we hope to keep a scheme solvent and afloat. But it really is inconceivable that the regulator could turn such a scheme around without consultation with the members, employers and trustees.

Although the word used is "may"—whether it should be "must" is a point that could be argued—the scenario envisaged by my noble friend seems quite inconceivable. Both she and my other noble friend Lady Turner have recognised that speed is of the essence. There is no attempt to exclude consultation here, but it should follow the freezing order, which could then be revoked or amended as necessary, or a way through found so that the scheme does not wind up and then end up applying to the pension protection fund, but can be refloated, perhaps by considering different accrual rates or whatever may be appropriate. However, none of that can be done without the consent of all parties. Consultation will click in as soon as the order is reviewed.

I think that this will work well, but if noble Lords want to query the wording, I shall be perfectly happy to look at it again.

Baroness Turner of Camden

I thank my noble friend for that explanation. Of course, we understand that this is essentially an emergency procedure and that it may be necessary to move very quickly in order to safeguard the assets for members. That, we understand. I also support what my noble friend Lady Dean said about our concern that, in some circumstances, although perhaps not too often, a freezing order could be placed on the scheme without the members knowing that it was happening. Because of that, we want to look at this matter again to see whether it would be a good idea to return with our own wording—perhaps relating to a different part of Clause 28—in order to cover what we see as a lacuna in the Bill. We are concerned to ensure that members know what is going on, particularly if it involves something such as a freezing order, which is desperately important. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Skelmersdale

moved Amendment No. 90: Page 18, line 42, leave out "law, or

The noble Lord said: Again, I am not sure whether the amendment is correctly drafted, but the whole point is that the draftsman has decided—presumably on the department's policy grounds—that any enactment or rule of law can be ignored for these purposes. That is such a draconian power that I believe the Minister should justify it with examples, and I invite her to do just that. I beg to move.

Lord Borrie

There must be something wrong with the drafting. Perhaps it was intended to leave out the words "rule of law"; I do not know. But that would not make much sense either because this is a fairly common piece of drafting that is meant to cover any enactment or statutory rules of law, and common law rules or any rule of the scheme. I am sure that the Minister will have examples of precedents in the field, but unfortunately the amendment is not properly drafted and must be rejected on that ground.

Lord Skelmersdale

I accept that, and of course the amendment will be rejected, whether we all agree with it or not, because we are in Grand Committee and the Minister has rather more power over us than usual. What I intended is clear. I am sure that the noble Baroness got the point because she was poised to answer my question and justify paragraph (a). I might have moved an amendment to leave out paragraph (a) in its entirety, and therefore I do not think that there is a problem. What worries me is that any piece of legislation can be disapplied for these purposes and I want to know why.

Baroness Hollis of Heigham

That is a perfectly legitimate point. I assure noble Lords that we are not talking about habeas corpus or anything of that kind. As my noble friend Lord Borrie said, when one freezes a scheme and switches on the pause button, one is creating an unusual situation in which trustees or managers may be prevented from carrying out their normal functions and duties, such as paying for benefits, making transfers or accepting contributions in respect of benefit accrual. However, in that situation it is essential that the freezing order can override normal procedural rules and conflicting legislative requirements so that the regulator can act quickly and effectively to protect the scheme members and their benefits. It is an override clause relating to the normal functions of trustees, laid down by statute and case law, with regard to taking in payments and paying out benefits. I suspect that, if we cannot do that, we cannot have a freezing order.

5 p.m.

Lord Skelmersdale

I take the point, but the noble Baroness has just been talking about pensions law, not the law in general. It may be that when the draftsman considers this again, he may think, as I do, that it is potentially very wide. The noble Baroness said that we were not talking about habeas corpus, but the Bill does not say so.

Baroness Hollis of Heigham

That is true.

Lord Skelmersdale

I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 91 not moved.]

Clause 29 agreed to.

Clauses 30 to 34 agreed to.

Clause 35 [Contribution notices where avoidance of employer debt]:

Lord Hunt of Wirral

moved Amendment No. 92: Page 23, line 41, at end insert— "() A contribution notice may not be served on a person, or parties connected or associated with him who are not otherwise connected with the employer, who is acting as an insolvency practitioner in relation to a company or individual as defined in section 388 of the Insolvency Act 1986 (c. 45) (meaning of "act as insolvency practitioner") without leave of the court.

The noble Lord said: This is an important part of the Bill and has caused substantial concern in some important organisations. In moving the amendment, I must say that I am not sure why the Committee has decided to hold the debate in a sauna. The talk of a freezing order made me jealous.

The Deputy Chairman of Committees (Lord Carter)

I think that I have the authority to allow Members to take off their jackets if they so wish. I am not sure how that applies to the ladies, but I authorise the gentlemen to take off their jacket.

Lord Higgins

In another place I always objected strongly to Members' taking off their jackets. We were assured that the windows needed to be closed because the air conditioning had been put on and would not work if the windows were open. As the air conditioning is quite clearly not working, there is a strong case for opening the windows—those down at the far end of the room, at any rate.

The Deputy Chairman of Committees:

We shall try that.

Lord Hunt of Wirral:

The noble Lord has a reputation for cooling things down. He never fails.

The amendment raises the concerns of those involved in rescuing or investing in companies facing some form of difficulty—troubled companies. In particular, R3, which represents licensed insolvency practitioners, whom I mentioned a few moments ago, and the Society of Turnaround Practitioners have warned that the consequences of the clauses will be to reduce the number of company business rescues.

Although I acknowledge and pay tribute to the Minister for the extent of the consultation that has taken place on most aspects of the Bill, I understand that the bodies I have mentioned, together with some others, have not yet had the opportunity to make their views known on the clauses—hence the importance of the debate.

The clauses are in direct conflict with the guiding principle behind the Enterprise Act 2002, which the Government enacted in order to promote and encourage business and company rescues. Several noble Lords present today participated in the debates on the Enterprise Bill. We welcomed the ability to try to turn round potentially successful businesses that were in a period of difficulty. My amendment, which is the first in a series, deals with the issue of potential personal liability for insolvency practitioners and turnaround professionals.

The clauses dealing with contribution notices could, in the view of the professionals, impose large and uncertain liabilities on those who take on insolvency appointments or advise on turnarounds. That will almost certainly deter insolvency professionals from taking up appointments relating to troubled companies, thus depriving those companies of the opportunity to enter a formal rescue through the administration procedure or to undergo restructuring with a turnaround professional.

The unfortunate and, I am sure, unintended consequence of the clause would be fewer rescues and more company liquidations. As I said, it would be particularly regrettable if the clauses dealing with contribution notices were to undermine the good atmosphere induced by the Enterprise Act 2002.

This amendment seeks to exclude insolvency practitioners from being landed with a contribution notice. It is surely not right for insolvency practitioners and their associates to be potentially personally liable for actions taken in good faith, pursuant to the aims of the Enterprise Act 2002. I therefore seek to insert, on page 23, line 41, the words: A contribution notice may not be served on a person, or parties connected or associated with him who are not otherwise connected with the employer, who is acting as an insolvency practitioner in relation to a company or individual as defined in section 388 of the Insolvency Act 1986 … (meaning of 'act as insolvency practitioner') without leave of the court".

I should like to explain further. Effectively, an insolvency practitioner holding office such as that of administrator is comparable to a director. The insolvency practitioner will act in accordance with statute for the insolvency process being undergone. In the course of an administration, the insolvency practitioner's first purpose is to save the company or rescue the business.

To achieve that goal, an insolvency practitioner may take a number of steps, including the following: selling surplus assets or income-generating assets; selling subsidiaries which may be income-generating; to effect a compromise with some or all creditors; and to request that any scheme be wound up. Each of these may prevent the recovery of the whole or any part of a deficit.

The effect of this group of clauses on an administration will be to make the rescue of a company in financial difficulties much more difficult. Why do I say that? First, where the troubled company is to be sold, the bidders are likely to discount the sale price for the uncertainty surrounding the contingent liability associated with acquiring the pension scheme, or may simply not bid at all. This drives the insolvency process towards a fire sale of assets which surely conflicts with and undermines the primary purpose of the Enterprise Act.

Secondly, where a company wishes to enter administration to achieve a restructuring, the insolvency practitioner will be a party to the act of entering administration as he is appointed and must consent to the appointment. However, entering administration will potentially prevent the recovery of part or all of the deficit. There is therefore a contingent risk that the administrator personally will become liable for the deficit. This cannot be the intention of the legislation. I look forward to hearing from the Minister on that point in particular. The effect will be that administration will become less favoured for companies with defined benefit schemes. The alternative will be liquidation, which would result in fewer companies being rescued.

Turnaround professionals are not quite in the same position of personal liability as insolvency practitioners who take formal appointments as administrators. Nevertheless, they face unwelcome and surely unintended exposure under the Bill. The restructuring process is likely to be affected in the following way: first, the definition of "connected" and "associated" is so wide that the technique of debt-forequity swaps will become more difficult to use as creditors seek to avoid being put in the position where they may become owners of more than one-third of voting equity, at which time they become connected for the purpose of these clauses.

Secondly, disposal of assets and subsidiaries will become more difficult, as not only will buyers discount their price because of the uncertainty of a contingent pension liability, but also the disposal may be considered to be an act which reduces the recovery to the pension scheme. It is unlikely that this would be the primary purpose of the disposal, but it would be likely to be an inevitable outcome.

Thirdly, the use of CVAs or Section 425 schemes outside an administration will be less easy because the pension protection fund will not be bound unless it consents, effectively giving it a "super priority" and an advantage over other creditors. It is common, so I am advised, that in restructuring and turnaround scenarios a restructuring practitioner will take appointment as a director in order to drive through the necessary corporate changes.

As drafted, these clauses would expose turnaround directors to exactly the same likelihood and extent of liability as the pre-existing directors. Therefore, the likely effect of all these factors will be to reduce the desire of insolvency practitioners and restructuring turnaround professionals to serve. That will, in turn, surely discourage corporate rescue both inside and outside an insolvency process, the net result of which will be fewer rescues and more liquidations.

The imposition, or even the possibility of the imposition, of a substantial liability on professionals who are endeavouring to rescue any company for the benefit of its stakeholders surely will not assist the Minister and her colleagues in government in achieving the stated aim for an entrepreneurial culture. I beg to move.

Baroness Hollis of Heigham

We have a whole series of amendments. At some point, it may be appropriate to have the bigger debate about what we call the "moral hazard" issues. I may be able to give a very brief response to the noble Lord, Lord Hunt. He may not consider it appropriate to have that debate on this amendment as it is towards the edge of some of the issues. I am in the Committee's hands on that matter.

As the noble Lord surmised, it is, of course, not our intention to frustrate the purpose of the Enterprise Act. That is why we have worked with the Treasury, the DTI and the Insolvency Service. We have listened, and are continuing to listen, to groups such as R3, which the noble Lord mentioned. It has written to us and we have asked it to be part of the group working with us over the summer. As I say, the DTI and the Insolvency Service have been involved throughout.

Of course, once an insolvency practitioner is involved, there is likely to be an assessment period for the scheme. That means that the scheme trustees are preparing the scheme for the possibility that the PPF board may be required to take responsibility for it. The board would have assumed the rights and powers of the scheme trustees to act as the creditor of the employer in relation to the debt.

In the event that the action is by an insolvency practitioner appointed in relation to an associated or connected party to the employer—we may debate that later—the regulator would first have to consider whether the action had as one of its main purposes avoiding any pension liabilities rather than maximising the return for all creditors. The regulator would then have to consider whether it was reasonable to issue a contribution notice.

I am sympathetic to the amendment. There is a point here with which we wish to engage. It is one of the many areas that we shall be looking at over the summer to see how we can allay the concerns of insolvency practitioners. As the noble Lord, Lord Hunt, said, there was no intention to "collar" them under possible scenarios in the way that he feared. I hope that with that brief reply I can re-engage in the bigger debate on moral hazard on a subsequent amendment.

Lord Higgins

I think that there is a slight dilemma regarding the order of our proceedings. I do not believe there is any doubt at all that the tone, as it were, of our proceedings tends to alter at this particular moment. There has been widespread recognition outside and, I think, inside the House that the provisions of Clauses 35 to 45 create very real problems.

As I said earlier, there is a tendency for the road to hell to be paved with good intentions. We all have good intentions. We are all absolutely convinced that the Bill should help to protect pensioners whose future in retirement would otherwise be at risk. We all want to achieve that objective. However, the clauses that we are now debating raise very real problems. My noble friend Lord Hunt of Wirral dealt with a very specific point. The noble Baroness queried at what stage we should discuss more generally the points that were made at Second Reading about moral hazard.

I think that the noble Baroness has been reasonably forthcoming in terms of the specific amendment, but it may be that at the beginning of the next amendment we could have a more general debate on the broader issues that are of concern to us all.

5.15 p.m.

Baroness Dean of Thornton-le-Fylde

Before we move on, I agree with much of what was said by the noble Lord, Lord Hunt. But as I listened I became somewhat concerned that, within all he has said, we are being asked to consider the possibility of ring-fencing the contributions that have not been handed over and not have them form part of the solvency of the company. If that were part of the intention, I would have difficulties with it.

I understand the point about personal liability and therefore making the company more attractive in order to be moved on. That is all right, but if the full burden of the debt of pension contributions not handed over is not met, members are left with the pension protection fund. That would be wrong because other companies would be subsidising those which have not paid their contributions. I enter that caveat, but obviously I look forward to the wider debate.

Lord Oakeshott of Seagrove Bay

I also agree and I look forward to the general debate that is to be held shortly. However, I have one question to put to the noble Lord, Lord Hunt. I understand many of his points about personal responsibility for insolvency practitioners and so on, but the implication of his amendment is that it is always in the interests of stakeholders, as he puts it, that a company should not be wound up, but should be rescued. However, that is not always the case. I did not hear him mention the interests of the pensioners. Situations arise where very few members of the pension scheme are still actually working in the company, and they too must be taken into account.

I understand what the noble Lord means by the term "insolvency practitioners", but the term "turnaround directors" is a little more vague. Some of these rescue situations can go on for many years. Indeed, Mr James, the great waste chaser of the Conservative Party, has a long history of being involved in very long-running semi-rescue situations. One known as Eagle Trust went on for around 10 years. One needs to be a little cautious about how long these situations can go on.

Lord Lucas

In briefly adding to this debate, I want to say three things. First, I shall not move my Amendment No. 95A because it has been covered by this debate. Secondly, one of the objectives of people undertaking restructurings is to avoid pension fund liabilities because they are likely to be very large. We shall have to face this matter head on and deal with the way that these liabilities are to be weighed against all the other liabilities of the company. The balance must be struck. To get that set out in a clear and understandable way has to be a key objective, although I agree that that will be a hard debate. Thirdly, will one of the sub-committees of the Institute of Chartered Accountants be part of the consultation to be held over the summer?

Baroness Hollis of Heigham

Yes, if it wants to participate, the institute certainly can be part of the consultation. We would be happy to take that on board.

Lord Hunt of Wirral

First, I should say to the noble Lord, Lord Oakeshott of Seagrove Bay, that I was very careful in my use of words to refer to, those professionals who are endeavouring to rescue any company for the benefit of its stakeholders". "Stakeholders" is a very good word, one that has been used on all sides. Everyone understands what it means. It is an inclusive term that includes the interests referred to by the noble Lord as well as the interests of a number of other key individuals.

Perhaps I may say to the noble Baroness, Lady Dean, that while I take on board the point she made, we have to find some way around this, and I look forward to the debate as we explore it. My amendment seeks to ensure that a contribution notice should not be served, without leave of the court", so that, through the whole process, someone, somewhere starts to think about ways in which the rescue can proceed without the liquidation.

I look forward to the debate. I understand the concerns about ring-fencing. I think that my noble friend Lord Higgins slightly gerrymandered the prose. So, it is the road to heaven that is paved with good intentions. I am not too sure because I thought it was the other place.

A noble Lord

That is hell.

A noble Baroness

If you find out where you want to go.

Lord Hunt of Wirral

It is the first time I have heard the noble Lord use a four-letter word.

Lord Oakeshott of Seagrove Bay

What we need is purgatory.

Lord Hunt of Wirral

In fact all we seek to do is to recognise a well founded concern on the part of pensioners. We have to find a way through. I agree with my noble friend Lord Lucas that we should make sure that the composition of this group is as wide as possible. I think that the Institute of Chartered Accountants is a body that could add significantly—

Lord Lucas

Us both being members of it.

Lord Hunt of Wirral

Yes, of course. I certainly agree. The Society of Turnaround Professionals really should be involved although it works very closely with R3. Some way to proceed must be found.

The Minister conceded a point to me immediately on Second Reading. Indeed, I warmed to her. I regard her as a courageous Minister. I am not sure that she felt that that was a compliment at the time. I think she has been watching too much "Yes Minister". It was not meant in that sense; I just felt it was good.

I remember when I was a Minister. I always thought, now what is behind this? What is the writing underneath what I am being asked to sign up to? But the noble Baroness did not ask at Second Reading. She immediately gave me the assurance I sought and she has done so again. That is a fine track record. I warmly applaud her for the answers she has given. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 93: Page 24, line 1, after "was" insert "during the five year period ending on the date when he issues the notice,

The noble Lord said: In the discussion a few moments ago I was not clear with the reference to hell or heaven whether the Committee was or was not purgatory; certainly we are being stewed rather than roasted. However, it is no doubt a great deal worse in the Moses Room, so we have that to be thankful for.

The Minister has implied that perhaps a more general discussion might be appropriate, and especially so since this is one of the few amendments to attract support from all parts of the Committee.

Clauses 35 to 45 raise very difficult questions. We are all agreed on the intention to protect pensioners' assets and ensure that they are not deprived in their retirement of their reasonable expectations. We have been flooded with a great many representations about the effects of those clauses from highly reputable institutions—the CBI, SBIs and almost every professional body one can think of.

The list of possible unintended effects of these clauses is formidable. It includes their being likely to deter inward investment into the United Kingdom because overseas companies are not likely to undertake—particularly if they are investing in a UK subsidiary—the kind of dangers implied in some of the provisions of the Bill. As my noble friend Lord Hunt of Wirral has just pointed out, the provision will deter those normally involved in rescuing companies in trouble and enabling such companies to survive with all the implications for employment, economic growth and so on. Moreover, the provision will make some investors, as they currently stand in the Bill, liable in respect of companies over which they do not exert control. That is a real problem. It creates uncertainty about individual and commercial companies' responsibilities; according to many outside, it undermines the concept of limited liability, which is the foundation of many of our business enterprises; and, more particularly, together with the operation of the levy, it deters companies from continuing, and certainly from setting up, defined benefit schemes when I think we would all agree that that is the best form of pension provision if it can be achieved. Therefore, we must try to address all those dangers, but that will not be easy to do while still achieving our own objective.

Here in Grand Committee we are not going to vote on any of the issues. However, we, together with the outside interests, must all give very careful thought to the way in which we can improve the provisions of the Bill in order to avoid the kind of dangers to which I have referred.

There are further problems as regards retrospection and human rights provision. That effectively brings me to the main point of the amendments that we are discussing. The basic issue throughout has been one of moral hazard. At Second Reading, we discussed whether, if the pension protection fund is levied on companies with final salary schemes generally, some companies may decide to put the burden of their pension liabilities on the fund rather than pay up themselves. Further problems also arise as to whether the company is solvent or not solvent, and so on—a similar point to the one just made by my noble friend Lord Hunt of Wirral. Therefore, this will be a fairly difficult and challenging task, but I am sure that we all wish to work together to make it work.

The amendments that we are discussing are basically concerned with retrospection. It is suggested in the amendments that retrospection should not go too far back—that is, the regulator's power to investigate past actions should be limited to acts or failures to act that occurred no more than a stated period of time earlier.

I understand that a similar concept already exists in relation to insolvency law and the law of limitation. It is suggested, for example, that we should have a maximum look-back period of three years. That would mean that anyone purchasing or investing in a company would be clear about the period over which he had to look back in order to ensure that he knew what he was taking on. He would also know that, after the period had elapsed, his company would be liable to receive a contribution notice only in respect of actions or inactions which occurred in that period as well as in the period during which he was in ownership.

It has been put to me that the retrospective extent of Clause 35, which we are now debating, is probably in breach of Article 1 of the First Protocol of Part 2 of the European Convention on Human Rights, which concerns the protection of property. The noble Baroness has signed up to say that the Bill is in conformity with the convention. On previous occasions I have sought to establish who advises Ministers on whether legislation is or is not in conformity. Is it the Foreign Office or departmental lawyers or is it based on the Minister's own expertise? We have never really got to the bottom of that.

The article was considered by the European Court of Human Rights in the case of National and Provincial Building Society and Others v United Kingdom. That case was concerned with the retrospective introduction of legislation to close a loophole. The court found that, on that basis, the applicants had been aware of the Government's intentions.

The specific problem that then arises—I am sorry that this is such a narrow debate but it is an important point—is whether the Government can show that they have announced their intention to introduce legislation in the form of Clauses 35 to 38 at any time before 27 April 2004. I doubt that they can do so. On that date Mr Wicks suggested that a clear warning was given by Andrew Smith on 11 June 2003. I think that is a very doubtful proposition. In fact, the press release of June 2003 gave no such warning and did not specifically deal with the question of whether people were adequately informed.

5.30 p.m.

Clearly, we shall need to take that aspect of the matter carefully into account in deciding how retrospective the legislation is going to be. The Minister herself has assured us that it will not contravene the human rights convention. I shall not go into greater detail. That is essentially the point that I wished to make regarding the leading case to which I referred.

The Government ought to consider that if they insist upon retrospection to 11 June 2003—1 base that on Mr Andrew Smith's comments—the courts may be forced to construe Clause 35 very narrowly even in relation to future Acts, so the effects of the clause would not be what the Government intend.

This whole retrospection proposition is a difficult one. When I was a Treasury Minister I was given a brief by my department which stated, This is a drafting amendment". The following day I was besieged by lawyers who pointed out that I had criminalised a considerable number of people retrospectively. There is a distinction here between criminal and civil proceedings. I am not clear about that. Perhaps the noble Baroness will clarify whether the clauses with retrospective effect would bite in terms of criminal proceedings. I refer to fraud in that regard. I do not believe that Parliament has ever legislated to criminalise people retrospectively.

Baroness Hollis of Heigham

It is a civil matter.

Lord Higgins

It is purely civil. I am reassured by that. We need to be very careful where the line is drawn on this matter. The amendments that we have tabled seek to establish that. We shall be interested to hear the Minister's response regarding how retrospective the provision ought to be. One could simply say that the retrospectivity applies from the date the Bill is enacted, but perhaps that is going too far. As I have said on previous occasions, the television does not show whether officials are nodding. However, we can see that they are not in favour of that proposition. One can almost see a ventriloquist effect appearing, if I can put it that way. However, I am sure that the noble Baroness understands these points extremely well and that their attitudes will be consistent.

These are difficult issues. I say once again that if we are to implement this Bill and achieve the objectives we want, we shall need to deal with these specific issues very carefully indeed; otherwise, some of the dangers that I enumerated earlier will result in the game not being worth the candle. I am constantly using clichés this evening. I beg to move.

Lord Oakeshott of Seagrove Bay

I shall start by discussing the specifics of this amendment and then give a little detail on our general approach to these clauses. First, we are happy to support the amendment of the noble Lord, Lord Higgins. Indeed, we both received the text from the National Association of Pension Funds and tabled the amendment independently. Clearly, we are very happy to co-operate on this topic. Without going into the details of retrospection on which the noble Lord is much more expert than I, it seems to us that a five-year period is a reasonable one in which the measure should apply. It is, as it happens, the period adopted in the United States as regards the Pension Benefit Guaranty Corporation. We believe that a five-year period is fair enough.

To speak more generally, this is one of the two most critical parts of the Bill. We understand all the concerns that are incorporated in the amendments standing in the names of the noble Lords, Lord Higgins and Lord Skelmersdale. Equally, we have been discussing with the City, the venture capital industry and other relevant people their concerns. We have to strike a fine balance. We believe that we understand these concerns but that the balance has to be a little more towards protecting the pension fund side and a little less towards making life as easy as possible for the venture capitalists in particular.

The very act of taking quoted companies private has been a big part of the American scene for the past few years. It is also very important in this country, as we see in the current attempt by Mr Green—or Mrs Green, because Mr Green lives in Monaco—to take over Marks & Spencer. It clearly shows the big change in risk that you get for a pension fund if a substantial quoted company with a very strong balance sheet suddenly goes private and is heavily geared.

There is not just the risk that the company may get into difficulties. By its nature, when a company structure changes and most of the equity is taken out of a big company, the pension fund trustees will automatically have to change their investment policy straightaway. Any normal trustee would have to move to a much more cautious policy. That means straightaway that there is an extra burden on the pension fund. That is why it is perfectly proper, in our view, that the trustees of WH Smith and Marks & Spencer are taking a very robust attitude on that. We need to be very conscious of such risks for pension funds. This is a pensions Bill; it is not simply a Bill to ensure that the City runs smoothly. Of course, as I said on Second Reading, it is vital that the market in small companies' corporate recovery, and so on, does not seize up.

We believe that it is not right to take directors as far away from liability and as far down the chain of liability as is suggested in the amendments to Clause 35, which we shall discuss in more detail later. We have seen in America and, to some extent, in this country, not asset strippers so much as liability strippers. If you look at the PBGC and the great bulk of the liabilities there, which would be the same in the PPF, they are from airline, steel and chemical companies. People have come in, completely changed the structure, sold off the profitable businesses and left the liabilities—in some cases, the environmental liabilities—in the pot. That is the danger that we would have here, and we are very conscious of it.

Finally, the venture capital industry told me that because of its concerns, it had what it described as a very encouraging meeting with the Treasury about a fortnight ago. It came away from that meeting with the distinct impression that the Government would be tabling a number of amendments to these provisions, but we have seen no sign of them. That is a great disappointment to the venture capital industry. Wherever we think the balance should be struck, we all agree that it is vital that all the players—the investors, and so on—know exactly where they stand. I am bound to say that they certainly do not know where they stand on this.

I do not know whether people from the DWP were at the meeting, but we would be very interested to know how that impression was given, and whether, and at what stage, further government amendments may be brought forward. We have tabled some amendments to this part of the Bill but have held off tabling more because we had reason to believe that the Government would be bringing forward their own amendments, which we would be very interested to see. Those are my questions for the Minister.

Baroness Turner of Camden

I listened with interest to the noble Lord, Lord Higgins, moving the amendment. As we have said on numerous occasions, this is a matter of striking the right balance. One of the problems experienced by most people who have looked after the interests of scheme members is how often it is found that contributions have not been collected and have not been paid. This appears to be an attempt to make it very clear that the regulator will intervene in such situations.

The clause is absolutely clear. The regulator will intervene only if he is, of the opinion that the person was a party to an act or a deliberate failure to act", and the person in the relevant period was, the employer in relation to the scheme … a person connected with, or an associate of, the employer, and the Regulator is of the opinion that it is reasonable to impose liability on the person to pay the sum specified in the notice". That is extremely clear, and certainly more so than the wording used in the amendment before the Grand Committee. The issue of contributions to schemes is touchy and difficult and these are very important clauses in the Bill.

I am still a member of the council of OPAS. We had people writing to us complaining that contributions had been collected from them, but they were never paid over. That is very important.

Baroness Hollis of Heigham

I am very happy to pause for a moment, in the manner of a freezing order, to discuss some of the broader issues. But before we do so I want to respond to the very interesting speech made by the noble Lord, Lord Oakeshott, about what he referred to as the Treasury meeting with venture capitalists, much of which I agreed with. It was in fact a Department for Work and Pensions meeting chaired by one of the senior officials here today. She assures me that HMT was indeed present and that the department was pressed for amendments. No commitments were given on that front. But obviously, where it seems to me that a case has been well argued, we shall consider it sympathetically and see to what extent our legislation may need clarification to make our intentions clear. I cite, for example, the point about insolvency practitioners. It is completely clear to us that they should not be caught by the provisions, but if it needs to be clarified, we shall be happy to do that.

That is the context in which I shall respond. However, before I return to the specific amendment concerning the five-year point with which I should like to finish, it may be sensible to spend a moment covering the context in which we are operating here, to which noble Lords have already alluded.

Clause 35 is the first of four clauses to introduce a power for the Pensions Regulator to issue contribution notices which, together with the power to issue financial support directions, are designed not only to protect scheme members, but also to protect against moral hazard. Over and above collecting contributions, the contribution notice will in fact seek to make good the deficit.

We all know that "moral hazard" is the risk that because the Pensions Protection Fund will compensate scheme members if the employer has become insolvent and the scheme is underfunded, and because of the new full buy-out debt on wind-up provisions introduced by this Government, employers could deliberately manipulate their affairs so as to slough off the responsibility for full wind-up and instead shift their pension scheme deficits to the PPF. That is the dilemma we all face, and I do not think that there is any dispute about that. In the debate on 11 June 2003, the honourable Member for Havant, Mr David Willetts, most effectively described such as employers as those who, shed their pension responsibilities to a different legal entity like a snake shedding its skin and emerge as a company without pensions".—[Official Report, Commons, 11/6/03; col. 685.] The effect of employers avoiding their liabilities in this way would be that other, responsible employers may face higher levy contributions, because they are the companies that will fund the PPF. It also puts members' benefits at risk because, as noble Lords know, under the scheme the PPF provides members with only a 90 per cent level of compensation, capped at £25,000. If we strike the wrong balance, the losers here will be the members of the scheme along with members of other schemes that are well funded and meet their liabilities, but will have to pick up this bill.

5.45 p.m.

So it is not just a two-way dialogue between a particular company, wanting for the sake of its entrepreneurial survival to merge with or to acquire another company; a wider stakeholder—an overused word—or a wider constituency is involved here that I am sure we all recognise.

The protection of pension scheme members and employers who make occupational pension schemes possible has always been recognised by this Government as the nettle that has to be grasped, once the PPF is introduced. These clauses were introduced in Committee. I know that there has been debate about the detail, but the principle has been widely accepted. Mr Willetts again said on 18 May 2004: we do understand the need to protect the PPF from exploitation and abuse"—[Official Report, Commons, 18/5/04; col. 902.] Noble Lords may have noted that some people do not believe that the clauses go far enough. Mr Webb considered that the clauses might not cover every eventuality and said in the same debate: ingenious employers, accountants and—dare I say it?—even actuaries"— with respect to Members opposite— might think of new ways of circumventing the Government's intentions … 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".—[Official Report, Commons, 18/5/04; cols. 903 and 904.]

On 28 May, some of the consulting companies, for example Mercer, generally agreed that the moral hazard clauses are necessary if the PPF levy cost is to be kept anywhere near the Government's target of £300 million. Without these clauses, sponsors of DB schemes could face far higher costs—PriceWaterhouseCoopers and so on.

There is broad consent that we have to protect the PPF from artificial manipulation by which companies, so to speak, dump the pension liabilities on the weakest company in a group that they may have acquired, in turn, to offload it to the PPF. The question is how we get the balance right and distinguish between the kind of acquisition and merger that takes place in good faith and legitimately so that a company, which may otherwise close, is kept going to everyone's benefit, from those devices that are artificial and seek merely to manipulate in order to dump liabilities while taking the assets on their merry way. That is the issue that we seek to address.

Section 75 debt falls on the employer in relation to the scheme for the purposes of Section 75 of the Pensions Act 1995, particularly where that employer is part of a company group. There are a number of ways in which that route can ensure that before the scheme is wound up, the sponsoring employer becomes insolvent and a Section 75 debt is triggered. The company that is the employer in relation to the scheme is then put in a position where it cannot afford to pay the debt and eventually it ends up with the PPF. Even if the rest of the company group is fully solvent, the trustees cannot recover the debt from any other companies in the group, and scheme members will be left with what may be a very badly funded scheme.

The actions that can be taken by company groups could include withdrawing funding for the employer company, selling off its assets, paying a large dividend to strip out any assets in the company, or transferring the employees to another company, such as a service company—we shall come to a specific amendment later on that—which then becomes the employer in relation to the scheme and which has never traded or had any assets to speak of and therefore any capacity to meet the liabilities. Such actions could occur just before the winding up of the scheme or the insolvency of the sponsoring employer, or well in advance, with a view to disguising the purpose of the action.

I emphasise that we recognise that most company transactions and restructurings take place for perfectly legitimate business reasons, and may well be highly desirable; for example, company rescues. The Government introduced the Enterprise Act 2002 to support those rescues.

Through the current pensions regulator, OPRA, we know that some company restructures or transactions have a main purpose of avoiding pension liabilities. We are determined to stop that. There are other means for employers to avoid their liabilities with or without the collusion of a scheme's trustees. The employer may take action artificially to increase the assets of the scheme at the time when the debt was to be calculated, so that the debt to be paid is lower. It could include persuading the trustees to buy an asset and place a higher value on it than it was really worth—such as land—or a derivative, designed to increase dramatically in value in the short term but which will fall later.

These clauses, therefore, give the Pensions Regulator the power to require that a contribution is made into a pension scheme, where there is an act or a deliberate failure to act, the main purpose of which was to prevent the recovery of whole or part of the Section 75 debt that would keep the pension scheme viable. These clauses will be operated and enforced by the Pensions Regulator in the context of meeting his objectives. I can specify the reasonable nature of the regulator's powers. He can do so only if it is reasonable. It touches, for example, on good faith issues, which no doubt we shall discuss later. It includes the degree of involvement of that person in the act of failure. There is an emphasis on the relationship that the person has. I could go into all those points in much greater detail, and later it may be right to do so.

That is the dilemma we face. It is clear that in some cases there is deliberate manipulation—as OPRA reports, it has already started—to avoid doing what we all hope will be respected in a merger and an acquisition, which is that best efforts are made to keep a good scheme afloat and to meet the liabilities consequential on it. How we get that balance will be covered in some of the things that we shall go on to discuss.

Finally, I turn to the point about the five-year retrospection. As I say, later we shall come to some of the other detailed points about good faith and so on. The amendments to Clause 35 seek to restrict the period within which the regulator can look at actions or failures to act, one of the main purposes of which may have been to avoid pension liabilities and to remove the limited retrospection that the Bill proposes.

Amendment No. 93 is a backstop to the period of time at which the regulator can look, which is one of the key points that BVCA, the CBI and others have raised with us in recent weeks. It is a point that we are considering carefully for those groups. I suggest to the Committee that we return to this matter on Report and when we can consider more fully whether a time limit—and what time limit—would be appropriately introduced to the clause. I accept that companies need some degree of certainty; I accept that we must also have an eye on the practicability of how far back one can dig.

I am genuinely open-minded as to whether this is the right way forward. I am perfectly willing to be persuaded by this. As a result, I ask the noble Lord, Lord Higgins, to withdraw the amendment at this stage. Discussions will be ongoing over the summer with the organisations that we have mentioned. We all want to get the balance right. There is no dissent anywhere in this room. On whether we have it precisely right I am open to be persuaded that we may need to make adjustments. That may mean that compensating adjustments need to be made elsewhere to ensure that we protect the situation.

Let us explore the matter further. We certainly have not come to the end of the discussions yet. In the context of being genuinely open to listening to the arguments and to being persuaded on this matter, I ask the noble Lord, Lord Higgins, to withdraw the amendment and to return to the matter, if appropriate, on Report.

Lord Higgins

I am grateful for that response. Of course, I agree with much of what the noble Baroness has said. I am rather doubtful about her proposition that actuaries come up with new ideas. In my experience, they are typically at least 20 years behind the times. I agree that when they do come up with ideas, it is often extremely dangerous, so we must be aware of that.

The noble Baroness has been forthcoming. I entirely agree with her that there are real dangers, for example, with overseas companies. Indeed, a famous Japanese bank appears to have been in danger of reneging on its UK pension contributions. We need to take into account the international aspect of this matter.

The noble Baroness did not reply—I shall not now ask her to reply in detail—to the point I made about the human rights clause. We do not want to legislate on Clause 35 as regards the retrospective effect, and then find that it is overturned by the courts in this country or by the European Court of Human Rights. It seems to be the case that for it not to be overturned, the terms of the statute would have to be clear at the time of the announcement. My understanding is that such clarity did not exist in this instance before 27 April 2004.

At the moment, it does not matter enormously how far back one goes because eventually the matter shuffles forward and is covered anyway. I agree that there is a real danger of pre-emptive strikes by some companies that wish to renege. In particular, they will find that the provisions under Part 6, which the Government introduced in some panic, are not likely to be as favourable as those under the PPF. Therefore, despite Part 6, they will tend to try to get out now rather than delay and find that they are unable to renege on their responsibilities.

Between now and Report stage, I hope that the noble Baroness will consider the retrospective angle, despite what I have just said, because we do not want the matter to be overturned by the courts. We are all working together on the broad point that she makes. I hope that before Report stage the Government will come forward on each of the matters that we are discussing with their own amendments. That is important. We shall try to take advice outside. However, the resources of the noble Baroness are rather greater than mine and probably even than those of the noble Lord, Lord Oakeshott, or even those of the noble Baroness, Lady Dean.

It is appropriate that between now and Report stage the Government take some time—we shall all be working in September, of course—to come up with a clear answer. On that basis, I beg leave to withdraw the amendment. The later amendments that we have degrouped will enable us to focus on particular points that I hope we can deal with relatively quickly.

Amendment, by leave, withdrawn.

The Deputy Chairman of Committees (Lord Lyell)

Am I right in thinking that Amendment No. 94 is still part of the group?

Lord Higgins

Yes, Amendments Nos. 93, 94, 96 and 97.

[Amendment No. 94 not moved.]

Lord Higgins

moved Amendment N o. 95: Page 24, line 7, at end insert— (d) the Regulator has not issued a clearance notice in relation to the act or deliberate failure to act

The noble Lord said: Amendment No. 95 is grouped with Amendments Nos. 100 and 169. This is a fairly straightforward amendment compared with some of the others. It suggests that there is a case for the regulator to issue what is called a clearance notice so that a company can say through the regulator, "I am proposing to do this, do you agree that it is okay?" It is set out in very simple terms.

In the course of earlier debates, the Government indicated that they will look favourably on an amendment to bring in a clearance procedure. At Second Reading, the noble Baroness, on behalf of the Government, said that the regulator would be able to issue a contribution notice under Clause 35 only where an act or failure to act was deliberate and designed to avoid pension liabilities and that the regulator would be able to issue financial support directions only in prescribed circumstances. I shall not burden the Committee with the exact quotation.

It appears to achieve our objectives and does not undermine the principle of the Bill if the regulator is able to deal with matters in that way. Perhaps there is a clear need for such a clearance procedure in addition to a code of practice, to which reference is made. Taking the two together, I believe that they would ensure that the system worked more smoothly than otherwise. I beg to move.

Lord Hunt of Wirral

I strongly support my noble friend Lord Higgins. When the Government first issued the moral hazard clauses, a considerable amount of concern was expressed by a range of organisations that the effect would be that corporate transactions would come to a standstill. There was widespread press comment.

What worried me more was a comment by some very informed individuals, such as the chief actuary of PricewaterhouseCoopers, Trevor Llanwarne (I have pronounced that both with and without a Welsh accent). He drew attention to something on which my noble friend Lord Higgins may be better informed than me, although I have asked the Library to let me know the procedure that is adopted. Apparently, a green light procedure is undertaken in the United States. It is similar to that proposed by my noble friend. It enables those wishing to undertake transactions to receive some kind of certainty as to whether there will be any problem for them under the moral hazard clauses. It is a kind of green light procedure that ensures that proposed legitimate business transactions will not fall foul of these clauses.

The chief actuary said that he had a four-point plan, which apparently has been put to the Minister and to her colleagues in the Department for Work and Pensions. First, it is very much along the lines of the amendment moved by my noble friend that a clearance procedure should be introduced; and, secondly, that there should be some changes in the wording of some of the clauses to provide a clearer and more complete framework against which to judge potential abuse.

I believe that there is agreement on all sides that we want to stop abuse. It is important to have laws that can be readily understood, although I am not sure that simplicity is something known to parliamentary draftsmen who have to operate against a background of complex, existing legislation. If there are some wording changes—I understand that PricewaterhouseCoopers has suggested some—I believe that they should be adopted.

There is also a request that some examples should be given by the department about the intent of the clauses. That would be enormously helpful. Finally, there is the point, which I have raised already, that insolvency practitioners should be protected. I support my noble friend.

6 p.m.

Baroness Hollis of Heigham

On the specifics, PricewaterhouseCoopers has been in contact with us after reading our debate in Hansard and we are indeed working with the company on the issues. The amendments seek to introduce a clearance system. I sympathise entirely with noble Lords' desire to ensure that there is a clearance procedure. We discussed this on 10 June. Those involved in corporate restructuring and transactions will be able to seek clearance from the regulator in advance. In local authority terms, it is like a kind of planning permission. It gets one over the problem of building control, but one still needs planning permission first. I guess, that is the role.

I can also confirm that the regulator will publish guidance on how the scheme will work. That will ensure that responsible companies will be able to continue to trade and restructure as usual. I will also follow up the suggestion that the department may want to publish further clarification of the intent on this to allay fears. The only difference between us is probably whether it needs to be on the face of the Bill. We do not propose to legislate. By the time we end up with the words necessary for precision we may tie the regulator's hands and restrict the flexibility.

Given the discussion today and the meetings that we are holding, there is no doubt that there will be a clearance procedure; how it will operate will be published in guidance by the regulator. We are happy to have not only further discussions but also further clarification over the summer. I hope we shall ensure that everyone feels comfortable with the way in which we propose to proceed. I hope that the noble Lord will feel able to withdraw his amendment.

Lord Lucas

To encourage the noble Baroness to put the matter on the face of the Bill, I say to her that such matters need to be bomb proof. Any kind of clearance needs to stand up to scrutiny from some very inquiring bankers and lawyers. If it is based on regulations, it will be less powerful than if it were on the face of the Bill.

Baroness Hollis of Heigham

I take the point. I hope to be able to show noble Lords a draft of the procedures by Report stage. On that basis, if Members feel that it is not satisfactory, they can push us harder, but it may be that that will sufficiently allay people's concerns.

Lord Higgins

I believe that we are making progress. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 95A to 97 not moved.]

Lord Higgins

moved Amendment No. 98: Page 24, line 21, at end insert", and () the Regulator is of the opinion that the act or deliberate failure to act has increased the likelihood that the Board of the Pension Protection Fund will assume responsibility for the scheme in accordance with Chapter 3

The noble Lord said: Amendment No. 98 stands in my name and that of my noble friend. The problem is that there are scenarios in which an employer may deliberately decide to take steps to reduce future Section 75 liability without adversely affecting the security—I stress the word "security"—of the members' interests. An employer may decide, for example, subject to various legal requirements, to reduce benefits for future service or may increase contributions to a scheme to reduce future liability. An employer may decide to arrange for members' benefits to be transferred to a new scheme. The old scheme would be wound up, but the Section 75 debt liability would not be triggered at that stage because of the transfer.

All those scenarios should not be penalised. At the moment arrangements can be made. We have seen a huge deterioration in the general overall position of pension schemes and, in particular, of defined benefit schemes. If the kind of situation that I have just described were to be ruled out by the clauses of the Bill, the reaction of the company concerned may be, "We had better stop the defined contribution scheme, either for future members or for existing members". That is the underlying dilemma that we face all the way along. We do not want to add to the pressures on companies to close down their schemes. This amendment achieves that.

I believe that there are cases where particular trustees have given members a choice, either to pay more to maintain their existing benefits, or to reduce their benefits somewhat. "Choice" is the in word at the moment; choice in almost everything seems to be the catchword for all political parties. When such a choice is given, so that members of a scheme can make a decision, depending on their personal circumstances, whether they would prefer to pay more to keep their benefits or to have their benefits reduced, I have found, even in the case of trade unions, that that may be regarded as a better option than closing down the scheme. The amendment achieves that and I hope that the Government feel that it is appropriate. I beg to move.

Baroness Hollis of Heigham

The clauses are not just about protecting the PPF. Since the Government introduced the full buy-out provisions on wind-up on 11 June 2003, so that members can be assured that a solvent employer will mean that their pensions will be met, regardless of whose decision it is to wind-up the pension scheme, we have introduced the PPF to compensate those workers whose employers become insolvent when the scheme is under funded.

However, for deferred members, the compensation rate is 90 per cent with a cap of £25,000. Therefore, workers who see their company restructured and their employer become insolvent, even though the parent company continues to make profits, would be rightly aggrieved—that touches the bigger debate that we have just had—towards a government who did nothing to stop that. The result for them would not only be the loss of employment, but a reduction in their pension, effectively, of 10 per cent for every year that they have worked. For a worker whose benefits accrued at one-sixtieth a year, that could mean a loss of nearly four-years' worth of working and saving towards a pension.

Sadly, we know that some employers take just that tack—legitimate corporate restructuring, which results in the avoidance of pension liabilities. That is not acceptable and with the power to issue contribution notices, the regulator will ensure that when restructuring takes place, the pension liabilities are safeguarded. Introducing restrictions in these clauses would introduce room for employers and those controlling companies to continue to avoid their pension responsibilities.

I suggest to the noble Lord, Lord Higgins, that in making us all walk this tightrope to keep the balance going, he tips the matter too far the other way. I hope he accepts, in the light of discussions that we have already had and I am sure we shall continue to have, that the amendment does not commend itself to the Government. I ask him to withdraw it.

Lord Higgins

That is the flattest rejection we have had so far. I am not persuaded by what the noble Baroness has said, but I would like to give further thought to the matter. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 99:

Page 24, line 23, leave out from "failure" to ", and" in line 24 and insert "shall not include—

1. any person who does not have knowledge of the purpose of the act or deliberate failure,
2. any person who does not assist the act or deliberate failure, or
3. any person who does not have legal power to prevent the act or failure,"

The noble Lord said: The current clause does not appear to expand the class of people who may receive contribution notices—the employer or the person connected or associated employer in Clause 35(3)(b). Therefore, the only effect of the current subsection is that it appears to give the regulator certainty that a person who knowingly assists in an act or a deliberate failure to act falls within the scope of those he may attack. That seems to be so obvious as to be redundant. To help the confusion, it would seem better to exclude those who at present may fall within the scope of his actions, and therefore have to rely on his unproven reasonableness by reference to the factors set out in Clause 35(6), but who would be reasonably excluded at an earlier stage because of lack of knowledge and so on.

A specific example has been given to me. Suppose a director signs off an agreement, the aim of which would be to avoid a debt to the employer, and his secretary types up the agreement knowing the purpose of it. It seems that she would be liable to action being taken against her by the regulator because she is connected to the employer by virtue of her employment. I gather that a number of settled cases reinforce that view. Of course, she would have had no power to influence the events and it seems unfair that she should fall within the category of people whom the regulator may attack. I beg to move.

Lord Oakeshott of Seagrove Bay

We are walking on egg shells and we may be on a tightrope as well. These amendments are quite tricky. On balance, we do not support this amendment. I have written down "whistleblower" on my copy. To some extent I understand what the noble Lord, Lord Higgins, is saying. If one takes it to the extreme, it does not mean that a notice has to be served on a secretary. However, there may be more substantial people who may not have the legal power to stop an act of failure, but none the less have some influence, or should have known and should have told. In that case I err more on the protective side and I do not support Amendment No. 99.

Baroness Hollis of Heigham

Again I shall ask the noble Lord, Lord Higgins, to withdraw the amendment. Paragraphs (a)(i) and (a)(ii) have no effect other than to put the test in the negative. The clause as it stands makes it clear that the parties include those who knowingly assist. A person who does not assist cannot knowingly assist. So I believe we are all right on that.

On the point relating to a secretary, I ask the noble Lord to refer to page 24, subsection (6)(a). The regulator will determine, the degree of involvement of the person in the act or failure to act". Frankly, typing a letter is hardly a degree of involvement in the act or failure to act. Then there is reference to the relationship. Paragraph (c) states, any connection or involvement which the person has or has had with the scheme". I believe that the example of a secretary being involved is well covered in that scenario. We shall debate some of those provisions in a moment.

I want to return to paragraph (a)(iii), which is a far more serious limitation as it affects those who have a legal power to prevent the act or failure to act. I thought that the noble Lord, Lord Oakeshott, was absolutely right. What would the paragraph do to the standing or to the duty of those who have the power to stop the act or failure to act, as a statutory whistleblower under Clause 63, which provides for a new statutory obligation on the trustees and managers of pension schemes to report in writing any prescribed event in relation to the scheme to the regulator? These events must be reported as soon as reasonably practicable. The type of events that must be notified will be specified in regulations and will include, for example, corporate restructuring or a significant payment becoming due to an individual scheme member in certain circumstances.

A code of practice will be issued by the regulator to assist those with duties under this section. More importantly in relation to the amendment, the regulator must take into account whether the act or failure to act was a notifiable event with which the party had a duty to notify that it had complied. Further, there may be those with no legal power but with an actual power to stop the act or failure to act—for example, parent companies.

For all those reasons, I hope that the noble Lord, Lord Higgins, will feel able to withdraw the amendment. I am sure that subparagraph (iii) proposed in the amendment goes beyond the remit of what he originally intended.

6.15 p.m.

Lord Higgins

I am grateful for the Minister's reply. Clause 35(6)(a) on page 24 of the Bill places on the regulator the decision as to the degree of involvement of the person concerned. In relation to the secretary, we can agree that he would perhaps reach a decision, but he goes into a continuum and matters are then not at all clear. The person in question may be the personal assistant or some junior person rather than the secretary. I think that a slight problem arises here in giving the regulator such a power.

We shall no doubt come to Clause 63 in due course. But, again, the problem is that very often whistle-blowers tend to lose their jobs and it is extremely difficult to protect people. We enter a whole wilderness of problems. However, I shall contemplate what the noble Baroness said and, if need be, return to the matter at later stages. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 100 not moved.]

Lord Hunt of Wirral

moved Amendment No. 101: Page 24, line 30, at end insert", and () where the employer is in an insolvency procedure (as defined in section 388 of the Insolvency Act 1986 (c. 45) (meaning of "act as insolvency practitioner"), no act or failure to act during that procedure may give rise to a contribution notice on the employer or persons connected or associated with the employer without the leave of the Court.

The noble Lord said: The amendment would insert into Clause 35(5) the requirement to which I referred in similar terms earlier in our proceedings—namely, the requirement for the leave of the court. I suppose that I should again declare my interest. I am a solicitor, and my interest is in believing that the court is a good place in which to impose some kind of check or balance. But I declare an interest because I am a senior partner of Beachcroft Wansbroughs. We have 750 lawyers, most of whom are in and out of court during most of the week. Therefore, I suppose that I could have an interest in moving this amendment.

However, I do not move it for that reason; I move it to prevent the personal liability point to which I referred earlier. There could be personal liability on the insolvency practitioner or the turnaround practitioner and their associates. Therefore, the amendment would mean that no act or failure to act during the insolvency procedure could give rise to a contribution notice on the employer or persons connected or associated with the employer without the leave of the court.

Nevertheless, I want to retain a liability for persons who would be associated with the employer if an insolvency practitioner were not in office. I hope that the Committee will accept that I am seeking to make an important distinction in order to avoid the inadvertent discouragement of company rescues. That is very much the point that I raised previously. I hope that the Minister will understand the reason for it and respond positively. I beg to move.

Baroness Hollis of Heigham

Given what the noble Lord, Lord Hunt, said in introducing the amendment, I suspect that it goes much further in its practical application than he intended. As it stands, the amendment would frustrate the entire purpose of contribution notices. We are talking not about a freezing period but about an assessment period.

The PPF has an assessment period in order to consider whether the scheme goes into the PPF. The amendment would ensure that once an assessment period had started, a notice could not be issued without leave of the courts in respect of any acts or failures to act that had, as a main purpose, avoided pension liabilities, even if they had led to the assessment period. Not only would there be the cost of the court action but the question would arise as to why the court would be in a better position than the regulator, with all the information and duties under Clause 94, to consider all parties.

There is a real issue about speed and effectiveness. I have already explained that the courts can take many months. In the process, one could lose a large quantity of the assets of the scheme which one was seeking to safeguard so that, even if the scheme went into the PPF, it would bring with it as many assets as possible, thus reducing the liability on other people paying the levy. The noble Lord's amendment would affect schemes which were on the point of toppling over into the PPF. For that to stick, one would have to go through a court procedure that would take many months and that could then expose the scheme to people stripping out the assets while leaving the liabilities. I do not think that the noble Lord intends to go that far. I hope that he will feel able to withdraw the amendment.

Lord Hunt of Wirral

Before we conclude the debate, the legal advice that I have received is that the amendment would not go as far as the Minister has suggested. Obviously, she has raised the issue and I will consider it carefully.

Does the Minister not accept the point about the personal liability of the insolvency practitioner and the turnaround practitioner? We have to find a way through this. As she has nodded, there is no need for any further contribution on her part. A nod is always better than a speech because I can interpret it in my own way. I am very grateful to her for agreeing. In those circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 102: Page 24, line 47, after "person" insert— "() any relevant facts or circumstances that are specific to the employer or the scheme concerned, including industry codes of practice,

The noble Lord said: I am slightly worried about my noble friend's last remarks. It used to be said in the City, "Our word is our bond but we would rather have it in writing". What the status of a nod is in this context, I am far from clear. I would rather have an intervention. If it was a wink rather than a nod, that would be even more worrying.

Baroness Hollis of Heigham

I am very happy to make a speech.

Lord Higgins

We have to brighten the thing up somehow—it is pretty dull!

Amendment No. 102 is the result of discussions with the National Association of Pension Funds and others. They have suggested that we should insert these words at the end of page 24. They are of the view that there may be relevant circumstances specific to the particular employer or the scheme concerned, including the fact that he is operating within an industry set of codes of practice which will not have statutory effect but which may be relevant when the regulator takes a view on whether what he is doing is appropriate.

I am hoping that the noble Baroness will not ask me for a specific example because I have had some trouble thinking of one. None the less, perhaps we should take into account the position on codes of practice. I beg to move.

Baroness Hollis of Heigham

The noble Lord anticipated me on the second point. I have every sympathy with the purpose of the amendment, which is to ensure that the regulator takes into account the circumstances of all directly affected parties. For that reason, Clause 94 is in the Bill. That clause requires the regulator to take into account the interests of the generality of the members of the scheme who will be affected by its actions as well as the interests of other persons whom the regulator considers will be directly affected. In the case of a contribution notice, that will include the employer, scheme members, scheme trustees, other employees and any party the regulator is considering issuing a contribution notice to.

I am also sympathetic to the regulator considering the relevant codes of practice. We could not think of one but if the noble Lord has identified one, we should like to see it. That would be helpful. It is one of the areas that we are happy to look at. If the words need clarifying, strengthening or whatever, we can revisit the matter to see whether there are any relevant codes. We shall certainly consider that. On that basis I hope that the noble Lord will withdraw his amendment.

Lord Higgins

I shall certainly see whether I can find some specific examples that the National Association of Pension Funds may have in mind. I undertake to consider that matter to see whether we can return to it on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins

moved Amendment No. 103: Page 24, line 47, after "person" insert— () whether the imposition of liability under this section on the person will substantially affect the funding of the scheme, "() that the purpose of imposition of liability under this section is intended to be curative of the scheme funding, and not punitive of the individual,

The noble Lord said: I am not sure whether the noble Lord, Lord Borrie, will investigate me under the monopolies procedures as I also move Amendment No. 103. It is concerned with the rather difficult point of the extent to which the provisions of subsection (6) of Clause 35 are designed to get the relevant money back from the individual concerned or whether they are intended to constitute deterrent or punitive actions. If the latter case applies, it would be more appropriate to spell out the penalties to be imposed on such individuals. If that is not the case, the amendment has merit. I beg to move.

Baroness Hollis of Heigham

This provision is about scheme funding. It is not intended to be punitive and therefore we do not need to spell it out in the way that the noble Lord described. The provision concerns simply the recovery of the relevant money.

The amendment would introduce another level of unnecessary complication and another area in which the regulator could be challenged. How does one decide what constitutes a substantial effect on funding? If it would mean £100 more for each member, is that considered a substantial effect? That may constitute 10 per cent of some members' benefits or 2 per cent of other people's benefits. How is the regulator supposed to decide? How is the regulator intended to assess what is punitive?

The clause already requires the regulator to take into account the financial circumstances of a person. I do not think that the amendment would add anything. The Bill's provisions are certainly not punitive; that is not our intent. I do not think that we need to go beyond that. I hope that the noble Lord will feel able to withdraw his amendment.

Lord Higgins

It is helpful to have that reply on the record. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 103A:

Page 24, line 48, at end insert— "(6A) In performing his duties under subsections (3) and (6) the Regulator shall seek contributions from the groups of persons set out in subsection (6B) in the order in which they are set out, and shall not seek contributions from persons in a lower group if, in his opinion, persons in a higher group are together capable of furnishing (and likely to furnish) a sufficient total contribution. (6B) The groups referred to in subsection (6A) are—

1. companies owned by or owning the employer in a 100% shareholding relationship,
2. companies owned by or owning the employer in a 75% to 100% shareholding relationship,
3. companies owned by or owning the employer in a 50% to 75% shareholding relationship,
4. companies associated with the employer in a 33.3% to 50% shareholding relationship,
5. directors of the company at the time the act or failure occurred to the extent that they or their associates have benefited from the act or failure,
6. associates of the directors only to the extent that they have benefited from the act or failure."

The noble Lord said: I had better explain the amendment as, looking at it, I think that I have been rather confused in my drafting of it. I hope that the noble Baroness will not pay too much attention to that. However, there are a number of strands that I hope to draw out.

Referring to the part of Clause 35 printed at the top of page 24, it seems that to be bitten by this provision a person has to be a "party to an act". What will be the situation if a transaction results in a substantial sum of money going offshore to another subsidiary of the foreign company which is the holding company for the UK company, then wandering back and then, by deed of that foreign holding company, moving on to some other part of the group? That would seem to take it out of the orbit of those people who can be taxed to give the money back. But if there is another big UK subsidiary of this same overseas holding company, it seems not to come within the orbit of those people who can be got at unless we are looking at an arrangement in definitions in this clause which can reach overseas and declare that the liability will in some way flow through the overseas holding company because that company was a party to it.

I want to be sure that we are looking at all members of the group and that nothing in the clause, because of the way it is drawn, would restrict the action to the bit of the overseas company which is the particular subsidiary that has done the wrong thing and we cannot go back through the overseas link to get at the other assets in the UK. 6.30 p.m.

I am also concerned that the provision feels like something that seeks to go after the people who have actually done the deed—and that reflects what my noble friend sought in his last amendment—rather than a place where the money is within the group to rectify the damage which has been done. This is probably a question of balance between subsections (6)(a) and (6)(e), and how that is going to work out. Presumably a regulation or a form of guidance will be produced to provide for whether the first port of call is to be the man who actually signed the deed—he is to be pursued for his last penny before the regulator moves on for someone else—or whether, first, the most convenient corporate entity will be approached, thus only turning to the individual last.

I would appreciate a better understanding of how this is to work in practice. I beg to move.

Lord Oakeshott of Seagrove Bay

I am sorry to have to disappoint my old friend the noble Lord, Lord Lucas. To be honest, I did not think that his speech bore an awfully close relationship to what is written here. I am bound to say that I think these clauses are much too restrictive. Circumstances arise where, to be frank, you do have to hit directors where it hurts: in the pocket. It cannot all be set out in order. This amendment would fetter the regulator far too much.

Lord Higgins ;

Perhaps I may intervene for a moment because this raises possible concepts which I had not taken into account. The problem is that groups will move money around in order to avoid their liabilities in a particular part of the group. One then has to place the burden on individual elements of it. Perhaps it is something to which we should give a little more thought.

The noble Lord referred to offshore groups, but I think he meant overseas concerns. "Offshore" is a rather different concept. However, there is certainly a problem with overseas companies. The case of the Japanese bank was quoted earlier. It is not clear at all whether this Bill covers that problem as well as it should. But giving too much thought to it would mean imposing penalties on overseas companies which would then seek to invest somewhere else. It is a difficult area.

Baroness Hollis of Heigham

I accept that. I should like to write to the noble Lord, Lord Lucas, on the detailed example of an offshore or overseas group. We need to work through some of the permutations of the scenario he has described.

This amendment seeks to ensure that the regulator divides liability for the sum due between parties based on their ownership of the employer. There is already provision to take into account what I would call the degree of connection; that is, the relationship the person has with the employer.

However, I would suggest—this is the whole point of subsection (6)—that other factors may be important. Is the noble Lord suggesting that the degree of involvement or, if you like, of culpability in the act or failure is irrelevant? As the noble Lord, Lord Oakeshott, said, what if a director of the company is the main player in the act? Is it right that the company should bear the brunt of the cost, particularly if the director has the financial resources to do so himself?

What about the person's relationship with the scheme? More important, what about the financial circumstances of each person? It does not necessarily follow that a company with a higher stake in the employer is in a better financial situation than other employers with a lower stake.

However, if noble Lords are saying that this is what industry wants, although I would be very surprised indeed to learn that this is what it wants, then we will consider the matter further. As I have said, we are trying to build into this proposed legislation as much consensus and staying power as possible. I would ask noble Lords opposite whether they really want us to pursue this because I did not sense a very high degree of support for the amendment. None the less, I shall be perfectly happy to pursue it with industry if it does reflect the position of the Official Opposition.

In the light of those remarks, if for the moment the noble Lord, Lord Lucas, would withdraw his amendment, we will write to him on the detailed case. Perhaps Members opposite will come back to me if they are serious in their wish to pursue this. However, I am not sure that they are on to a winner.

Lord Lucas

I would never pretend to be part of a Front Bench team on this. I confess that I find it hard to remember what I was thinking of when I wrote out the amendment. I believe that I sought to extend an idea that fits rather better with a later amendment which is similarly drafted. However, at some stage we shall want to know the order in which people are going to be hit. But we shall come to it again later. At that point, I am confident about why I shall want to see something in the Bill.

For the moment, I am very grateful to the noble Baroness for saying that she will write on the overseas point, which may well be a deficiency in my understanding. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 104:

Page 25, line 1, leave out subsections (7) to (10) and insert— "() In the case of a contingent debt, the reference in subsection (4)(a)(ii) to preventing a debt becoming due is to be read as including a reference to preventing the occurrence of any of the events specified in section 75(4B)(a) or (b) of that Act upon which the debt is contingent. () For the purposes of subsection (4)(a)(ii), a person shall be treated as having acted in good faith if—

1. he considered at the time of the act or failure to act that it was justifiable in terms of members' interests, or
2. the circumstances were such that he could reasonably have formed that view,

but these are not the only instances where a person shall be treated as having acted in good faith.

The noble Lord said: The amendment seeks to expand on the meaning of "good faith". I am not sure that that is possible, but it raises a specific point which is important. An example of the kind of situation is where it is necessary for a company to keep the prospect of any buy-out debt to a minimum in order to maintain financial support for its operations and so stay afloat. If the bank withdraws its support the company will be at risk of insolvency, which is likely to do more harm to the scheme's funding position than other actions that might be taken.

What is suggested here is almost to define what is meant by "good faith"; that is, the individual or corporate body, considered at the time of the act or failure to act that it was justifiable in terms of members' interests, or the circumstances were such that he could reasonably have formed that view". The amendment is phrased in terms of good faith, but what it really seeks to say is that if the individual believes that it would be in the members' interests or had come to the conclusion that it was in their interests, that should be something that the regulator can accept as reasonable. I beg to move.

Lord Oakeshott of Seagrove Bay

Is it acceptable if, in speaking to this amendment, I speak also to Amendment No. 105A tabled in my name and that of my noble friend Lady Barker, which is a broadly alternative version of the same thing?

I am sympathetic to the amendment moved by the noble Lord, Lord Higgins, which was proposed by the National Association of Pension Funds. The association says that, the current reference to 'good faith' on its own is far too vague to enable companies and their directors to feel able to take decisions of this sort with confidence". We sought to go further in our amendment by setting out in greater detail the three main constituencies. Perhaps the noble Baroness can clarify what "members" means.

When people take these decisions, acting in good faith, it is important to set out that one is talking about both existing employees who are members of the scheme, deferred members who have moved on and, indeed, people with pensions in payment. I give an example, one with which I have been quite closely involved; namely, the appalling situation that the pensioners of the Mayflower Group and, in particular, the Dennis group pension scheme in Guildford find themselves in. There is a very serious deficit. People not yet drawing their pensions will only receive 40 per cent of what they are entitled to. When looking at the figures in detail one sees that the number of people who are still employees is relatively small. It is important to state that the different interests of the three categories of members of the scheme should be taken into account in the definition of good faith.

Baroness Hollis of Heigham

If I have followed the noble Lord, Lord Higgins, correctly, the first part of his amendment is a technical question about Section 75 debt and contingent debts. I should like to write to him on it because we were not absolutely clear when we read the amendment where the push was going. He has now helpfully explained it. I think I should like to follow the matter up.

I turn to the second part, which is what I call the "good-faith" issue. The amendment inserts a new subsection which seeks to ensure that a person will be considered to be acting in good faith if he considered the act or failure to act was justifiable in the members' interests, employee's interest, or that he could have reasonably formed that view. I should say that we envisage scheme members to include all categories of pensioner—existing, deferred and employees.

The test of good faith is well known in law. I am advised that there are over 700 references to "good faith" in UK legislation. I have a couple from the Human Rights Act—judicial rights and so on. There are many hundreds more examples in case law. I do not really want to try to define good faith here because it would encompass the belief that a person was acting in the best interests of members, whichever class of member they may be. Equally, it would encompass the belief that a person was acting in the best interests of employees. Of course, a person's belief—what they consider to be the state of affairs—will be relevant when the regulator or tribunal considers whether that person is acting in good faith.

So I think that there is no difference between us. However, I wonder whether it would help the noble Lord, Lord Higgins, or the noble Lord, Lord Oakeshott, and meet any worries if we insert the phrase "in good faith", which is currently at Clause 35(4)(a)(ii), into paragraph (a)(i). Perhaps the opposition would reflect on that. If it feels that that would be helpful, we might progress down that line. If it feels that that would still not address the issue, then obviously we must have a fuller debate on Report.

The issue of good faith is pivotal. All we fail to do is to define the phrase conventionally on the face of the Bill. But guidance will be given. There will be a clearance procedure and anyone concerned about the act and whether someone is acting in good faith can contact the regulator for clearance on it. In other words, I would be surprised if this turns out to be the problem that noble Lords suspect it is. If my suggestion is helpful we will pursue it; if it is not, then obviously parliamentary draftsmen will no doubt be delighted.

Lord Higgins

That is a very forthcoming reply. We will need to consider it further. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 105 to 105A not moved.]

Clause 35 agreed to.

6.45 p.m.

Clause 36 [The sum specified in a section 35 contribution notice]:

Lord Higgins

moved Amendment No. 106: Page 25, line 18, at beginning insert "Subsection to subsection (5),

The noble Lord said: In moving Amendment No. 106, I should like to speak to Amendments Nos. 107, 108, 109, 110 and 111.

The amendments are really to establish matters with regard to making them more certain. There is no reason for the regulator to have the degree of discretion afforded in the Bill for these types of circumstances. The background to this is the Occupational Pension Schemes (Winding Up and Deficiency on Winding Up etc.) (Amendment) Regulations 2004, which created the employers' full buy-out debt on winding up.

The Government announced on 11 June that the full buy-out calculation would apply only in cases where the employer had chosen to wind up, but unfortunately the 2004 regulations do not reflect that point and would cover every winding up, even if the trustees were to wind up against the employer's wishes, and the employer is keen to continue funding the scheme on an ongoing basis.

There are real problems, sometimes, between trustees and companies with regard to particular matters, especially with regard to winding up. I can recall from practical experience that this is sometimes the case, particularly if there have been mergers at an earlier stage in the company's history and where the terms of winding up may favour one group rather than another. There would seem to be a case for clarifying the situation as far as this is concerned.

I gather that there has been consultation on this and that there may be some confusion about exactly what the 2004 regulations do in practice, particularly with regard to full buy-out costs in cases where the employer has chosen to wind up. There are very real difficulties in full buy-out costs as against an operation being ongoing. We need to examine these issues further. More generally, we need to be clear on precisely what is meant by "an ongoing basis".

Finally—because if I understand the Government Whip's views correctly, we are about to conclude our proceedings today—I have a point about regulations in general. The noble Baroness has always been extremely helpful when dealing with previous legislation in providing draft regulations. Perhaps she could bring us up to date as far as the provision of those on this Bill is concerned. Are we likely to receive them before the end of the Committee stage, or not until later? I believe that she has expressed a view, but it would be helpful to have it on the record again. I beg to move.

Baroness Barker

We have some sympathy with what the noble Lord, Lord Higgins, is trying to do in this group of amendments. It seems helpful to all concerned that there should be some guidance on the calculation of the sums in a contribution notice. I have one or two small questions. Who will determine where the onus of proof should lie? Would an individual have to prove that they had not intended to fail—that they had failed unintentionally? That is crucial. Is the failure to the detriment of the pensioner or the PPF? That is another relevant factor.

Having raised those questions, I think that the noble Lord's attempt to shed some light on the matter is extremely helpful.

Baroness Hollis of Heigham

With regard to the points raised by the noble Lord, Lord Higgins, I promise that regulations will be introduced as soon as we are in a position to bring them before your Lordships. However, not only are they, in some cases, extremely technical; we have also given an undertaking to consult, even at the draft stage, all the players outside, and inevitably that elongates the procedure. I wish that I could give the commitments that the noble Lord seeks.

Normally in relation to social security, but possibly with the exception of disability issues, almost no one is an outside player. Age Concern or disability organisations may be players, but mostly there are poor individuals out there who may or may not be receiving benefit and no consultation process is involved. There would be such a process in the Department of Health or the Department for Education and Skills, for example, in which there are doctors, teachers and so on. Unusually, in the Department for Work and Pensions, there is a vast number of players, many of whose views we have heard about today—professional associations and organisations and some of the contributors whose points were raised in the debate on Clause 35.

Secondly—this takes us back to a previous point that I made—we are seeking to use the general powers of regulations in order to ensure that we do not have to return to this issue shortly because everything is drawn too tightly. I think that we need a more extensive consultation procedure than we normally have. I appreciate that I sound defensive but I am trying to be helpful to your Lordships on this matter. We are having to go through extensive consultation and, if your Lordships agree, that consultation will continue after the Bill has gone through both Houses.

I genuinely do not believe that I can foreshorten the process. For example, today I have already made commitments on behalf of the Government to consider ongoing discussions with relevant organisations on the problem of acquisition and mergers and the implications for pension liabilities. If, as a result, we need the regulations to be clarified or adapted, that can take place afterwards. That will not happen until the autumn. Therefore, we are dealing with a different timescale from that which usually applies to Bills. I shall do my best to be helpful, but I am not very optimistic.

I turn to the amendment and I hope that I shall be able to cover the points raised by the noble Baroness as well. The sum in the contribution notice as a maximum can be the Section 75 debt which is or would be due and would remove the regulator's discretion in calculating such a sum. I shall deal, first, with the removal of the discretion in Section 36(2)(a)—that is, the discretion to estimate the debt due. That discretion is there because it is possible that the act or failure to act has artificially increased the assets of the scheme or decreased the liabilities. Therefore, the Section 75 debt due would, in real terms, be incorrect, and the provision is necessary to allow for that.

Turning to subsection (3), the discretion here allows the regulator to reduce the amount due in the contribution notice. The discretion is provided for by the very line that the noble Lord seeks to remove—that is, by such amount as the Regulator considers appropriate". That would allow him to reduce the amount and therefore, presumably, it would be welcomed by industry.

The regulator will have to consider a number of factors when deciding the appropriate sum, including, as I said, the financial circumstances of the person concerned. He will have to take into account whether the scheme is in wind-up or in an assessment period. But it is irrelevant who decided to wind up the scheme. For it to be otherwise would be to penalise members.

If the scheme is in wind-up, it is likely that the full Section 75 buy-out debt will be required, provided that it is reasonable to ask the person named to pay the sum. That would ensure that members obtained their benefits and that the PPF did not have to assume responsibility for the scheme unnecessarily. I am sure that your Lordships will agree that that is the case and that it is highly desirable.

I could continue but I realise that we are pressed for time. However, turning to one or two specific points, the regulations cover every wind-up—a point raised by the noble Lord, Lord Higgins—otherwise, members would be worse off if the trustees or regulator wound up the scheme. The Government are clear that they want the pension promise to be met.

On the point raised by the noble Baroness, Lady Barker, the onus of proof is on the regulator. I hope that that gives her the assurance that she seeks. I am mindful of the time and I realise that we want to reach the end of Clause 36, if we can, before the guillotine comes down.

Lord Skelmersdale

There is no such thing as a guillotine in the House of Lords.

Baroness Hollis of Heigham

I believe there is a convention established that we are due to finish at seven o'clock. I am in the Committee's hands regarding whether we call that a guillotine; I thought that it was the appropriate term. In the light of what I have said, I hope that the noble Lord will feel able to withdraw the amendment.

Lord Higgins

I was slightly puzzled regarding why we began our proceedings at 3.15 p.m. I had assumed that the debate would continue for the usual four hours. I understand that we are all anxious to complete matters. I certainly do not wish to prolong the proceedings.

It would be helpful to discuss the following amendment and we can perhaps dispose of the next three clause stand part debates without any further discussion. That would constitute reasonable progress.

I accept what the noble Baroness says. I appreciate the point that she made about regulation. She has always been extremely helpful and I am sure that that will continue to be the case. However, the issues raised on this amendment are fundamental and we shall wish to return to them. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn. [Amendments Nos. 107 to 111 not moved.]

Lord Higgins

moved Amendment No. 112: Page 26, line 3, leave out subsection (5) and insert— "(5) If the person to whom the contribution notice is issued is an individual, the sum specified in it shall not exceed the actual amount of any personal gain that he has acquired to the detriment of the scheme as a direct and intended consequence of the act or failure to act giving rise to the contribution notice.

The noble Lord said: This is the last amendment that we need to deal with today other than the stand part debates, the substance of which I imagine has already largely been covered.

Amendment No. 112 concerns an extremely important matter. There is concern outside the House about individual employers and directors being exposed to the possibility of liabilities of the kind suggested by the Government. The threat of such liability will make it extremely difficult for those involved to operate effectively or even perhaps in their members' or the PPF's interests. In any event the individual concerned would probably rarely have sufficient resources to have a material impact on the scheme's funding position. The amendment seeks to limit this kind of liability to cases where there is clear culpability on the part of the individual concerned involving personal gain.

In moving this amendment I am rather unsure where we ought to stand on this point. It is a difficult matter because there may be a vast difference between the assets of the individuals concerned, particularly if they are worker trustees, for example, and the assets held by the company. On the other hand, given what has been happening regarding some corporate salaries lately, certain individuals may be better able to finance the measure than the company concerned. I refer in particular to rescue situations where new directors are appointed on extremely favourable terms. They may fail to turn the business around but they get the money just the same.

This is a difficult balance to strike vis-à-vis the extent of the personal wealth of individuals and so on. In all events we need to be a little clearer than we are about the extent to which individuals should be held personally liable, particularly as they may be jointly and severally liable in some cases. I hope that the noble Baroness will indicate her thinking on that point. I beg to move.

Lord Oakeshott of Seagrove Bay

I say very gently to the noble Lord, Lord Higgins, that I believe he has the balance tipped too far in favour of protecting private individuals, as I think he implied. It is very difficult to know how much gain someone has made and over what period. I believe that the measure is tipped too far in favour of protecting individuals and too far away from protecting pension funds. Therefore, we do not support the amendment.

Baroness Hollis of Heigham

The amendment would do two things. First, it would remove the reference to a contingent debt. We think it is vital that the regulator should be able to recover a contingent debt; that is, the sum that would become due should the scheme wind up. Otherwise, the only way to get a contribution from those who have avoided a pension liability would be to wind up the scheme. We are surely agreed that an ongoing scheme is in the interests of members. Indeed, I believe that earlier the noble Lord sought to ensure that the debt due should be reduced if a scheme was ongoing.

The second part of the amendment seeks to limit the amount that can be requested from an individual to the amount the individual has gained as a direct and intended consequence of the act or failure. I am sympathetic to the purpose of the amendment and I see where the noble Lord is coming from. However, I consider that the issue of getting the balance right—this is terribly difficult territory—is adequately covered in the factors the regulator must take into account, in particular the degree of involvement in the act, the degree of culpability and the financial circumstances of the person concerned.

If the noble Lord, Lord Higgins, thinks that the relevant subsection does not sufficiently cover or address his concerns, I am perfectly happy to look at it again. I am open to persuasion on this, and we can consider it further during the summer. But at the moment, he has not persuaded me that we should move. If he can, I am happy to do so.

Lord Lucas

I hope this is something we can look at in a spirit of co-operation over the summer. It will clearly be a difficult position, particularly for non-executive directors, to know whether an Act has this intent or not. The way in which this interfaces with the clearance procedure will be critical. If the clearance procedure is easy and complete and offers a cast-iron solution at the end of it, unlike the sort of clearance one gets from the Inland Revenue, we will find that most of the problems are solved. Any non-executive worth his salt will make sure that the clearance is obtained on anything that has anything to do with the pension fund.

To go back to one of my noble friend's earlier amendments, a company I know found itself with a pension fund deficit and decided that it would deal with that partly by offering no increase at all on accrued rights pre-1997. They changed the practice of the scheme in a way which reduced the expectations, if not the actual rights, of the scheme members, and reduced the deficit by about £15 million or £20 million. That seems, to my mind, to fall within the sort of acts that come under the Bill. In such circumstances, directors will need to know pretty clearly where they stand. If we have a good clearance method, fine—otherwise, we will need some way of protecting people who are non-executive directors and act in good faith, or the marketing director, for example, who does not understand these sorts of matters but is told what to do by the finance director, the chairman and the chief executive. We have to recognise that assets and liabilities do not necessarily go, and someone may just have some money without having played a crucial part in taking the decision. To leave that to the justice of the regulator, without giving the individual the chance to make their position clear, will be difficult.

Lord Higgins

I had some hesitation on the implications of the amendment which are obviously shared by the noble Lord, Lord Oakeshott. This will be one of the most difficult areas we have to face. It is certainly true for trustees as well as company directors. Very often the trustees of a company are responsible for vastly more money than the directors. We will need to return later to whether trustees should be paid far more than many are at present. Some, indeed, are not paid at all.

This is a balance that has to be struck, but we can give further thought to it. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 36 agreed to.

Clause 37 [Content and effect of a section 35 contribution notice]:

Baroness Hollis of Heigham

moved Amendment No. 113: Page 27, line 2, after "for" insert "the debt in respect of

On Question, amendment agreed to.

Clause 37, as amended, agreed to.

Clause 38 [Section 35 contribution notice: relationship with employer debt]:

Baroness Hollis of Heigham

moved Amendments Nos. 114 and 115: Page 27, line 8, after "person" insert "("P") Page 27, line 34, at end insert—

1. " Where a sum is paid to the trustees or managers of the scheme or, as the case may be, to the Board in respect of the debt due under section 75 of the 1995 Act, P may make an application under this subsection to the Regulator for a reduction in the amount of the sum specified in P's contribution notice.
2. An application under subsection (6A) must be made as soon as reasonably practicable after the sum is paid to the trustees or managers or, as the case may be, to the Board in respect of the debt due under section 75 of the 1995 Act.
3. Where such an application is made to the Regulator, the Regulator may, if it is of the opinion that it is appropriate to do so—

1. reduce the amount of the sum specified in P's contribution notice by an amount which it considers reasonable, and
2. issue a revised contribution notice specifying the revised sum.
3. For the purposes of subsection (6C), the Regulator must have regard to such matters as the Regulator considers relevant including, where relevant, the following matters—

1. the amount paid in respect of the debt due under section 75 of the 1995 Act since the contribution notice was issued,
2. any amounts paid in respect of the debt due by virtue of that contribution notice,
GC 235
3. whether contribution notices have been issued to other persons as a result of the same act or failure to act falling within subsection (4) of section 35 as the act or failure as a result of which P's contribution notice was issued,
4. where such contribution notices have been issued, the sums specified in each of those notices and any amounts paid in respect of the debt due by virtue of those notices,
5. whether P's contribution notice specifies that P is jointly and severally liable for the debt with other persons, and
6. such other matters as may be prescribed.

Where—

1. P's contribution notice specifies that P is jointly and severally liable for the debt with other persons, and
GC 236
2. a revised contribution notice is issued to P under subsection (6C) specifying a revised sum,

the Regulator must also issue revised contribution notices to those other persons specifying the revised sum and their joint and several liability with P for the debt in respect of that sum.

On Question, amendments agreed to.

Clause 38, as amended, agreed to.

The Deputy Speaker (Lord Lyell)

The Committee stands adjourned until Tuesday at 3.30 p.m.

The Committee adjourned at five minutes past seven o'clock.