BINDING NOTICES CONFIRMING STATUS OF SCHEME

HL Deb 19 July 2004 vol 664 cc41-62GC

(1) Subject to subsection (2), for the purposes of this Part, a notice issued under section 116 is not binding until—

1. (a) the Board issues a determination notice under section (Approval of notices issued under section 116) approving the notice,
2. (b) the period within which the issue of the determination notice under that section may be reviewed by virtue of Chapter 6 has expired, and
GC 42
3. (c) if the issue of the determination notice is so reviewed—
1. (i) the review and any reconsideration,
2. (ii) any reference to the PPF Ombudsman in respect of the issue of the notice, and
3. (iii) any appeal against his determination or directions,

has been finally disposed of and the determination notice has not been revoked, varied or substituted.

(2) Where a notice is issued under section 116 by the Board by virtue of section 117, the notice is not binding until—

1. (a) the period within which the issue of the notice may be reviewed by virtue of Chapter 6 has expired, and
2. (b) if the issue of the notice is so reviewed—
1. (i) the review and any reconsideration.
2. (ii) any reference to the PPF Ombudsman in respect of the issue of the notice, and
3. (iii) any appeal against his determination or directions,

has been finally disposed of and the notice has not been revoked, varied or substituted.

(3) Where a notice issued under section 116 becomes binding, the Board must as soon as reasonably practicable give a notice to that effect together with a copy of the binding notice to—

1. (a) the Regulator,
2. (b) the trustees or managers of the scheme,
3. (c) the insolvency practitioner or former insolvency practitioner who issued the notice under section 116 or, where that notice was issued by the Board by virtue of section 117, the insolvency practitioner or former insolvency practitioner mentioned in subsection (1) of that section,
4. (d) any insolvency practitioner in relation to the employer (who does not fall within paragraph (c)), and
5. (e) if there is no insolvency practitioner in relation to the employer, the employer.

(4) A notice under subsection (3)—

1. (a) must be in the prescribed form and contain such information as may be prescribed, and
2. (b) where it is given in relation to a withdrawal notice issued under section 116(2)(b) which has become binding, must state the time from which the Board ceases to be involved with the scheme (see section 140)."

On Question, amendment agreed to.

Clause 118 [Eligible schemes]:

On Question, Whether Clause 118 shall stand part of the Bill?

Lord Higgins

This matter is quite separate from all those that we have just discussed. The clause provides that an eligible scheme is an occupational scheme, which is not a money-purchase scheme, not a prescribed scheme, and so on. An eligible scheme will be acknowledged by the PPF as one for which it ought to take over responsibility. I presume that I am right in thinking that that is not the same as a Part 6 scheme—what I call a £400 million handout scheme—and that it is not part of the panic measure that the Government introduced at the last minute in the Commons.

The purpose of the provision that a scheme is not eligible if it is being wound up immediately is to draw a line between the two types of scheme. Am I correct in saying that a scheme is not eligible if it is wound up immediately before the appointment by the Secretary of State for the implementation of the Bill? Can the Minister confirm that the clause defines what types of scheme are eligible and draws a line between the compensation scheme in Part 6 and these schemes?

Baroness Hollis of Heigham

Yes. In addition, other schemes are also not eligible: money purchases schemes, the MP element of hybrid schemes and public sector schemes supported by a Crown guarantee. Apart from that, the noble Lord is exactly right in his understanding.

Clause 118 agreed to.

Clause 119 [Duty to assume responsibility for schemes following insolvency event]:

Baroness Hollis of Heigham moved Amendments Nos. 192H to 192J:

Page 82, line 10, leave out from "time" to "and" in line 12 and insert "a scheme failure notice is issued under section 116(2)(a) in relation to the scheme and that notice becomes binding,"

Page 82, line 13, leave out paragraph (c) and insert—

"(c) a withdrawal event has not occurred in relation to the scheme in respect of a withdrawal notice which has been issued during the period—

1. (i) beginning with the occurrence of the qualifying insolvency event, and
2. (ii) ending immediately before the issuing of the scheme failure notice under section 116(2)(a),

and the occurrence of such a withdrawal event in respect of a withdrawal notice issued during that period is not a possibility (see section 140)."

On Question, amendments agreed to.

Baroness Hollis of Heigham moved Amendment No. 192K:

Page 82, line 30, after "scheme" insert "rules"

The noble Baroness said: This set of amendments makes a technical change to the definition of "scheme rules" that is used in this and other Bills. The Bill currently provides a definition of scheme rules at Clause 142(7) and repeats this definition in Schedule 7, paragraph 32(2). The definition is intended to ensure that where references are made to scheme rules that means, logically enough, the scheme's rules—this is the discussion we had earlier about the difference between the rules of a scheme and scheme rules. It also includes any overriding statutory provisions which the scheme rules do not contain but ought to contain in order to comply with statutory requirements, for example, the requirement for equal treatment for people on maternity, paternity and adoption leave, and so on.

We are clarifying the language throughout so that the rules of the scheme refer to the particular scheme and the scheme rules are those rules as modified by other statutory provisions, such as equal rights to paternity and maternity pay. I could go on. Again, I am very happy, if Members of the Committee wish, to circulate a detailed description of what each amendment does, but basically that is what they do through the Bill. I am in the Committee's hands again.

Lord Hunt of Wirral

It would be helpful to have set out for us why these amendments appear at this stage. Is it as a result of consultation or representations? I wonder about the motivation. The last technical group was the need to ensure compliance with the Human Rights Act. Why have these amendments come forward at this stage? It would be helpful to understand the background.

Lord Higgins

As I understand it, what is proposed is to deal with the eligible scheme's members according to the scheme's rules: that is, the rules of the scheme that is being taken over. The Government seek to amend that, describing it as a technical change to the definition that is used in this and other Bills. I am puzzled about why the Government need to define the scheme's rules at all. Perhaps I have misunderstood the difference between the scheme rules, which I take to be the rules of the—

Baroness Hollis of Heigham

It is precisely because one phrase, "scheme rules", could be used to embrace both the existing legacy of individual scheme rules and the rules that will apply when going into the PPF. The individual scheme rules are overridden by statutory requirements. For example, PPF compensation is based on entitlement under scheme rules. If scheme rules do not include the statutory requirements for, say, limited price indexation, then PPF compensation would not reflect the minimum LPI entitlement set out in legislation. That would clearly be contrary to our policy intent.

What we are saying here is that the rules of the scheme are the legacy of the individual schemes, which may all have different rules. The "scheme rules" are the compound of those, modified by statutory provisions which apply across the board. The noble Lord will recall our discussion much earlier on about the "rules of law". I said that this would not refer to habeas corpus. This concerns matters such as equal pay directives, the right to transfer to schemes, to maternity provisions and so forth. Some of the smaller schemes might not have embraced all these issues, but now they need to do so. We are making the distinction all the time between the rules of the scheme—the individual scheme—and the scheme rules, which are those modified by statutory changes.

Turning to the question put by the noble Lord, Lord Hunt, I think that it was because we were advised that confusion could result if we did not make the distinction. As a result, people will know that there is a difference between the rules of the individual scheme—in some cases almost a legacy structure—and the scheme rules, which are those rules as modified by overriding requirements.

Lord Higgins

I am still not sure that I understand it. Clearly we need to change the terminology because I do not think that it could be much worse. Perhaps those are famous last words.

We have the rules of the existing scheme which is being taken over. Perhaps, as the noble Baroness has done, we should call those the "legacy scheme rules". But what are the other scheme rules? Are they the rules of the scheme as amended by the fact that, for example, it will be 90 per cent rather than 100 per cent and so forth? I understand the legacy scheme rules—they are the rules of the scheme being taken over, but I am not clear about the other scheme rules.

Baroness Hollis of Heigham

Let me try again. When a scheme comes into the PPF it will be expected to observe the requirements of the legislation. For various reasons, some legacy schemes do not do so. When such a scheme comes into the PPF, we will seek as far as possible and with a broad brush to protect the structure of benefits which the scheme members and the employer have contracted together and bought. I cite, for example, spousal payments, which would continue under the PPF. If the rules of the original scheme allow for payments to be made to surviving opposite sex partners then, given the European directive, they would also apply to same sex partners and that right will continue to be exercised and protected in the PPF. Within the PPF, some members will have no rights for partners while others will because of the legacy rules.

The legacy rules may say, for example, that payments can be made to a spouse, but would not say that they can be made to a civil partner. However, when that scheme comes into the PPF, because subsequent legislation has been passed since the date of the rules of the scheme, those payments would apply to civil partners as well. That is my understanding of what is intended here: to try to keep clear the distinction between the legacy rules of the scheme and the fact that when such a scheme comes into the PPF, while some benefits will remain distinct to the scheme, they will nonetheless conform to legislation which now applies to all schemes. That is the purpose and why we are making the distinction between the rules of an individual scheme and the scheme rules, which are those rules of the scheme as modified by subsequent legislation.

Lord Oakeshott of Seagrove Bay

Am I being too simple by asking whether it would do the trick just to refer to the "old scheme rules" before the scheme comes into the PPF and the "new scheme rules" after it has done so? We could then simply amend the wording accordingly.

Lord Lea of Crondall

I do not think that that would achieve it. However, some people may misunderstand the point because we are using the same terms to refer both to the old scheme rules and to what I would call the consolidated scheme rules within the PPF as a result of the add-ons resulting from legislation. Perhaps at some point another word or phrase may be needed.

Baroness Hollis of Heigham

All that I would say is that I would hate to have to bring back all these sets of amendments with a further change of words to the definition.

Lord Higgins

We must get it right.

6.30 p.m.

Baroness Hollis of Heigham

Yes, but I think that we have got it right. I have no reason to think that making a distinction between rules of the scheme and scheme rules is more or less helpful than old scheme rules and new scheme rules. My noble friend is exactly right. I will reflect on the matter, but the distinction needs to be drawn, for the reasons that I have explained. I would not wish to die in a ditch over whether that is the most helpful labelling. But so far, none of the bodies with which we have consulted have suggested that that is an inappropriate description.

On Question, amendment agreed to.

Clause 119, as amended, agreed to.

Clause 120 [Duty to assume responsibility for schemes following application or notification]:

Baroness Hollis of Heigham moved Amendment No. 192L:

Page 83, line 4, leave out from "a" to "and" in line 6 and insert "scheme failure notice under section 122(2) in relation 10 the scheme and that notice becomes binding,"

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 192M to 192P:

Page 83, line 7, leave out paragraph (c) and insert—

"(c) a withdrawal event has not occurred in relation to the scheme in respect of a withdrawal notice which has been issued during the period—

1. (i) beginning with the making of the section 121 application or, as the case may be, the receipt of the section 121 notification, and
2. (ii) ending immediately before the issuing of the scheme failure notice under section 122(2),

and the occurrence of such a withdrawal event in respect of a withdrawal notice issued during that period is not a possibility (see section 140)."

Page 83, line 13, after "scheme" insert "rules"

Page 83, line 19, leave out "respect of" and insert "relation to".

On Question, amendments agreed to.

Clause 120, as amended, agreed to.

Clause 121 [Applications and notifications for the purposes of section 120]:

Baroness Noakes moved Amendment No. 193:

Page 83, line 43, leave out subsection (5).

The noble Baroness said: I shall also speak to the other amendments in the group. The amendments are about who should be told about certain things. Amendment No. 193 would delete subsection (5), on a probing basis. The question posed by the amendment is why we have this paper chase. A subsection (5) notice will come into play only if the regulator becomes aware of the employer being unlikely to continue as a going concern. The pension protection fund then has to tell the trustees, managers and employers. That raises the question of how we are expecting the PPF to work. Will it sit in a sort of ivory tower, isolated from employers and trustees, so that its decisions come as something of a surprise; or will there be some real engagement—in which case, what is the necessity for the paper chase? Could a notice be issued where an employer had no prior knowledge? That seems to me to be quite unusual.

Amendment No. 204, which is to Clause 137, relating to binding valuations, adds the regulator to the list of those who should be informed under subsection (3). As I understand it—I may be wrong—the regulator does not cease to be interested in a scheme simply because it falls within the ambit of the pension protection fund. Surely something as significant as the binding valuation ought to be notified to the regulator.

Amendment No. 207 would require the pension protection fund to tell the employer if the fund has assumed responsibility, following reconsideration under Clause 143. We tabled that amendment as a way to tease out when the employer should be informed and when the employer will be ignored. It is currently ignored in Clause 143, but employers are mentioned in Clause 121 and, for example, in Clause 140, covering when the scheme ceases to fall within the pension protection fund. I am sure that there are further references. So the amendment is trying to tease out whether there is a coherent pattern of information given to the employer. That is probably enough for today, and I shall leave Amendment No. 214 for another day. I beg to move.

Baroness Hollis of Heigham

Does the noble Baroness want me to deal with Amendment No. 214, or would she prefer to de-group it? I am in her hands.

Baroness Noakes

I do not propose to speak to it today, but I shall consider what the noble Baroness says about the other amendments and decide whether to return to it or to leave it to another day.

Baroness Hollis of Heigham

Then I shall try to respond to her points about Amendments Nos. 193, 204 and 207. Amendment No. 193 relates to Clause 121, which provides for the trustees or managers of the scheme whose sponsoring employer is unlikely to continue as a going concern but is not subject to insolvency events, as defined in Clause 115, so that no event can trigger an assessment period in the usual way, to apply to the board of the PPF for it to assume responsibility for the scheme. Examples include some public sector schemes without a Crown guarantee or schemes with a foreign sponsoring employer.

The clause also provides that where the regulator is aware that the sponsoring employer of such a scheme is unlikely to continue as a going concern, it is given notice to the board to that effect. Once such a notice has been received by the board, subsection (5) imposes an obligation on the board to notify the trustees or managers of the scheme and the sponsoring employer of the notice. Given that the assessment period begins when the board receives such a notice from the regulator, it is vital that the trustees and managers of the scheme and the sponsoring employer are notified immediately.

If the trustees and managers are unaware that the assessment period has begun—although I agree with the noble Baroness that it might be an unusual occurrence—we could hardly expect them to comply with all the controls that have been designed to protect the scheme and members' interests during the assessment period. So that is possibly a belt-and-braces approach, but nevertheless, it seems important if we are to have a reliable paper audit. That includes their obligation to reduce members' benefits payable to the PPF level of compensation.

The amendment would therefore remove the vital requirement on the board to keep trustees and managers of the scheme and the sponsoring employer informed of the important events that can initiate the assessment period.

Amendment No. 204 relates to Clause 137, which sets out certain provisions relating to the valuation of a scheme's assets and protected liabilities. In particular, Clause 137 states when the valuation obtained under Clause 135 becomes binding. Amendment No. 204 would require the board to issue a copy of the binding valuation obtained in conjunction with Clauses 135 and 136 to the regulator.

The purpose of the valuation obtained under Clause 135 is to enable the board to determine whether a scheme requires PPF assistance. Once the valuation has been undertaken and the board is satisfied with it, it must approve it. At that point, a copy of the approved valuation is issued to the trustees or manager of the scheme, the insolvency practitioner and the regulator, as set out in Clause 136. Following that, it becomes binding.

The amendment would require the board to issue a copy of the binding valuation to the regulator. I accept the amendment in principle, but it is not required because government Amendment No. 203E has been tabled, which has exactly the same effect. The noble Baroness is exactly right; but we are running in parallel.

Amendment No. 207 would impose a duty on the board to send a copy of the determination notice provided for in Clause 143(2) to the employer. I could go on, but, at that stage, there is no sponsoring employer to send it to. If the noble Baroness would like me to expand on that point, I am happy to do so.

Baroness Noakes

Yes.

Baroness Hollis of Heigham

Right, then I will do so.

When a scheme has been ordered to wind up outside the PPF, the trustees or managers may apply to the board to reconsider assuming responsibility for the scheme. The board will then be required to determine whether it intends to assume responsibility for the scheme and issue a notice to that effect. In those circumstances, the scheme in question has already been ordered to wind up outside the PPF because there was no longer a sponsoring employer and no scheme rescue was possible.

The amendment would require the board to send a copy of the determination notice to the employer. However, as there is no longer a sponsoring employer in respect of such schemes, the board should not be bound by such a requirement. I shall not speak to Amendment No. 214. I am sorry that that is such a long answer, but the noble Baroness wanted me to spell it out.

Baroness Noakes

I am very grateful to the noble Baroness for that. I think that everything that she said made absolute sense and was satisfactory, but I shall of course want to read it carefully in Hansard in the cold light of day. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

On Question, Whether Clause 121 shall stand part of the Bill?

Lord Higgins

We enter a series of clauses in which, as I understand it, the application for an eligible scheme to be taken over can be done in different ways. Under Clause 121, if the trustees or the manager become aware that the employer is unlikely to continue as a going concern and the prescribed requirements, of which we are unaware, are met, they should apply to the board to take over.

Baroness Hollis of Heigham

Perhaps I can help the noble Lord. This may be another case where the Explanatory Notes could have been more helpful; I do not know—I have not looked at the note to this clause. We do not expect that duty to be relevant to most schemes, as it is imposed only on the trustees of those schemes that are not subject to insolvency events as defined in Clause 115. I mentioned that in passing just now, but examples would include public sector schemes without a Crown guarantee—such as the Arts Council scheme, as opposed to that for local authorities—and schemes with a foreign sponsoring employer. That is why we need the procedure.

Lord Higgins

So an application can be made or a scheme can become eligible if there is an insolvency event. As I understand it, under Clause 121, the scheme can become an eligible scheme if the trustees or the managers apply for it to be effectively taken over.

Baroness Hollis of Heigham

It is where employers will not be subject to insolvency events, such as in the case of the Arts Council.

Lord Higgins

I am unfamiliar with the Arts Council scheme. But when the noble Baroness talks about an overseas employer, I am especially concerned. As we know from earlier exchanges, we are worried about circumstances such as when a Japanese bank reneged on its commitments to its employees in the UK.

Let me try again. As I understand it, there are various routes under different clauses whereby a scheme may become eligible. One is an insolvency circumstance. Clearly, there are several other ways to become eligible. Perhaps it would be helpful if the noble Baroness would tell us what are the alternative routes, other than insolvency.

6.45 p.m.

Baroness Hollis of Heigham

As the noble Lord will know, a scheme will come into the PPF if it meets two conditions. One is that the employer is insolvent; the second is that the pension scheme does not have sufficient assets to wind it up in such a way that it can meet its obligations. Both of those conditions must be fulfilled. We dealt with some of the concerns associated with this about moral hazard when we discussed Clauses 39 to 45, and what counts as a scheme rescue and what counts as manipulation in order to dump liabilities.

This provision concerns the fact that there are some schemes where there is no employer who can fall within the triggering insolvency event to start the assessment period. Therefore, the clause is not to do with the eligibility of a scheme to enter the PPF but with what will trigger the start of the assessment period. The clause states that there is a duty on the trustees of such schemes to apply to the PPF for the board to assume responsibility for the scheme.

Baroness Noakes

Clause 121 is drawn in broad terms. It does not appear to be confined to those companies for which an insolvency event could not be triggered. It seems to be drafted to cover the whole universe of pension schemes because it contains no limiting words. So it appears that one can enter the process either through an insolvency event or through someone thinking that the company is no longer a going concern. Some of my later amendments are predicated on that being the case.

Baroness Hollis of Heigham

In that case, I can only apologise to the noble Baroness, because that is not what is intended. The prescribed requirements under the Bill will be where employers are not subject to insolvency events. If they are, as set out in Clause 115, the only way that an assessment period can start is through an insolvency practitioner's notice as described in Clause 114.

This clause provides for where there is no employer subject to an insolvency event but where the scheme none the less should arrive in the PPF. It is a question of what triggers that assessment period to decide whether it should indeed arrive in the PPF. The trustees or managers may trigger that, but it is not a new route for the vast majority of schemes, which are subject to an insolvency event. It just provides for a shopping list of some slightly odd companies or bodies for which there is no employer in a conventional sense to be subject to an insolvency event and where, therefore, the trustees and managers, where that scheme may need to come within the PPF, can apply to enter the assessment period to see whether it should.

Baroness Barker

I have been listening carefully to what the Minister said. It is fascinating if obscure stuff. I understand the point about the Arts Council and various such bodies. She also mentioned foreign employers. Can she give us an example to satisfy my curiosity?

The Deputy Chairman of Committees (Baroness Fookes)

The Sitting is suspended for 10 minutes.

Baroness Hollis of Heigham

That is precisely the sort of point where an amendment—

The Deputy Chairman of Committees

The Sitting has already been suspended.

[The Sitting was suspended for a Division in the House from 6.47 p.m. until 6.57 p.m.]

Lord Higgins

Perhaps we could try to clarify the situation that we were discussing before we adjourned. I do not fully understand the procedure and nor does my noble friend Lady Noakes, which is really worrying. In fact, I am almost inclined to ask whether anyone understands Clause 121.

There would seem to be various routes by which a scheme can become an "eligible" scheme. One is through the insolvency route and we discussed that in considerable detail. It would appear from Clause 121 that it can also come by a different route; namely, the trustees or managers of a scheme which is to become eligible become aware that the employer is not going to continue and that prescribed requirements are met in relation to the employer.

I understand from the Minister that those prescribed requirements, of which we on this side of the Committee are totally unaware, are that it cannot have followed the other route. It cannot have become an eligible scheme because it became insolvent. If so, one would have thought that that ought to be clear at the beginning of Clause 121. It ought to say that where there is a concern that the employer is not going to continue as a going concern and that the scheme has not become eligible because it has become insolvent.

The noble Baroness gave various examples—we were unaware of the details—of various government institutions and so forth and, more importantly, overseas employers. Am I right in thinking that this route will be for schemes which do not become insolvent and that schemes will become eligible only by the insolvency route or by the fact that they cannot become insolvent? Is it right that in later clauses there are no ways of getting into the eligibility classification?

7 p.m.

Baroness Hollis of Heigham

That is my understanding. We expect that, in the vast majority of cases, the assessment period which could result in schemes coming into the PPF is triggered by an insolvency event on the employer. The assessment period is then used to determine not only that that is legit—in other words, that it is not a manipulation—but that assets and liabilities can be bound up and so forth.

The two categories which we have in mind where a scheme could end up in the PPF but has not come via the insolvency route into assessment, but by another route, is where the trustees and managers have a duty to make the application. They include two broad categories of scheme. The first comprises the public sector schemes without a Crown guarantee. I have given the Arts Council, but the category includes the Audit Commission, the British Tourist Authority, British Waterways, the Crown Estate, the Design Council, English Partnerships, Investors in People, the Meat and Livestock Commission, the National Board for Midwifery, Remploy, Scottish Enterprise, the Territorial Army Volunteer Reserve Association, the Westminster Foundation for Democracy and the Wine Standards Board. That is not an exhaustive list, but Members of the Committee can see the type of schemes to which we are referring.

The second category is those schemes with a foreign employer. When we adjourned, I was being asked for an example of that. The advice I have been given is that an example of an overseas company would be one that is not subject to an insolvency event as defined in Clause 115 but which has employees in the UK and a UK-registered pension scheme. If the trustee or regulator became aware that the company is shutting down leaving the pension scheme under-funded, they can apply or notify the board. Without this clause, such schemes would not be able to initiate the assessment period because there is no insolvency event and members would not receive PPF protection. Indeed, it is almost like a branch of an overseas company.

Lord Oakeshott of Seagrove Bay

I am intrigued. Did I really hear the noble Baroness say that the Crown Estate does not have a Crown guarantee? That gives a whole new concept of legal power without responsibility.

Baroness Hollis of Heigham

Put it this way, the Crown Estate is on my list. I will not go beyond my list.

Lord Higgins

The Crown Estate is putting up wind farms all over the place. Will the Minister accept that the drafting at the beginning of Clause 121 is either defective or at best obscure and that subsection (b) ought to say: The prescribed requirement is that it cannot have become eligible under the insolvency route", or words to that effect and then we will know where we are?

Baroness Hollis of Heigham

I do not promise to change the drafting, but I do promise to reflect on the matter. If the provision is causing confusion to Members opposite, it does not have the clarity that it should have. However, whether the drafting can be changed without a vast array of consequential amendments I do not know, but I will take advice on the matter. I cannot give a commitment, but I will certainly look at it.

Lord Hunt of Wirral

I thank the Minister. She has in my hearing during the Grand Committee made a number of commitments which we warmly welcome. However, I have become slightly out of kilter in my understanding of what is to happen now. When the Grand Committee adjourns later today, we will not meet again until Tuesday 7 September. I do not know whether it will be for the convenience of all Members of the Committee, but it would be helpful for me if the Minister could set out a timetable to which she will work as regards the various commitments, the rewriting of clauses and the consultations she has promised she will enter into.

I recognise that the Minister will have little of a Recess, but the same applies to the rest of us. It would be a helpful guide if the Minister were able to set out something of that in a letter to Members of the Committee. We can then understand the timetable to which she will operate during the Recess.

Baroness Hollis of Heigham

I do not want any misunderstanding to arise. I am not making any commitment whatever to the redrafting of this clause, rather I am trying to take seriously on board areas which are either of concern or perhaps confusion to Members opposite because of the drafting. I shall see whether there is anything to be done, or whether anything should be done. That is all. Obviously, those Members opposite who have been in government in the past and have stood at the Dispatch Box will know that Ministers look over the procedures of Committee sittings to see where there were hesitations, problems and difficulties, to examine what triggered those and to consider whether the drafting of a Bill is correct, whether the supporting information provided was inadequate and so forth.

All I am saying is that I will look to see whether there is anything to be done. I make no commitment either way and it is my expectation that there will be no movement on the drafting. I say that because this has been elaborately negotiated through parliamentary counsel. But it concerns me if experienced Members of the Opposition find the drafting obscure. If there is anything I can do to help in that, I shall seek to do so.

I turn to the point about our work over the summer. I have already given an undertaking that before we move on to the Report stage—and by September, I hope—we may be in a position to say where we are going on the moral hazard clauses. But that will depend on whether and to what extent there is a meeting of minds with the organisations with which we are consulting to see whether we can overcome the problems. Associated with that, as the noble Lord will recall, we are trying to achieve greater clarity on how the clearance procedure will work. That is pivotal to drawing the distinction between good faith and manipulation, if you like. Again, further work needs to be done on that.

I will ensure that I write to noble Lords as soon as I feel I can give them something robust and on which they can rely. Whether that can be done before we return—my officials will also want to take a summer break—is not something I can guarantee, but I shall certainly make as speedy progress as I can.

Clause 121 agreed to.

Clause 122 [Board's duty where application or notification received under section 121]:

Baroness Hollis of Heigham moved Amendments Nos. 193A to 193C:

Page 84, line 17, after "effect" insert "(a "scheme failure notice")"

Page 84, line 19, leave out "withdrawal notice" and insert "notice to that effect (a "withdrawal notice")"

Page 84, line 33, leave out subsection (6) and insert—

"(6) For the purposes of this Part a notice issued under subsection (2) or (3) is not binding until—

1. (a) the period within which the issue of the notice may be reviewed by virtue of Chapter 6 has expired, and
2. (b) if the issue of the notice is so reviewed—
1. (i) the review and any reconsideration.
2. (ii) any reference to the PPF Ombudsman in respect of the issue of the notice, and
3. (iii) any appeal against his determination or directions,

has been finally disposed of and the notice has not been revoked, varied or substituted.

(7) Where a notice issued under subsection (2) or (3) becomes binding, the Board must as soon as reasonably practicable give a notice to that effect together with a copy of the binding notice to—

1. (a) the Regulator,
2. (b) the trustees or managers of the scheme, and
3. (c) the employer.

(8) Notices under this section must be in the prescribed form and contain such information as may be prescribed.

(9) A notice given under subsection (7) in relation to a withdrawal notice under subsection (2) which has become binding must state the time from which the Board ceases to be involved with the scheme (see section 140)."

On Question, amendments agreed to.

Clause 122, as amended, agreed to.

Clause 123 [Protected Liabilities]:

Baroness Hollis of Heigham moved Amendment No. 193D:

Page 84, line 42, leave out "are equivalent" and insert "correspond".

The noble Baroness said: I beg to move.

Lord Higgins

What does this amendment do? Clause 123 seems in any case to be in the wrong place in the Bill. It ought to be inserted either before or after Clause 119. Having looked at the exact wording, I do not understand what it is supposed to do.

Baroness Hollis of Heigham

This amendment was part of the first group of technical amendments. If the noble Lord will allow me, I will go back to the first briefing material to find out what those amendments do.

Lord Higgins

This clause seems to have nothing to do with what we discussed on the previous amendment.

Baroness Hollis of Heigham

Amendment No. 193D changes the words "are equivalent" to "correspond". That was a drafting amendment I produced. I do not understand the question.

Lord Higgins

I am sorry to delay the Committee.

On Question, amendment agreed to.

Clause 123, as amended, agreed to.

Clause 124 agreed to.

Clause 125 [Admission of new members, payment of contributions etc]:

Baroness Hollis of Heigham moved Amendment No. 193E:

Page 86, line 7, after "members" insert "of any class"

On Question, amendment agreed to.

Baroness Noakes moved Amendment No. 194:

Page 86, line 18, leave out "No"

The noble Baroness said: This is a probing amendment. It is intended to discover what happens to scheme members while there is an assessment period. The amendment does this by removing the word "No" as the first word of subsection (5), so that it reads: benefits may accrue under the scheme".

An assessment period can apply to an employer under Clause 121 when someone thinks that the employer will not continue as a going concern. When we discussed that, we established that three would be relatively few potential employers in that category, but some could be prescribed. If there is an example of a question mark over "going concern", it is likely that all the employees are still working normally, being paid their wages and expecting to accrue benefits for length of service, pay increases or changes in personal circumstances. Can the Minister therefore explain why employees suffer because someone believes that the employer might not be a going concern?

A going-concern evaluation can be complex and not at all self-evident. If that is the case, should there not be an obligation to tell employees that their pension accruals are on hold because someone is looking at the going-concern nature of their employer?

Can the Minister also explain the relationship between subsection (6) and subsection (5)? Subsection (6) seems to say that subsection (5) does not prevent an increase in benefits. I am unclear as to the net effect of the two. While she is explaining that, perhaps she can also explain why the draftsman has chosen to enclose the words "in a benefit" in commas. I find it difficult to read subsection (6). We referred earlier to the parliamentary draftsman's commaphobia and there was a recommendation that he be given a copy of Lynne Truss's excellent book. In subsection (6), some stray commas could benefit from being removed if the provision is to be read with sense. I beg to move.

7.15 p.m.

Baroness Hollis of Heigham

Amendment No. 194 seeks to allow benefits to accrue to or in respect of scheme members during the assessment period. I can understand that this is a probing amendment.

During the assessment period, the payment of scheme benefits to members will be reduced to ensure that benefits do not exceed the level of PPF compensation that would be payable should the PPF assume responsibility for the scheme. We have decided to reduce the amount of compensation payable to scheme members during the assessment period to ensure that the funding position of the scheme remains stable and that schemes in the assessment period are treated consistently and fairly. Otherwise, some schemes that took a long time to go through the assessment period would be building up benefits at a higher rate than others that had gone through the assessment period quicker.

There are also some important reasons why we consider it necessary to limit the accrual of benefits during this time to inflation levels. The first is to keep the funding position of the scheme as stable as possible during the assessment period. Secondly, given that the assets and liabilities of the scheme are assessed at the assessment date and that it is on this basis that the PPF may eventually assume responsibility for a scheme, there seems little point in allowing benefits to accrue to members during this period as any benefits that did accrue would be disregarded. However, in the event of a scheme rescue employees can subsequently backdate their pension accruals to the start of the assessment period. There will be an override on issues such as indexation. Apart from that, this amendment is to make sure that scheme members do not perversely benefit from a long assessment period compared to a shorter assessment period. That is the push.

Baroness Noakes

I have been extremely distracted while the Minister was replying because I have been told that I cannot have an adjournment of the House and I am due to move the Second Reading of a Bill as next business in the Chamber. I apologise for the discourtesy of not listening to the Minister and will, of course, read carefully what she has said. I apologise to the Committee that I am unable to remain until the end of the proceedings today but I have to be in the Chamber in a few minutes' time. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 194A:

Page 86, line 18, after "scheme" insert "rules"

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 194B:

Page 86, line 27, leave out from "scheme" to end of line 29.

The noble Baroness said: In moving Amendment No. 194B I shall speak also to the other amendments in the group. This is a group of technical and minor drafting amendments that serve to provide clarity within the Bill.

Amendments Nos. 200C, 234Y and 234AJ deal with entitlement to and payment of certain survivors' benefits where a member dies before commencement of the assessment period, as do Amendments Nos. 234AJ and 234Y. Amendment No. 234P clarifies the definition of pensionable service and the changes necessary to ensure that compensation can be paid in respect of all actual service that qualifies a person for benefits under the scheme. Amendment No. 230A introduces a new subparagraph (b) to paragraph 27 of Schedule 7, "annual increase in periodic compensation". It refers to pensionable service which is notional service allowed in respect of the member under the admissible rules, which qualifies the member for benefits.

Lord Higgins

It is very difficult to hear the Minister.

Baroness Hollis of Heigham

I am so sorry. I was trying to make sure that I got the elaborate cross-references correct. Amendment No. 230B introduces new sub-paragraphs (6A) and (6B) of paragraph 27 of Schedule 7, which provides that pre and post 1997 indexation of compensation derived from pension credit rights will have such a meaning as may be prescribed. In view of that, we have to make consequential Amendments Nos. 234R, 234S, 234T and 234AE. Amendments Nos. 234W and 234X provide that it is payments of benefits by the trustees which were payable during the assessment period that are offset against the board's liability to pay PPF compensation. I could go on. The rest are even more minor and technical than the amendments I have listed so far. I beg to move.

Lord Higgins

As with the previous set of amendments, we obviously cannot comprehend these amendments or the explanations at short notice. As on the previous occasion, subject to our looking through them with the notes that I gather the Minister is proposing to offer to us, we do not wish to object at this stage.

As I pointed out earlier, it is unsatisfactory that in Grand Committee we basically incorporate amendments that we have not had a chance to go into and which we should perhaps defer until Report. But, in the circumstances, I think that we should probably agree to them as the Minister has suggested.

As we have said on previous occasions, it is not satisfactory being in Grand Committee on a Bill of this kind not least because, as we have seen, my noble friend Lady Noakes has had to go downstairs in order to attend to matters on the Floor of the House.

Lord Oakeshott of Seagrove Bay

We are being invited to take a lot on trust and we do so on this occasion. However, having so many technical and drafting amendments at a late stage is an odd way to do business, but we accept the noble Baroness's assurance.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 194C:

Page 86, line 29, at end insert— (7A) Where a person is entitled to a pension credit derived from another person's shareable rights under the scheme, nothing in this section prevents the trustees or managers of the scheme discharging their liability in respect of the credit under Chapter 1 of Part 4 of the Welfare Reform and Pensions Act 1999 (c. 30) (sharing of rights under pension arrangements) by conferring appropriate rights under the scheme on that person.

(7B) In subsection (7A)— appropriate rights" has the same meaning as in paragraph 5 of Schedule 5 to that Act (pension credits: mode of discharge); shareable rights" has the same meaning as in Chapter 1 of Part 4 of that Act (sharing of rights under pension arrangements).

The noble Baroness said: In introducing this amendment, I shall speak to the related amendments. They enable the PPF to comply with court orders for ancillary relief made following divorce or annulment of marriage. Members of the Committee will remember that I was responding to the noble Lord, Lord Higgins, to say what the major groups of amendments were. This was one of them simply because the original pension sharing/pension earmarking had not contemplated the situation of a PPF and, if we did not make these amendments, spouses who might otherwise have received a pension would have been able to receive only that element available pre-PPF compensation. These amendments ensure that that is properly taken into account as a matrimonial asset.

In determining the financial settlement on divorce or annulment, the court may make an attachment order, a commutation order or a pension sharing order. The attachment and commutation orders are for separation—

Lord Higgins

Will the noble Baroness slow down a little? It is difficult to understand.

Baroness Hollis of Heigham

All right. Where there is an attachment order, it will be the responsibility of the trustees of the pension scheme to make payments of a specified amount out of the pension when it becomes payable direct to the former spouse on behalf of the member. The member may also be required to commute, or convert to a lump sum, part of the pension payable from the pension arrangements. The trustees are also responsible for discharging liability for pension sharing orders.

These amendments ensure that any attachment orders made during the assessment period can be implemented by the board. They also ensure that if a pension sharing order is implemented during the assessment period, the pension debit can be created and the pension credit—we mean the element which belongs to the spouse, who is divorced in pension terms—and the pension credit deposited in a suitable pension arrangement on behalf of the former spouse or held in the pension scheme.

The trustees will be able to discharge their liability for these orders under the provisions of existing legislation as the orders will be made against the pension scheme. However, there may be occasions when circumstances will prevent the trustees discharging their liability for a pension credit before the end of the assessment period.

We have ensured that even though the scheme has entered the PPF, the board will be able to implement a pension sharing order made before the end of the assessment period. It will become the responsibility of the PPF board to ensure that the pension sharing order is discharged against PPF compensation. The PPF will honour the pension sharing order by reducing the member's compensation by the percentage ordered by the court. An amount of compensation, equivalent to the member's reduction, will be retained within the PPF and will be payable to the former spouse. The big difference is that both blocks are held within the PPF, whereas if the scheme is not going to the PPF the spouse receiving a share of the pension will take it out into another scheme. Only rarely would the trustees allow it to stay in.

The former spouse will not be able to choose to have the credit deposited in another pension scheme as the PPF does not provide for external transfers after a scheme has entered the PPF. However, the former spouse will be entitled to the same protection as a scheme member and will become entitled to payment of compensation from the scheme's normal benefit age. Compensation will be payable for life.

Regulations within the new clause will ensure that the trustees' liability for discharging pension sharing orders will be transferred to the PPF board. The regulations will modify some of the provisions of the existing legislation to allow the PPF board to implement any orders which have been made before the end of the assessment period but not implemented by the trustees.

We then modify other legislation. Many of the subsequent clauses relate to other legislation such as the Matrimonial Causes Act 1973 and the Matrimonial and Family Proceedings Act 1984 to ensure that the provision applies. I hope that I have described the purpose of these amendments: to make the moneys in the PPF available for pension-sharing. I beg to move.

Baroness Barker

I have found it enormously helpful to have time to think about the written explanation that the noble Baroness gave us earlier. I wish to ask her about the situation of those who have started but not concluded divorce proceedings before the event that triggers the scheme's entry into the PPF. What triggers the process? Presumably a judge could not assess what a spouse would get if the divorce had not taken place. This probably concerns only a very small number of people, but I wish to know whether a tranche of people will get caught over a short period while this is brought in.

Lord Higgins

It is not very satisfactory to introduce such a complex amendment at this stage in the Bill. It was difficult to follow what the noble Baroness was saying. We had not previously turned our minds to such issues as divorce and were therefore unable to catch up at this stage.

The only query that occurred to me was whether the provision had implications for the Child Support Agency. Anyway, we will be able to read what the noble Baroness has said in Hansard and, if necessary, return to the matter during the Recess. I could not comprehend what was being said a moment or two ago. Therefore the best thing would be to let the matter go and to table an amendment to clarify the situation, if necessary, at a later stage.

Baroness Hollis of Heigham

These are government amendments but I had thought that Members of the Committee received a copy of the description that I was reading out so that their comprehension would not depend on the acoustics of the room, which I agree are unfortunate. I accept that the amendments are technical. I had hoped that with the arrangement that I suggested before the Committee started—that where we were dealing with a large batch of government amendments I would try to be helpful by giving a copy of my speaking note to Members opposite—the noble Lord would have been able to follow what I was saying, even if he could not hear every word by virtue of the acoustics or my speed.

The noble Lord says that the situation is unsatisfactory. In an ideal world, your Lordships would be redundant because Bills coming from the Commons would be so polished and ready that we would not need to make amendments. The point is that pension-sharing on divorce is extremely technical. Having been intimately involved with others in your Lordships' House in getting the Bill through in the first place, I genuinely thought that the drafting would be so complex that we would not be able to get it into this Bill at any stage, with perhaps only a gesture at Third Reading. The officials and the draftsmen have gone to enormous lengths to include these clauses because I felt, as did others—I am sure that noble Lords will agree—that when a pension, even with a lower value coming through the compensation of the PPF, could be the most significant piece of matrimonial property along with the house, it would be unreasonable and indecent to exclude it from a consideration of the separation of matrimonial assets on divorce simply because it was caught by the PPF.

If we had not done it in that way, anyone who got divorced where the pension fund was secure would have it included; but anyone getting divorced where the pension fund was not secure, was entering an assessment period and, eventually, into the PPF fund would be denied access to a substantial swathe of matrimonial property, even though the value of that pension had been discounted because payments made under the PPF would be 10 per cent less than if the scheme had persisted. What would Members of the Committee have done in that dilemma? They would have done what I have done, which is table the amendments today, although they are extremely complex and, as I said, officials have worked around the clock to prepare them, to ensure that, under pension sharing both spouses will continue to receive an appropriate share of the pensioner's matrimonial property as ordained by the court. They may not do so. They may instead offset the house against the pension, but if they do, it would be quite wrong and, in my view, indecent to exclude what will be a substantial asset, even after the top-slicing when entering the PPF, because the scheme had entered the PPF.

I hope that I can answer the particular point raised by the noble Baroness, Lady Barker. If an order has been made by the court before the end of the assessment period, the order will be honoured by the PPF when the board assumes responsibility for the scheme. An order cannot take effect until divorce proceedings are complete and a decree absolute has been granted. I hope that I have been able to give the noble Baroness the assurance that she wants.

Lord Higgins

We realise that the noble Baroness feels strongly about this on a personal basis. The fact is that when she stands up and tells us herself what it is all about, it is so much easier to understand than when she reads out an incomprehensible government brief. So we are grateful to her for that further explanation. Perhaps we should dispense with the government briefs and just let the noble Baroness tell us what the Bill is about.

Having said that, no doubt we shall adjourn imminently and continue our discussion during the Recess. I shall add only one point about that. I am not the least bit clear where we will meet. I am told that these Committee Rooms are not available during the Recess; indeed, structural changes are to be made so that they will not be available in future. Personally, I find the Moses Room unbelievably depressing, especially for a discussion of this sort of complexity. The powers that be will need to consider in September whether this House is a legislature or a building site. They cannot have it both ways. When we used to have emergency recalls in September because World War Three was about to break out, one could understand why we came back and why building work was still going on. But if it is to be a regular event in September, we cannot have building reconstruction going on at the same time.

We are grateful to the noble Baroness for all her help in what has been a considerable tour de force. No doubt we shall return to the matter in September.

On Question, amendment agreed to.

Clause 125, as amended, agreed to.

Baroness Andrews

Perhaps this is a convenient moment for the Committee to adjourn until 7 September at 3.30 p.m.

The Deputy Chairman of Committees

The Committee stands adjourned until Tuesday 7 September at 3.30 p.m.

The Committee adjourned at twenty-six minutes before eight o'clock.