Grand Committee Report of 13 September 2004

Official Report of the Grand Committee on the Pensions Bill
(Eighth Day)
Monday, 13 September 2004.
The Committee met at half past three of the clock.
[The Deputy Chairman of Committees (Baroness Ramsay of Cartvale) in the Chair.]
Clause 172 [Calculation, collection and recovery of levies]:
Lord Higgins Lord Higgins moved Amendment No. 268:
Page 119, line 11, at end insert—
"( ) The trustees or managers of the scheme may charge a sum at least equivalent to the non-risked based amount of the levy to all scheme members."
The noble Lord said: The amendment is tabled in my name and that of my noble friend Lord Skelmersdale. During our previous sitting, we had a very wide-ranging debate on the Pension Protection Fund levy. Perhaps the grouping was too extensive. On Report we will need to deal with the matter in a more focused—I believe that is the "in" phrase at the moment—manner.
Baroness Hollis of Heigham: Targeted?
Lord Higgins: No, we are against targets, and I thought that the Government were also against them, but nobody is against being focused.
The noble Baroness in her usual way was kind enough to set out the timing of the implementation of the levy. That was extremely helpful, because we were all surprised at some of the ways in which it is apparently planned that the scheme will operate. The noble Baroness dealt with the period of the initial levy, which has no risk-based element—it is not on the record, so I am not sure how we can get it—after which, for a transitional period of two to five years, the scheme is a mixture of the two; and, finally, from year six onwards, it has both a basic and a risk-based element. On reflection, I feel bound to say that, since one of the problems with the levy's not being risk-based is that it seriously adversely affects sound schemes, which would be paying protection for less soundly based pension schemes, to wait six years before full implementation is too long. No doubt we will wish to return to that point.
The amendment was debated in another place. The CBI is particularly concerned about it. The amendment suggests that the trustees or managers of the scheme may charge a sum at least equivalent to the non-risk-based levy to all scheme members. In other words, a pension scheme paying the levy should be allowed to recoup some of the cost from its members.
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That, at least, would have the advantage of bringing home to scheme members what the system is all about. The question is whether that would be appropriate.
My impression is that the Government were not unsympathetic to the amendment when it was debated in the Commons. But, if a company could charge out the insurance premium—for want of a better expression—to its members, a problem of uncertainty arises: does it cover only active members or does it also include deferred members? Many schemes will have very few active members and many deferred members or those whose pension is in payment. It is not clear from the debate in another place whether the proposal covers everyone. The CBI appears to be in favour of it. I declare an interest—my goodness it must be very trivial—in this matter: I was a deferred pensioner and am now an actual pensioner of a large multinational. I would not view with enormous enthusiasm the idea that the company would suddenly ask me to pay towards the cost of the scheme because another company may go bust, when I have been receiving the pension, I regret to say, for some considerable time. I am not clear why that should or should not be so.
In all events, those are the arguments being put forward. It would be helpful to hear the Minister's comments. I beg to move.
Lord Oakeshott of Seagrove Bay: On Thursday we had a very thorough and thoughtful debate on the PPF, the risk-based levy and so on. We do not believe that you can have a genuine risk-based levy unless everyone pays on a risk basis.
I would have thought that Amendment No. 268—an EEF amendment, if I can so call it—was difficult. I can see what people are trying to achieve by it, but I would have thought that it was better for pension schemes and their members to discuss together how the premium will be paid rather than to be too prescriptive here. On balance, therefore, subject to what the Minister says, I am inclined not to support the amendment.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham): I thank noble Lords, and agree that there are issues about phasing in the risk-based levy. If opposition parties have strong views about that or alternative routes, we will obviously be happy to consider them in consultation with the industry. That said, all the advice that I have been given in my meetings with the industry is that it wants it phased in as quickly as possible. That means not waiting to the end of the full transitional period, which is six years. We are in a dilemma, but I am perfectly happy to continue those discussions.
The principle of phasing the levy in seems to have been welcomed by the major companies—by definition, those that are least likely to be paying a high risk-related premium. It would be difficult to unpick that, but I am very happy to take on board any points or even anything that should go in the guidance notes from the Government or discussions with officials and working parties. I realise that the matter is difficult,

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particularly when one wants to raise the single sum and balance the two. The more one takes on, risk-based, the more one lays off on to scheme funding for weaker companies. It is an honourable dilemma, but we do not have any easy solutions to it.
The noble Lord, Lord Higgins, has identified the two issues involved with the amendment. One is whether scheme members or essentially the employer will pay for the levy. The other is, if the levy is laid off on scheme members, what we not only do about existing pensioners—they might not be happy to see a charge of £5 or £10 a year fall on them—but how we trace and track deferred members. We know that for every two active members, there is likely to be one non-active pensioner.
We have given a lot of thought to the matter. We do not disagree with much of the thrust of the amendment, but there are problems about its practical delivery. In the first instance, recovering any sums from deferred members would be difficult to administer, because they have no pension in payment, and are unlikely to be employed by the sponsoring employer. As a result, many schemes do not have up-to-date contact details for those members. Indeed, many of them may come back through the tracing service in due course, so it will be quite hard.
Even when we have members, we also have quite complicated methods of calculating the sums. The method for recouping costs means that we might have to get the money from pensioner members, which would affect their current income in payment. For deferred members, we would have to work out quite complicated costs about accrual rates over time and so on; statistically, it would be an elaborate exercise.
Reluctantly, we are saying that although we do not disagree that it would not be unreasonable to ask people to contribute towards the payment of the protection of their pensions, there are practical administrative difficulties in the non-risk-based element. If the average per capita sum is about £20 a year a member—that might come for the non-risk scheme element to only £5 or £7 frankly, the administrative costs in chasing that might outweigh a simple contribution. We cannot find a way through the matter any more than I suspect that the noble Lord can. Therefore, we are leaving it to employers, scheme trustees and their consultation to work out whether they wish to lay off any of the costs and how best to do so.
Some schemes have large numbers of active members; some are tiny; some have different ranges of payers; some have multiples of deferred members with tiny pots and so on, some of whom have been lost track of and will have to be chased. Therefore, the costs of administration could exceed the saving to the employer if we were to go down the proposed route. With that acceptance of the complexity and the admission that we are slightly stuck on the matter, I
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suggest that the noble Lord withdraws his amendment. If he has any further thoughts on the matter, we will be happy to consider them.
Lord Higgins: I am grateful to the noble Baroness for clarifying the situation, which was not entirely clear in the debates in the House of Commons. I find her arguments very convincing. I am chairman of a pension fund and had to try to track down deferred members to get their agreement to changing their AVCs from Equitable Life to another organisation. That was extremely difficult and very costly. Even so, one could get nowhere near 100 per cent of the people involved. I understand, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 172 agreed to.
Clause 173 [Cases where fraud compensation payments can be made]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 268ZA:
Page 120, line 14, leave out from "event," to "and" in line 16 and insert "a scheme failure notice has been issued under section 116(2)(a) in relation to the scheme and that notice has become binding,"
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 268ZB to 268ZH:
Page 120, line 17, leave out paragraph (c) and insert—
"(c) a cessation event has not occurred in relation to the scheme in respect of a cessation notice which has been issued during the period—

(i) beginning with the occurrence of the insolvency event, and

(ii) ending immediately before the issuing of the scheme failure notice under section 116(2)(a),

and the occurrence of such a cessation event in respect of a cessation notice issued during that period is not a possibility."
Page 120, line 25, leave out from "a" to end of line 27 and insert "scheme failure notice under section 122(2) in relation to the scheme and that notice has become binding."
Page 120, line 37, at end insert "and that notice has become binding"
Page 121, line 4, leave out subsection (8).
Page 121, line 21, leave out sub-paragraph (ii) and insert—
"(ii) a cessation event has occurred in relation to the scheme in respect of a cessation notice issued during the period—

(a) beginning with the occurrence of the last insolvency event which occurred before the current event, and

(b) ending with the occurrence of the current event, and"

Page 121, line 24, at end insert—
"( ) For the purposes of this section—

(a) a cessation event in relation to a scheme occurs when a cessation notice in relation to the scheme becomes binding,

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(b) a "cessation notice" means—

(i) a withdrawal notice issued in relation to the scheme under section 116(2)(b) (scheme rescue has occurred),

(ii) a withdrawal notice issued in relation to the scheme under section 122(3) (scheme rescue has occurred),

(iii) a withdrawal notice issued in relation to the scheme under section (Withdrawal following issue of section 116(4) notice) (no insolvency event has occurred or is likely to occur),

(iv) a notice issued in relation to the scheme under section 174(2)(b) (scheme rescue has occurred), or

(v) a notice issued under section 116(4) (inability to confirm status of scheme) in a case where the notice has become binding and section (Withdrawal following issue of section 116(4) notice) does not apply,

(c) the occurrence of a cessation event in relation to a scheme in respect of a cessation notice issued during a particular period ("the specified period") is a possibility until each of the following are no longer reviewable—

(i) any cessation notice which has been issued in relation to the scheme during the specified period;

(ii) any failure to issue such a cessation notice during the specified period;

(iii) any notice which has been issued by the Board under Chapter 2 or 3 which is relevant to the issue of a cessation notice in relation to the scheme during the specified period or to such a cessation notice which has been issued during that period becoming binding;

(iv) any failure to issue such a notice as is mentioned in sub-paragraph (iii), and

(d) the issue of, or failure to issue, a notice is to be regarded as reviewable—

(i) during the period within which it may be reviewed by virtue of Chapter 6, and

(ii) if the matter is so reviewed, until—

(a) the review and any reconsideration,

(b) any reference to the PPF Ombudsman in respect of the matter, and

(c) any appeal against his determination or directions,

has been finally disposed of."
Page 121, line 31, leave out "the event within" and insert "the issue of the scheme failure notice under section 116(2)(a) mentioned in"
On Question, amendments agreed to.
On Question, Whether Clause 173 shall stand part of the Bill?
Lord Skelmersdale: The government amendments to which we have just agreed and which were "precursed"—I think that is possibly the word—earlier in our sessions,
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almost entirely rewrite Clause 173 for perfectly respectable reasons. However, a lot of this would occur anyway where fraud did not appear. It is not particularly relevant to fraud because the PPF payments, which we discussed at some length previously in Committee, follow to a great extent, although not entirely, the same formulation.
Therefore, I am rather confused by subsection (1)(b) of Clause 173; the fraud element comes in because of the commission of a prescribed offence which, so far as I can see from my various pieces of background reading, has not been exemplified very much, if at all. It would be extremely helpful if the Minister could help me in that respect.
Baroness Hollis of Heigham: Is the noble Lord asking what we consider to be a prescribed offence and whether that will come through in regulations?
Lord Skelmersdale: Yes.
Baroness Hollis of Heigham: Yes, it will come through in regulations. To give the scantiest of backgrounds, I refer to two points. First, the noble Lord will know that this is an area where, as he absolutely rightly says, the Pension Protection Fund has taken over the responsibilities of the Pensions Compensation Board. Therefore, this is one area where the PPF remit extends beyond DB schemes to DC schemes. From the experience we have this is a very limited offence. The 1995 Act, which sought to deal with Maxwell-type fraud, has broadly worked, I am pleased to say. So far as we are aware, the Pensions Compensation Board dealt with three such cases which took eight to 11 months. We discussed that in connection an earlier amendment. I believe that they resulted in a total default of about £500,000.
Such cases nearly always arise because the employer has allegedly embezzled some of the funds. Two of the cases concerned DB schemes and one was a DC scheme. The noble Lord will understand that that is privileged information and that it would be inappropriate to give the names of the relevant companies. I would have to share that information on Privy Council terms.
A prescribed offence will be an offence that involves dishonesty. It is not about mistakes or something being one day late but about dishonesty. That test is well established in common law.
Lord Skelmersdale: I am very grateful. I shall return to this matter when we discuss the levy in a few clauses' time.
Clause 173, as amended, agreed to.
Clause 174 [Board's duties in respect of certain applications under section 173]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 268ZJ:
Page 122, line 6, after second "as" insert "reasonably"
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 268ZK and 268ZL:
Page 122, line 7, at end insert "reasonably"
Page 122, line 14, at end insert—
"(3A) For the purposes of this Chapter a notice issued under subsection (2) is not binding until—

(a) the period within which the issue of the notice may be reviewed by virtue of Chapter 6 has expired, and

(b) if the issue of the notice is so reviewed—

(i) the review and any reconsideration,

(ii) any reference to the PPF Ombudsman in respect of the issue of the notice, and

(iii) any appeal against his determination or directions,

has been finally disposed of and the notice has not been revoked, varied or substituted.
(3B) Where a notice issued under subsection (2) 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 the persons to whom it is required to give a copy notice under subsection (3).
(3C) A notice under subsection (3B) must be in the prescribed form and contain such information as may be prescribed."
On Question, amendments agreed to.
Clause 174, as amended, agreed to.
Clauses 175 to 178 agreed to.
3.45 p.m.
Clause 179 [Fraud Compensation Fund]:
On Question, Whether Clause 179 shall stand part of the Bill?
Lord Higgins: I have one point to make concerning the fraud compensation fund. I am not entirely clear about the definitions of situations that would be covered under the Bill, in particular these clauses. The noble Baroness referred to fraud and dishonesty. A letter has come to me from a Member of another place which is concerned with an individual who says that the value of the scheme was reduced by 95 per cent by an ex-trustee because of breach of trust. I was not clear about the expression "breach of trust" with regard to dishonesty and fraud. He also says that the pension ombudsman does not seem interested in the case and, if I understand it correctly, only cases from 1997 onwards are affected. It might be easier if I sent her the letter, but can the noble Baroness say whether breach of trust is covered by the board in those circumstances? If not, what redress does another trustee, for example, have against the individual concerned?
Baroness Hollis of Heigham: It would help me enormously if I were to see the letter. I have not had any particular briefing on this, but my understanding is that there would be a remedy against trustees only if dishonesty were involved. For example, the trustees might have made a pretty disastrous investment decision, but that would not, in my book, be a breach of trust. I am thinking on my feet, but there would either have to be culpable negligence—for example,
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failure to extract money from the employer when appropriately due or failure to bring in the accountant when appropriately due—or the trustees would have to have been involved in dishonest action. That is where I think the case would stick. If the noble Lord could send me a copy of the letter, we could have more background and see whether it is simply a complaint about investment decisions or whether there is a degree of recklessness and culpability which veers over into dishonesty.
Lord Higgins: I am most grateful to the Minister for her reply. I think there is a difficult dividing line in such matters. I shall send the noble Baroness a copy of the letter. I apologise for not having done so earlier, but I have only recently managed to catch up with the details myself.
Clause 179 agreed to.
Clause 180 [Fraud compensation levy]:
On Question, Whether Clause 180 shall stand part of the Bill?
Lord Skelmersdale: I said that I would come back to the levy. Not only is there to be a scheme levy, as my noble friend Lord Higgins has said, there will also be a risk-based levy. In certain circumstances, there will be a fraud compensation levy. The trouble is, one does not know what fraud is until it happens. Therefore, it is difficult, I should have thought, to raise a levy in anticipation of what the noble Baroness has just admitted is, comparatively, a very small amount pertaining to very few schemes. I know that the various pension schemes' organisations to which we have referred in debates on previous amendments are extremely interested in how this will work and how the department intends the board to calculate it. After all, it should be a comparatively insignificant amount, but it could be much larger. Indeed, the amount could go up and down, depending on the circumstances and depending on the year.
Baroness Hollis of Heigham: The noble Lord, Lord Skelmersdale, is right: we expect the sums to be extremely modest. In Clause 180, unlike the other PPF-related clauses, we do not envisage that the levy will be an annual occurrence. The Pensions Compensation Board has needed to collect only two levies since April 1997, for precisely the reasons that the noble Lord described. The second was announced only in March this year. The compensation levy currently being collected is at a rate of 23 pence per member and applies to all schemes liable to pay the levy, providing they have at least two members. We have no reason to think that that pattern will alter under the PPF board.
We intend to limit the size of levies and their impact on individual schemes through regulations, so that people know in advance where they stand. Unlike the other levies, they will cover all the DC schemes. About 97,000 schemes will be billed, of which 85,000 will be DC schemes. Obviously, DC schemes tend to be the smaller schemes, but that is one reason why the levy is so low. Our intention is that levies will be calculated

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according to the formula that the PCB uses. It seeks to maintain a float of about £2 million in the fund, and that is what we expect to do.
There will be very little change. What I should have said in my previous response is that the main difference, apart from the fact that the process will be run by the PPF, is that there will be 100 per cent compensation; at the moment, it is 90 per cent. With fraud, we seek to restore the individual members' scheme to what it was. That is the main difference. Apart from that, the levels will be pretty much as they are under the PCB.
Lord Skelmersdale: I had picked up that it would be 100 per cent compensation, thanks to the useful briefing for Peers that the noble Baroness circulated a long time ago—was it weeks or months? On page 36 of that document, there is a useful example that shows clearly that compensation would be 100 per cent.
I am grateful for the answer that there will, basically, be no change from the existing scheme of things, but I hope that the noble Baroness will understand why I asked the question. The Bill is not explicit in that regard.
Clause 180 agreed to.
Clause 181 [Information to he provided to the Board etc]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 268A:
Page 126, line 30, at end insert—
"( ) This section is subject to section 296."
The noble Lord said: This group of amendments covers basically the same point, which is a human rights point. The intention is that information to be provided to the board under regulations to be made under the clause should be protected. We have a long time to go before we reach Clause 296, which deals with protected items, but basically this relates to information that is subject to legal privilege.
As I understand it, Article 8 of the European Convention on Human Rights enshrines the right to privacy. Scots law, in particular, has traditionally protected the relationship between a solicitor and his or her client and has made provision for the doctrine of legal professional privilege, which we do not have south of the border in exactly the same way. To preserve that relationship and ensure that such communications are privileged, provision should be made in the Bill to the effect that the provisions of Clause 181 will not extend to the disclosure of such information. I hope that the noble Baroness will agree, so that it will be the third day running that I will have had a modicum of success with the Bill. However, that may not be the case.
Also in the group is Amendment No. 269. I feel strongly that when pieces of paper and so on are taken away, they should he receipted, and everybody should know what is going on. I also wondered why, in the first instance, it was necessary to have as long a period as four months to retain bits of paper, given that a little later on there is a 12–month extension for such holding. I should have thought that three to six months would have been a much more appropriate period.
Clearly, retention must be necessary and proportionate. That is not currently in the Bill, but it would seem to me to be common sense and normal practice. I beg to move.
Baroness Hollis of Heigham: Again, I doubt whether there is very much disagreement between the noble Lord and myself on any of these issues. On the first of his points and Amendment No. 268A, I simply refer him to Clause 296, which specifies that,
"A person may not be required under or by virtue of this Act to produce, disclose or permit the inspection of protected items".
I am happy to give the reassurance that he suspected that I could give him—that legal privilege covers those items. So that is OK, I think.
Lord Skelmersdale: Hang on a minute, that is not exactly the point. Legal privilege covers those items, but the point at issue is whether the clause is covered by Clause 296.
Baroness Hollis of Heigham: Yes, it is.
The second point raised by the noble Lord was about documents being seized. I absolutely agree with the principles behind the amendment; it is important to give a receipt, for reasons that we discussed with regard to the regulator. Frankly, if receipts were not given to provide a paper trail, evidence would not stand up under PACE. Therefore, giving a receipt is right in terms not only of human rights but of practicabilities. It would also help people whose premises have been entered: they could keep track of documents which had been taken and, when necessary, ensure that the documents were returned to them. As we said earlier, some of those documents are part of the lifeblood even of a company that is winding up.
The third issue on which the noble Lord pressed me related to the minimum period. The reason that it is 12 months is that we expect the assessment period to be 12 months. Therefore, the documents are likely to be necessary for the assessment period. None the less, that would not mean that there would not be receipts given or that, if the board needed to hold on to the documents, duplicates could not be made, so the company could continue to have access to the material it needed to wind down or go for its valuations.
Lord Skelmersdale: There was a third point, relating to retention of the document being necessary and appropriate.
Baroness Hollis of Heigham: This is a time question. We are going for 12 months rather than three because that period broadly coincides with the time necessary for the assessment period, which is precisely when the board will need those documents. That is not to say that the company will not have duplicate documents in that situation, should it request them.
Lord Skelmersdale: I am extremely grateful to the Minister. I may have to come back to the last point, having read what she said, because I am not sure whether we are in as much agreement on that point as we were on the other two or three points. However, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 181 agreed to.
Clause 182 [Notices requiring provision of information]:
[Amendment No. 268B not moved.]
Clause 182 agreed to.
Clause 183 [Entry of premises]:
[Amendments Nos. 269 to 270B not moved.]
On Question, Whether Clause 183 shall stand part of the Bill?
Lord Higgins: I want to ask just one question. The clause relates to entry of premises and will affect those operating with regard to the various fraud compensation arrangements, and so on. Could the noble Baroness give us some idea how that compares with, say, the powers of entry of Customs and Excise? Is it a fairly standard situation? Customs and Excise normally has greater powers than anyone else, and I was not clear whether the powers were appropriate in relation to police or Customs and Excise. Where on the scale of powers of entry do the provisions fall?
4 P.m.
Baroness Hollis of Heigham: Although issues of warrants may obviously arise, the board will normally enter not because fraud is going on—that could be the case, however—but because the Pension Protection Fund needs the basic information, as the scheme is winding up. It is effectively in the assessment period. We expect the PPF to be in and out of the company premises quite regularly, in the sense of collecting the information necessary for the assessment period to determine the value of the assets and the protected liabilities, to see whether the scheme comes through.
Obviously, we expect that to be with the consent of the company; it may well be anxious to see the security of the scheme by coming into a compensation arrangement. Therefore, we do not expect that to be especially challenged by employers, unless there is fraud and so forth. Issues of warrants come up where the employer resists entry. As I understand it, there our powers are broadly similar to those of the Inland Revenue, which in turn are broadly similar to those of Customs and Excise—a magistrate's warrant has to be agreed.
I emphasise that we expect the PPF to have routine entry, with consent, to premises as part of determining the assessment period. That is to monitor the future viability of the fund and whether it is capable of being wound up outside the PPF, because its assets are greater than its liabilities to an extent that it can more than match the compensation offered by the PPF or not. We do not expect warrants to come up very often—bluntly, only when we suspect that the employer is verging on fraud, in the sense of trying to destroy documents that we need. I expect the provisions to be used in only very rare circumstances.
Lord Higgins: My question may have been prompted by my misunderstanding, and that may in
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turn have been provoked by the fact that there are two levies. There is a Pension Protection Fund levy and a fraud protection fund levy. There is only the one board, and the board may require entry in connection with the Pension Protection Fund or a fraud investigation. Is that right?
Baroness Hollis of Heigham: That is exactly right. In terms of the levy, but particularly of the assessment by the PPF during the assessment period of 12 months or so, when it is uncertain whether a company can or should wind up its pension fund outside the PPF, we expect there to be regular, free and continuous access into the books and so on. Because the PPF is responsible for fraud as well as the levy, as the noble Lord rightly said, there will clearly be situations where a warrant is necessary where it is suspected that documents would otherwise be destroyed. In that case, the board has to go to the magistrate, but we would expect the request to be granted. The powers of entry and for the granting of warrants are similar to the powers of the Inland Revenue and Customs and Excise.
Lord Higgins: I am grateful to the Minister for that reply. I am now a little concerned; I was trying to think of other examples where there were powers of entry merely to obtain commercial information rather than information that is in any way related to an offence. I do not wish to pursue the matter, so I shall let it rest there.
Clause 183 agreed to.
Clause 184 [Penalties relating to sections 182 and 183]:
On Question, Whether Clause 184 shall stand part of the Bill?
Lord Skelmersdale: I am about to ask exactly the same question on the clause as my noble friend Lord Higgins did on the previous clause. Are the penalties envisaged necessary and appropriate in this instance?
Baroness Hollis of Heigham: It might be helpful for me to spell this out, because it is a sensitive area, and then continue to the issue of penalties. The obligations to provide information to the board are set out in the earlier provisions of this chapter, which we have already discussed. These are the duty to provide information requested by notices under Clause 182 and to co-operate with a person who has entered scheme premises using the power under Clause 183.
Clause 184 follows on from these obligations and is designed to ensure that there are effective criminal sanctions available for use against those who intentionally fail to comply with these obligations. There are two types of offence: first, when individuals without reasonable excuse fail to comply with a request to provide information, they will be guilty of an offence which can lead to a fine of up to level 5 on the standard scale—which, I understand, is £5,000. Secondly, for the more serious offence of deliberately altering, destroying or concealing a document that they may be asked to produce, again without

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reasonable excuse, an individual will be guilty of an offence which can lead to a fine or imprisonment for up to two years—or both.
We envisage that these penalties will only be used in exceptional circumstances. They are an important deterrent and will encourage individuals to provide the information that the board of the PPF will need to carry out its functions. The penalties would apply only when an individual has deliberately failed to provide information, or has destroyed or tampered with evidence, without reasonable excuse. I hope that that response is satisfactory.
Lord Skelmersdale: Almost. Level 5 on the standard scale is normal, as I understand it. My question relates to subsection (7) about the last offence mentioned by the noble Baroness, the intentional destroying or altering of a document. Is that paralleled in, say, environmental law, where such powers of entry are similar?
Baroness Hollis of Heigham: I am sorry. I really do not know about the powers of environmental law.
Lord Skelmersdale: Could the noble Baroness be helpful by giving another example outside pensions legislation where similar fines or imprisonment are levied?
Baroness Hollis of Heigham: I am trying to think back to the Welfare Reform and Pensions Act 1999, which had similar powers. I am fairly sure that we had similar powers in the CSA Bill because we had a similar debate, where noble Lords raised concerns about what information was kept by Experian, the credit agencies and so on. I am assured that these matters are broadly similar to the Financial Services Authority legislation.
Lord Skelmersdale: I am grateful.
Clause 184 agreed to.
Clause 185 [Warrants]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 270C:
Page 130, leave out lines 11 and 12 and insert "sheriff"
The noble Lord said: The amendment refers entirely to the authorisation of the warrant in Scotland. It has been put to us by the Scottish Law Society that the power to grant warrants should extend to sheriffs only. The society says that often a Justice of the Peace will not be legally qualified—as would be the case south of the border—and may be unfamiliar with the criteria needed to grant such warrants. Given the few times that such warrants will be needed, the JPs will not be able to build up expertise. The warrants are for investigating serious matters, so it would seem to be fair that a warrant should be authorised by someone who is legally qualified. I beg to move.
Baroness Hollis of Heigham: I probably need some advice from my Scottish friends. Actually, this is the third day running that I am happy in principle to say
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that the noble Lord is exactly right and, if time permits, I should like to come back with a Government adjustment to reflect that situation.
Lord Skelmersdale: I am grateful, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 185 agreed to.
Clause 186 [Offence of providing false or misleading information to the Board]:
[Amendments Nos. 271 to 273 not moved.]
Clause 186 agreed to.
Clause 187 [Use of information]:
On Question, Whether Clause 187 shall stand part of the Bill?
Lord Skelmersdale: This is such a short clause that it warrants a very short question: what on earth is it doing in the Bill?
Lord Oakeshott of Seagrove Bay: I am not a lawyer, but I am a little bit puzzled. The clause says:
"Information held by the Board in the exercise of any of its functions may be used by the Board",
for its purposes. Does,
"may be used by the Board",
mean that it may not or must not be used otherwise?
Baroness Hollis of Heigham: I know that the clause sounds either otiose or disingenuous, but it may be helpful if I give an example of where it may come into practice, which may address the questions asked by Members of the Committee.
The board may become involved with the scheme because the employer has entered insolvency proceedings; at this point, the board would begin to gather data in order to carry out the valuation of the scheme's assets and liabilities. However, at a later date, there may be an application for fraud compensation from the same scheme. By virtue of the clause, the board will be allowed to use the data that it gathered earlier to help process a fraud application. It would not be an appropriate use of the board's time or money to gather that information twice. However, the usual restrictions will still apply: in other words, the board will still have to follow the disclosure requirement set out in the Bill and any obligations imposed on it by the Data Protection Act in respect of fair processing.
The problem that lies behind the clause is the very appropriate concern issuing from the Data Protection Act not to allow "fishing trip" information. The clause covers a situation when the board is moving from one issue related to winding up to a second issue relating to fraud—when it has collected the information which then goes across.

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I do not know whether that has answered the queries of Members of the Committee. I should prefer to take legal advice on the question of "may" and "must". If my answer does not satisfy the Committee, I shall write.
Lord Oakeshott of Seagrove Bay: The Minister's remarks were helpful. I assure her that, however much I may criticise her, I would never dream of calling her disingenuous or otiose.
Lord Skelmersdale: Certainly not the latter—and almost certainly not the former.
I am still a little confused because it seems to me perfectly obvious that when the board has information it will use it. I did not really gather from the Minister's explanation why there should be specific provision to allow it to do so.
Baroness Hollis of Heigham: Perhaps I can help the noble Lord. This was not in the briefing—but the problem might have arisen in the past, when OPRA collected information, and sometimes found information that was relevant to other forms of prosecution. It might have involved the Pensions Compensation Board, and so on. There was a real problem about Chinese walls and what information should go across. There were occasions when the chairman of OPRA had to excuse herself from discussions of deliberations, because she had become party to sensitive information.
I am ad libbing here, but I suspect that we are addressing a problem that is a hangover from a time when these functions were exercised by two separate bodies, with fraud on one hand and pension compensation or OPRA rules on the other. That is the context. Unfortunately, as a statutory body, the board needs the powers to act in this way. I am assured that the words are necessary—but I suspect that they relate to the history, which did not occur to me until I was pressed on the matter by the noble Lord, and which is one of separation of responsibilities which have been brought together here for the first time. In the past, that movement of information would have been problematic under the Data Protection Act.
Lord Skelmersdale: So essentially the Government are doing away with the Chinese walls.
Baroness Hollis of Heigham: We are essentially saying that the PPF is now the board responsible for both functions. We have reconsideration committees and a proper appeals procedure, which is much more extensive than the one that existed with OPRA. Therefore, the problem does not now arise horizontally, because we have put in vertical remedies to cope with these issues.
Clause 187 agreed to.
4.15 p.m.
Clause 188 [Restricted information]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 274:
Page 131, line 7, at end insert—

"(c) the Secretary of State, or

(d) any person that the Board has consulted on the matter"

The noble Lord said: This amendment deals with the same thoughts. The question is: who exactly should reveal information, and who should cling on to it? Except as provided by Clauses 189 to 194 and Clause 225, restricted information must not be disclosed by the board or any person who receives the information directly or indirectly from the board. That seems perfectly sensible, but the department will also receive restricted information. Indeed, restricted information might come out of consultation between the board and outside parties. Therefore, it would seem sensible to include the department and such outside parties in this prohibition. I beg to move.
Baroness Hollis of Heigham: I need further help from the noble Lord—partly because of the acoustics. Is he saying that we should add to the shopping list of bodies to whom the restricted information can be given to, or that we should increase the number of bodies to whom it cannot be given?
Lord Skelmersdale: As I understand it, subsection (1) is about information that cannot be disclosed, therefore the amendment would add to it.
Lord Borrie: The noble Lord should possibly use the word "by". Paragraphs (a) and (b) of subsection (1) each start with the word "by": "by the Board" and,
"by any person who receives the information … from the Board".
Does the noble Lord wish to include the word "by" in proposed paragraphs (c) and (d)?
Lord Skelmersdale: Certainly.
Baroness Hollis of Heigham: I am not sure whether my response fully addresses the matter, so I shall reflect on the matter and come back to the noble Lord. As it stands, both the Secretary of State and those whom the board may have consulted to acquire the information would already be bound by the restriction. As my noble friend rightly identified, Clause 188(1)(b) states that restricted information must not be disclosed onwards,
"by any person who receives the information directly or indirectly from the Board"
unless the onward disclosure is permitted by Clauses 189 to 194. The noble Lord does not need any further information about what restricted information would be in those circumstances. Does the noble Lord need me to comment on any further issue?
Lord Skelmersdale: What about the Secretary of State and, in this case, the department?
Baroness Hollis of Heigham: Both the Secretary of State and the board, whoever they have consulted, are

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bound in the same way. Information may be disclosed onwards only if the person concerned has done it or if there are overriding circumstances such as criminal charges or criminal information. There is a well set-out procedure of what information may be disclosed and under what conditions. I would he very happy with an amendment to spell that out if the noble Lord thinks that it would be useful to have it on the record.
Lord Skelmersdale: If it is already there in pensions legislation and not amended by this Bill, I see no need for it.
Baroness Hollis of Heigham: If the Secretary of State receives the information either using his own powers or from the PPF, the department must treat information appropriately. Where it is from the PPF, the department or the Secretary of State must follow the restricted information code. I think that all the loose ends have been picked up, but if the noble Lord continues to be worried, perhaps he could let me know.
Lord Skelmersdale: No, I am also certain that I am satisfied. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 188 agreed to.
Clauses 189 to 191 agreed to.
Schedule 8 agreed to.
Clause 192 [Other permitted disclosures]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 274ZA:
Page 133, line 39, after "section 7" insert "or 23(1)"
On Question, amendment agreed to.
Clause 192, as amended, agreed to.
Clause 193 [Disclosure of information by the Inland Revenue]:
On Question, Whether Clause 193 shall stand part of the Bill?
Lord Higgins: I was not absolutely sure whether the Inland Revenue still existed, or whether it was now combined with Customs and Excise. I am also not clear whether there is disclosure by Customs and Excise as well as by the Inland Revenue. I think that it is an old Treasury Minister's inhibition, but I have never liked the idea of the Inland Revenue disclosing information in this context. Indeed, I have some difficulty in thinking what Inland Revenue information might be relevant for it to disclose to the board in the exercise of its functions.
The noble Baroness will be familiar with my next argument; we have had it on previous occasions. It is not clear at what level the disclosure takes place, in terms of the Customs and Excise hierarchy, or indeed what controls are imposed on those receiving the information. I am particularly concerned by subsection (2), which states:
"No obligation as to secrecy imposed by…the Finance Act 1989…or otherwise shall prevent the disclosure of tax information".
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Section 182 of the 1989 Act was imposed for good reason. The idea that the information is floating around to a wider and wider audience gives me considerable cause for concern. Can the noble Baroness justify the relaxation of restraints that Parliament previously thought appropriate?
Baroness Hollis of Heigham: I am advised that, because the clause refers to commissioners of Inland Revenue and Customs, it is still technically correct. That deals with the noble Lord's first point. We envisage that the provision will be rarely used but it may be appropriate, particularly in fraud compensation cases for the Inland Revenue to consider whether it has information that should be disclosed to the PPF in order to assist the board to fulfil its functions. I suspect that it will be rare. The provision is permissive; in other words, the Inland Revenue controls and determines the gateway out, rather than the regulator, the PPF or the Secretary of State on the way in.
There are strict rules to ensure that permission must be given at a senior level. We got into difficulties at our previous sitting about what level that technically was, and I cannot now remember. It was certainly at the equivalent of EO or above in DWP, but there are different grades in the Inland Revenue, so I shall need to come back to the noble Lord on what level the power shall be exercised at. We expect it to be rare and in circumstances such as fraud. As comes up under a drafting amendment, the power is permissive and the Inland Revenue will determine whether it is appropriate to disclose the information. The noble Lord is right—the Inland Revenue is very protective, and rightly so, of the integrity of its information and therefore the privacy rules associated with it.
Lord Higgins: I am grateful to the noble Baroness for that reply. Last time that we discussed the matter, I was unhappy at the level of EO or equivalent; it seemed that the decision ought to be at some higher level. Are we right in thinking that disclosure of information will happen only if there is some question of fraud, or is it in relation to the Pension Protection Fund as such?
Baroness Hollis of Heigham: I expect disclosure to happen when sometimes the regulator, but primarily the PPF, cannot get the information that it seeks from the company with which it is dealing—in other words, where there is some suggestion that there may either be manipulation of information or destruction of records.
I shall give an example. Again, I am ad libbing, so, if I am wrong, I shall apologise to the noble Lord and correct the information. One of the reasons why, in an earlier debate, we discussed the fact that the PPF would have the right to ignore any changes in scheme rules in the three years before a scheme came into the PPF for compensation was that there could be manipulation of those rules. For example, there could be manipulation at fairly senior level between DB and DC contributions, in order to maximise the potential for compensation. It may be that records associated with it have been destroyed—sometimes in good faith,

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although it seems unlikely that records from three years earlier would no longer exist. In such a situation, the PPF may want to check the veracity and reliability of the information about what is counted for Inland Revenue purposes against the information that the PPF is given. That is a possible example, but only if the Inland Revenue believes that it is necessary for the PPF to have the data, for example to ensure that a scheme is still tax-approved or registered.
I can conceive of various situations in which the PPF is worried that the information that it has is not reliable or robust or in which some information about tax status that the PPF needs may be held by the Inland Revenue. The Inland Revenue will control such information.
If the noble Lord has any particular worries on the matter, he should write to me, and I will seek more extensive guidance. It is a complicated area.
Lord Higgins: I am grateful for that reply. If the information were not available in the company or pension fund concerned, that would be an offence. Under Inland Revenue rules, they must keep such information for seven years or so.
I shall give the matter some further thought, but I am always worried when information begins to float around more widely. I particularly remember on one occasion when it floated into local authorities at a low level. I shall bear in mind what the noble Baroness said.
Clause 193 agreed to.
Clause 194 [Provision of information to members of schemes etc]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 274A:
Page 135, line 3, at end insert "or in prescribed circumstances"
On Question, amendment agreed to.
Clause 194, as amended, agreed to.
Clause 195 agreed to.
Clause 196 [Publishing reports etc]:
On Question, Whether Clause 196 shall stand part of the Bill?
Lord Skelmersdale: This clause could be found virtually anywhere in the parts of the Bill containing the powers, duties and rights of the board of the Pension Protection Fund. It says:
"The Board may, if it considers it appropriate to do so in any particular case, publish a report".
I assume, as the clause comes in the fraud section of the Bill, that we are talking only about fraud, in which case that might be made a little clearer. I may have got it wrong, and the clause may apply to any case before the board relating to the entire Bill. In that case, it might be sensible to move the clause out of the fraud section into the more general section relating to the board earlier in the Bill.
Baroness Hollis of Heigham: I take the noble Lord's castigations, but I wonder whether what he said is
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completely true. There were previous amendments, for example, about the provision of information to members of schemes. It is not just a question of fraud; it is about the disclosure of information. We have passed the fraud section, and we are into clauses relating to information, some of which may indeed be fraudulently withheld. This is the general information section. I am happy to consider the matter, but the clause probably is in the appropriate place, and there is a bundle of amendments relating to information.
As the noble Lord half suspected, the clause applies to all functions of the board. The board may wish to publish reports or statements containing details of consultation exercises, statistics concerning the PPF's functions or recommendations of good practice for schemes that become involved with the PPF. The clause was introduced by the Government in another place, following debate about similar provision for the regulator. As Members of the Committee shall see, Clause 196(3) contains the slightly unusual words,
"to be made with malice"
4.30 p.m.
Although Parliament is a privileged forum, the provision was inserted in response to concerns raised in another place about naming and shaming. It is an extra burden of care before going into a naming and shaming list of the sort that we have seen in the past, if the PPF decides to do that.
Lord Borrie: I am sorry to intervene after the Minister has spoken. I was very surprised at the point made by the noble Lord, Lord Skelmersdale. This is the very last clause in Chapter 5, headed "Gathering Information"; Chapter 4 is headed "Fraud compensation". I do not see why this should be confined to matters relating to fraud.
Lord Oakeshott of Seagrove Bay: No, I think that we have moved on. Perhaps I may ask about a possible inconsistency in Clause 196. I am not a lawyer but I would welcome a response from the Minister on the matter. Subsection (3) states:
"For the purposes of the law of defamation, the publication of any matter by the Board is privileged unless the publication is shown to be made with malice".
Is that consistent with the general exemption from liability in damages contained in Schedule 5(28)? That states:
"Neither the Board nor any person who is a member of the Board, a member of any of its committees or sub-committees, or a member of its staff is to be liable in damages for anything done or omitted in the exercise or purported exercise of the functions of the Board conferred by, or by virtue of, this or any other enactment".
Another question is: would the qualified privilege for members of the board which is given for the purposes of the law of defamation equally apply for the purposes of the law of injurious falsehood? To put it differently, are the members of the board exempt from liability in damages in cases of injurious falsehood by virtue of Schedule 5(28), or will they be exempt from liability only if they have acted bona fide as there cannot be an injurious falsehood without an element

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of malice? I apologise for not having given the noble Baroness notice of that technical question. I would be happy if she would prefer to respond in writing.
Baroness Hollis of Heigham: My understanding is that the position is exactly as the noble Lord described it at the end: any publication by the board is to be exempt from defamation unless it is shown to be made with malice. In other words, Clause 196(3) overrides the previous provision about no liability for damages. This means that an individual cannot prosecute the PPF for damages concerning the content of a report unless they can show to a court that the report has been made maliciously.
Lord Oakeshott of Seagrove Bay: Why is it thought appropriate that it should override Schedule 5(28)?
Baroness Hollis of Heigham: As I recall, under Schedule 5(28) the members of the board would not be liable for damages where, for example, they acted in good faith. The question on which I was being pressed is whether they could give information about the status of a company which, to some extent, was a self-fulfilling prophecy—in other words, information about its insolvency or risk. The company might feel that that was unreasonable or unfair. Unless the report was malicious, the issue of damages would not arise.
Clause 196 agreed to.
Clause 197 [Meaning of "reviewable matters"]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 274B to 274E:
Page 136, line 30, after "that" insert "—
(a) "
Page 136, line 32, at end insert ", and
(b) the reference is to be construed as not including a failure to do the act or make the determination which first occurs after a prescribed time"
Page 136, line 32, at end insert—
"( ) Regulations may make provision suspending the effect of any determination, direction or other act of the Board, or any notice given or issued by it, which relates to a reviewable matter until—

(a) the period within which the matter may be reviewed by virtue of this Chapter has expired, and

(b) if the matter is so reviewed—

(i) the review and any reconsideration,

(ii) any reference to the PPF Ombudsman in respect of the matter, and

(iii) any appeal against his determination or directions,

has been finally disposed of."

Page 136, line 37, at end insert—
"( ) Regulations under subsection (3) may also modify any provision of this Part in consequence of provision made by virtue of paragraph (a) or (b) of that subsection."
On Question, amendments agreed to.
Clause 197, as amended, agreed to.
Schedule 9 [Reviewable matters]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 274F:
Page 289, line 43, leave out paragraph 1.
The noble Baroness said: As we are moving on to a new chapter, it might be helpful if I make a few contextual remarks.
Clause 197 is the first of a series of clauses in Chapter 6, which deals with reviews, appeals and maladministration. The clauses set out, among other things, the challenges that people can make to determinations made by the PPF board. I shall set out our overall strategy before coming to the specific amendments to the Schedule 9 list of reviewable matters.
Our overall strategy for dealing with PPF appeals is to strike a balance between fairness and administrative efficiency. In order to achieve this we are introducing a two-stage internal review process within the PPF to deal with appeals. We will discuss the details of this if we discuss Clause 198. However, we envisage that it will be broadly similar to the process currently in place for occupational pension schemes generally. That will be an informal review and a right to refer on, if not satisfied with that, to a reconsideration sub-committee set up by the PPF to review more formally.
Where someone remains dissatisfied with the outcome of the two-stage internal review process—perhaps there has been an error of fact that they want corrected and a reconsideration—they will be able to refer their dispute to the PPF ombudsman. This is a new office that we shall be setting up specifically for this purpose. The PPF ombudsman will be in a position to review matters of fact, law or maladministration.
The intention of Clause 197, together with Schedule 9, is to make it clear on the face of the legislation which of the board's decisions can be challenged. One might ask why some PPF decisions might not be challenged. If I may say so, the sort of decision that could be challenged is fairly obvious when one scratches away at this. As regards a defined benefit scheme, if the levy payable has been calculated incorrectly, for example, it needs to be challenged. If it has not been corrected in the internal review process, it can be challenged with the ombudsman. However, the kind of decision that cannot be challenged is the formula used to calculate the levy. This is because the formula is used for all schemes and there can be no deviation from it. Therefore, it would be inappropriate to allow challenges to a formula that has been established for all schemes.
I turn to the specific Amendments Nos. 274F, 274K and 274M, which amend Schedule 9. In the examples that I cited a few moments ago, our intention was to allow such challenges to be made under paragraph 1 of Schedule 9. However, we have recognised that the intention behind this paragraph may not be clear. We have therefore decided to replace it with the new paragraph which will sit after paragraph 15 (and which is to be introduced by Amendment No. 274M). This new paragraph makes it clear on the face of the Bill itself that the board's determination in relation to the

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initial or PPF levy can be challenged. This group of amendments also introduces Amendment No. 274K, which will allow a challenge to be made against the board's failure to obtain an actuarial valuation under Clause 135(2).
Paragraph 7 of Schedule 9 already provides for challenges to be made against the board's approval of a scheme valuation, or the failure to approve such a valuation. However, we recognise that appeal rights need to be made available where the board fails to obtain a valuation. Amendment No. 274K makes provision for this.
These amendments are essentially redrafting to close what might otherwise appear to be loopholes. I thought that it was worth taking the opportunity to spell out what we expect the role of the PPF ombudsman may be more generally. If the Committee wishes, I am very happy to enlarge on that role regarding costs, staff, number of cases we may expect and so on. I beg to move.
Lord Skelmersdale: I am extremely grateful for that explanation because my suspicious mind led me to believe that there was a danger of a change in policy which had not been announced. However, now that the noble Baroness has explained the position, it is quite clear that what we are actually discussing is reformulations and simple drafting amendments. I am happy with that.
On Question, amendment agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 274G to 274M:
Page 289, line 43, at end insert—
"The issue of a determination notice under section (Approval of notices issued under section 116) approving a notice issued under section 116.
The failure to issue a determination notice under section (Approval of notices issued under section 116)."
Page 290, line 1, leave out from "section" to end of line 2 and insert "116 by the Board by virtue of section 117 (Board's duty where failure to comply with section 116)."
Page 290, line 4, after "a" insert "scheme failure"
Page 290, line 14, at end insert—
"The failure by the Board to obtain an actuarial valuation of a scheme under section 135(2)."
Page 290, line 20, leave out "140(5)(a)" and insert "(Withdrawal following issue of section 116(4) notice)"
Page 290, line 35, at end insert—
"Any determination by the Board under section 172(3)(a) (the eligible schemes in respect of which the initial levy or the pension protection levy is imposed) or the failure to make such a determination."
On Question, amendments agreed to.
Schedule 9, as amended, agreed to.
Clause 198 [Review and reconsideration by the Board of reviewable matters]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 275:
Page 137, line 6, after "decision" insert "to determine whether the matter is reviewable and then"
The noble Lord said: The process of reconsideration by the board of reviewable matters struck me as being rather light—an internal equivalent of judicial review. The board has to decide: first, whether the matter is within its competence; secondly, whether a review could make a material difference; and the third stage would be to conduct the review. The last two stages are already in the Bill but the first is not, which is the reason for the amendment. I beg to move.
Baroness Hollis of Heigham: I thought that I had touched on this matter to some extent, but perhaps I need to expand further.
When a written application is made requesting a review of the board's determination of a "reviewable matter"—we need to spell that out because some matters are not reviewable; for example, the structure of the formula—there will be a two stage internal review procedure within the PPF to deal with it. It will be more informal and involve the correction of a mechanical error and a reconsideration committee. If an interested party is dissatisfied with the outcome of the first-stage review, which should pick up errors, it can request a second-stage review. This will be undertaken by a specially constituted committee of the board, referred to in the legislation as the "Reconsideration Committee", which can undertake a review only if the dispute relates to a "reviewable matter" and a "review decision" has been given following a first-stage review.
Amendment No. 275 would require the reconsideration committee to determine whether the matter is reviewable and then carry out the second-stage review. I do not believe that we need to do that because, by definition, if the reconsideration committee is sitting, it has already been determined that there is a reviewable matter that has come within its remit. We do not need that extra stage. I appreciate that a second-stage review could be requested when one is not appropriate. But if that occurs, the applicant will be advised of the correct review procedures to be followed—he will not lose out on his right of appeal. So it is not necessary for the reconsideration committee to decide whether it can review and then go on to conduct a review. That would become the same process.
Finally, Amendment No. 276 would require Clause 198(3) to be deleted. Clause 198(1) requires regulations to be made to require the board to undertake a review when it receives a written request to do so. So in general terms, if a person wishes to dispute a "reviewable matter" decision made by the board, he or she will need to do so in writing. However, Clause 198(3) allows the regulations to provide that a review can be undertaken on other occasions. For example, the levy payable by an eligible scheme may have been calculated incorrectly and an invoice may have been mistaken. Such an error could come to light in two main ways. We would hope that possibly the scheme trustees could bring the error to the board's attention by writing to ask for the decision to be reviewed. This would normally be corrected at the first-stage review.

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Conversely, the board may notice the mistake after the invoice has been issued to the scheme. In that case the board would need to be able to review the decision of its own volition—which it could not do if the amendment were passed. So by deleting this subsection the noble Lord would deny the board the capacity to correct mistakes that it has noticed, rather than the trustees. I am sure that he would not wish to do that.
Finally, Amendment No. 277 would amend Clause 198(4)(d) which, as it stands, ensures that the regulations under Clause 198(1) must provide for the board to pay such compensation as it considers appropriate to such persons as it may determine. So, for example, when PPF compensation has been underpaid, the regulations may provide that the PPF board should reimburse the amount underpaid and may also include a requirement to pay interest. The intention is to ensure there is an adequate statutory remedy for any infringement of rights that has occurred. The regulation-making powers under Clause 198 will be used to provide adequate remedies. However, the opposition amendment would require the regulations to set parameters on the amount of compensation that the PPF board could pay in relation to "reviewable matters". That is not necessary, and the noble Lord did not press it in any of his arguments, so I hope that with that explanation the noble Lord will withdraw not only the amendment but the subsequent ones.
Lord Skelmersdale: Yes, of course I shall withdraw them. With regard to Amendment No. 276, to which I should have referred in my introduction, my initial thought was that subsection (3) was not necessary, because the matter was already covered by Clause 204(5). I see that that clause refers entirely to the ombudsman, so it is necessary to have it in twice. I understand that now, thanks to the noble Baroness's explanation.
To a great extent, the point in Amendment No. 277 is covered by a government amendment that we will get to shortly. I am happy to withdraw Amendment No. 275 and not to move the others.
Amendment, by leave, withdrawn.
[Amendment No. 276 not moved.]
4.45 p.m.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 276A:
Page 137, line 21, at end insert—

"( ) to provide for such variations, revocations or substitutions, or any determinations, directions or other decisions made as a result of the review decision or reconsideration decision, to be treated as if they were made at such time (which may be a time prior to the making of the review decision or reconsideration decision) as the Board considers appropriate,

( ) to provide for any notice varied, substituted, issued or given by the Board as a result of the review decision or reconsideration decision, to be treated as if it were issued or given at such time (which may be a time prior to the making of the review decision or reconsideration decision) as the Board considers appropriate,"

On Question, amendment agreed to.
[Amendment No. 277 not moved.]
Clause 198, as amended, agreed to.
Clause 199 [Investigation by the Board of complaints of maladministration]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 277A:
Page 138, line 7, leave out from beginning to "or" and insert "the pension compensation provisions,"
On Question, amendment agreed to.
On Question, Whether Clause 199, as amended, shall stand part of the Bill?
Lord Higgins: I am a little puzzled by the clause. It is headed "Investigations by the Board of complaints of maladministration", but, unless I have misunderstood, the maladministration complained about is maladministration by the board, which will then carry out an internal inquiry. I may have misunderstood the purport of the clause, but, in any case, if the board is accused of maladministration, it would be more appropriate for the matter to be dealt with by some independent body, presumably the ombudsman for the Pension Protection Fund. I may have misunderstood the purpose of the clause.
Baroness Hollis of Heigham: I do not think that the noble Lord has misunderstood: that is exactly what will happen. The provisions of Clause 199 apply not only to PPF compensation but to fraud issues. If someone believes that there has been maladministration, the board will see whether the issue can be resolved through the informal process of reconsideration. If not, the matter will go to the PPF ombudsman, who will be completely independent of the board. The noble Lord is right.
Basically, there is an internal review process that should pick up errors. There is a reconsideration committee to examine larger disputes—about valuations or whatever—that can be agreed between the parties. If not, matters of fact about valuations or matters relating to the appropriate application of the law or the mishandling of a case by the PPF board can go to the PPF ombudsman. From there, any matter of law, not of maladministration or fact, can go to the High Court. It is a four-stage procedure. I hope that, with that information, the noble Lord will feel that we have put some good steps in place.
Lord Higgins: I am grateful for that explanation. It is not the normal procedure for an ombudsman. There is not normally an internal inquiry, nor is there any ability on the part of the body complained about to pay compensation. It would normally be the ombudsman who would decide whether it was appropriate for compensation to be paid. I have a nasty, sneaking feeling that the board will carry out an internal investigation and pay up fast, in order to prevent the matter getting to a wider audience. No doubt, that is excessively cynical on my part. I understand the mechanism that the noble Baroness has in mind.
Baroness Hollis of Heigham: It is no different from the system for the pensions ombudsman under the 1993 Act. The noble Lord is right to say that it is different from my experience of local government or parliamentary ombudsmen and so on. The powers to require rectification are different. In local government, I sometimes did not feel that it was appropriate to do what the local government ombudsman wanted me to do. The ombudsman might have been dealing with an individual case against a local authority, and, in a planning case, there might be a triangular situation.
The noble Lord is right to say that the powers are different. They are similar to those of the pensions ombudsman, and I hope that the noble Lord will agree that they are satisfactory.
Lord Borne: I have some sympathy with the noble Lord, Lord Higgins, on this matter, because the word "maladministration" hardly existed in political parlance before the existence of "ombudsmen". In other words it was something that was not necessarily criminal or illegal in civil law, but involved some inadequacy or inefficiency of a government department. When the parliamentary ombudsman was created, the famous Grossman list or schedule of ways in which the department could be guilty of maladministration was enunciated. It has been used ever since by all the public sector—including local government, which the Minister mentioned—and private sector ombudsmen. Their overriding concern has always been, "Has there been maladministration?".
I suppose that I felt the same as the noble Lord, Lord Higgins—at any rate until I also read Clause 205 which we have not yet debated. All that there is here is a situation in which the board can do an internal examination whereby such typical complaints of maladministration can be examined internally before one reaches the completely independent person, the ombudsman.
Lord Higgins: That was a slight diversion. Such was the inflammatory speech made by the noble Lord that there seems to be a slight smell of burning on this side of the building. I gather that the matter is being investigated.
Clause 199 agreed to.
Clause 200 [The Ombudsman for the Board of the Pension Protection Fund]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 278:
Page 139, line 35, at end insert—
"(7) Regulations may provide for the imposition of a levy in respect of eligible schemes for the purpose of meeting expenditure of the Secretary of State under subsection (6).
(8) Where regulations make such provision, subsections (2), (3), (5), (6) and (7) of section 111 (administration levy) apply in relation to the levy as they apply in relation to an administration levy (within the meaning of that section), except that in subsection (7) the reference to subsection (1) of that section is to be read as a reference to subsection (7) of this section."
The noble Baroness said: In moving the amendment I shall also speak to Amendment No. 345. The current wording of Clause 200 requires the Secretary of State to provide a grant in aid to fund the office of the PPF
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ombudsman. We are not dealing with large sums here. The total cost of the pensions ombudsman, rather than the PPF ombudsman, amounted to less than £1.5 million in 2002–03. That should come within the levy to repay the grant in aid paid by the Secretary of State so it is clear that it remains independent of the Government. I hope that with that explanation noble Lords will be happy to accept the government amendment. I beg to move.
On Question, amendment agreed to.
Clause 200, as amended, agreed to.
Clause 201 [Deputy PPF Ombudsmen]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 278A:
Page 139, line 38, after "Ombudsman" (insert "in this Chapter referred to as"
On Question, amendment agreed to.
Clause 201, as amended, agreed to.
Clause 202 [Status etc of the PPF Ombudsman and deputies]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 278B:
Page 140, line 27, at end insert—
"(2A) The persons to whom section 1 of the Superannuation Act 1972 (c. 11) (persons to or in respect of whom benefits may be provided by schemes under that section) applies are to include—

the PPF Ombudsman

a Deputy PPF Ombudsman

the employees of the PPF Ombudsman.

(2B) The PPF Ombudsman must pay to the Minister for the Civil Service, at such times as he may direct, such sums as he may determine in respect of the increase attributable to subsection (2A) in the sums payable out of money provided by Parliament under that Act."
The noble Baroness said: In moving the amendment I shall also speak to the amendments in the group. We have already accepted Clauses 200 and 201, which deal with the setting up and funding of the PPF ombudsman, his staff and any deputies. As already mentioned, the PPF ombudsman's office will be funded in the first instance by a grant in aid from the Secretary of State and then a levy. We expect the sums to be extremely small. The intention behind the current group of amendments is threefold.
First, they include the newly established PPF ombudsman, his staff and any deputy ombudsman in Schedule 1 to the Superannuation Act 1972. This means that they will be eligible to receive civil service premium pensions in line with existing provisions for the pensions ombudsman and his staff. Secondly, the amendments provide for the PPF ombudsman to pay to the Minister for the Civil Service the amount payable in respect of those pensions. Also, they provide for similar provision to apply for the pensions ombudsman in relation to any deputies. Thirdly, the amendments correct an omission in previous legislation, by requiring

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the pensions ombudsman to pay to the Minister for the Civil Service the amount payable in respect of the pensions ombudsman and his staff. In practice, this happens already and Amendment No. 313AA places that on the face of the legislation. With that I hope that your Lordships will accept these amendments. I beg to move.
On Question, amendment agreed to.
Clause 202, as amended, agreed to.
Clause 203 agreed to.
Clause 204 [Reference of reviewable matter to the PPF Ombudsman]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 279:
Page 141, fine 15, leave out paragraph (a).
The noble Lord said: I am something of a regulations and statutory instruments fanatic—and have been for many years.
Baroness Hollis of Heigham: Perhaps the noble Lord is the statutory instruments ombudsman.
Lord Skelmersdale: Not quite. So whenever I see the word "regulations" in a Bill I look at it extremely carefully. After all, the point about regulations and statutory instruments is that they are used for matters which change over time within the broad parameters of an Act of Parliament and may do so regularly. The noble Baroness produces or is responsible for endless social security statutory instruments during a year. Over the past seven years she has been responsible for an enormous number—which I have not counted, but perhaps she keeps a running total.
In this case regulations shall require the PPF ombudsman to conduct an oral hearing in relation to any reviewable matter, and so on, and enable him to consider evidence and make other provision about procedure for conducting investigations. I would have thought that that was pretty standard stuff and it would not change on a regular or even irregular basis before the likelihood in, say, seven or 10 years, of another pensions Bill. Therefore, regulations are certainly not appropriate and such matters could well be incorporated in a schedule to the Bill. I beg to move.
Baroness Hollis of Heigham: I do not agree with the noble Lord. We are talking about who can request a review by the PPF ombudsman, how such reviews are to be made and the time limits for doing so. It is perfectly reasonable that that should be done by regulations, but the regulations will be subject to the affirmative resolution procedure—so they would be debated in both Houses. Anything that contains time limits is particularly unwise.
Regarding the prescribed persons, I could conceive that the bodies that believe themselves to be injured in any way might go wider than we would currently list. For example, at the moment there may be no statutory right for, say, an unmarried partner of either gender to have rights of compensation or whatever from a
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scheme. We might list scheme members or survivors. That might well change over time and many of us hope it will, but that is a gradual process and depends on how broader society shares that view. Then we might need to add to this. The last thing that we would wish to do would be to come back with primary legislation requiring a Second Reading and three stages in both Houses, when it could be done by amending affirmative regulations. This seems to be exactly the sort of matter which I hope that, on reflection, the noble Lord would agree should be dealt with by regulation—but through affirmative procedure so that the House would know what was going on.
5 p.m.
Lord Skelmersdale: The example that the noble Baroness has just given would be quite a major shift in policy, although she says that she has hoped for it for some time, which, given her position, I can understand. Surely it would be part and parcel of an Act of Parliament in the future because it would affect not only this but all sorts of other things as well. Therefore, during the course of the legislation's proceedings through Parliament, it would be perfectly possible and proper to amend it to encompass this. I am afraid that I am not convinced by the example.
Baroness Hollis of Heigham: That will teach me to offer one.
Lord Skelmersdale: I shall read what the noble Baroness has said and come to a view on it. However, it still strikes me that this is standard stuff; it will be a one-off—albeit affirmative—regulation, and I do not think it likely that it will be necessary to come back to Parliament to change it in anything like the foreseeable future. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 279A and 279B:
Page 142, line 12, after "payments," insert—
"( ) conferring power on the PPF Ombudsman to direct that—

(i) any determinations, directions or other decisions which are made by the Board in accordance with any determination or direction given by him, or

(ii) any variations, revocations or substitutions of its determinations, directions or other decisions which are made by the Board in accordance with any determination or direction given by him,

are to be treated as if they were made at such time (which may be a time prior to his determination or direction) as he considers appropriate,
( ) conferring power on the PPF Ombudsman to direct that any notice varied, substituted, issued or given by the Board in accordance with any determination or direction given by him is to be treated—

(i) as if it were issued or given at such time (which may be a time prior to his determination or direction) as he considers appropriate;

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(ii) as if it became binding for the purposes of this Part at the time at which he gives his determination or direction or at such later time as he considers appropriate,

( ) prescribing the circumstances in which any determination or other act of the Board in accordance with any determination or direction given by the PPF Ombudsman, is not to be treated as being a reviewable matter for the purposes of this Chapter,"
Page 142, line 14, at end insert "(including such powers as the Board may have on making a review decision or a reconsideration decision under regulations made under section 198(1))"
On Question, amendments agreed to.
Clause 204, as amended, agreed to.
Clauses 205 to 209 agreed to.
Clause 210 [Backdating the winding up of eligible schemes]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 279C to 279E:
Page 144, line 30, leave out sub-paragraphs (i) to (iii) and insert—

"(i) a scheme failure notice or a withdrawal notice issued under section 116(2) in relation to the scheme becoming binding,

(ii) a withdrawal notice issued under section (Withdrawal following issue of section 116(4) notice) in relation to the scheme becoming binding, or

(iii) a notice issued under section 116(4) becoming binding in a case where section (Withdrawal following issue of section 116(4) notice) does not apply."

Page 145, line 3, leave out from "than" to end of line 4 and insert "a scheme failure notice or a withdrawal notice issued under section 122(2) or (3) in relation to the scheme becoming binding."
Page 145, line 10, at end insert—
"(3A) In a case where subsection (3) applies, the Regulator may by order direct any person specified in the order—

(a) to take such steps as are so specified as it considers are necessary as a result of the winding up of the scheme beginning in accordance with that subsection, and

(b) to take those steps within a period specified in the order.

(3B) If the trustees or managers of a scheme fail to comply with a direction to them contained in an order under subsection (3A), section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
(3C) That section also applies to any other person who, without reasonable excuse, fails to comply with a direction to him contained in an order under subsection (3A)."
On Question, amendments agreed to.
Clause 210, as amended, agreed to.
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 279F:
After Clause 210, insert the following new clause—
"PENSION SHARING
(1) Regulations may modify any of the provisions of this Part as it applies in relation to—
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(a) cases where a person's shareable rights under an eligible scheme have (at any time) become subject to a pension debit;

(b) cases where—

(i) a pension sharing order or provision in respect of such rights is made before the time a transfer notice under section 151 is received by the trustees or managers of the eligible scheme, and

(ii) that order or provision takes effect on or after the receipt by them of the notice.

(2) Regulations may also modify any of the provisions of Chapter 1 of Part 4 of the Welfare Reform and Pensions Act 1999 (c. 30) (pension sharing) as it applies in relation to—

(a) cases within subsection (1)(a) where any liability of the trustees or managers of the eligible scheme in respect of a pension credit was not discharged before the time a transfer notice under section 151 was received by the trustees or managers of the eligible scheme:

(b) cases within subsection (1)(b).

(3) In this section—

(a) "pension debit" and "shareable rights" have the same meaning as in Chapter 1 of Part 4 of the Welfare Reform and Pensions Act 1999 (c. 30) (pension sharing), and

(b) "pension sharing order or provision" means an order or provision falling within section 28(1) of the Welfare Reform and Pensions Act 1999 (activation of pension sharing)."

On Question, amendment agreed to.
Clause 211 [Pension schemes to which this Part applies]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 280:
Page 145, line 25, leave out subsection (2).
The noble Lord said: The beginning of this clause was covered right at the outset of our discussions on the Bill. The provisions of this part apply to every occupational pension scheme other than a money purchase scheme or—and this is the point—
"a prescribed scheme or a scheme of a prescribed description".
That is fine, as far as it goes. However, the clause continues by saying that regulations under subsection (1)(b)—the prescribed scheme or a scheme of a prescribed description—
"may provide for exemptions from all or any of the provisions of this Part".
To what extent does this refer to subsection (1)(b), and to what extent can some schemes which are further prescribed be exempted from this part, while others are not? I beg to move.
Baroness Hollis of Heigham:The simple answer is that subsection (1) exempts money purchase schemes, prescribed schemes or schemes of a prescribed description from the remit of the scheme funding provision. Schemes that are currently exempt from the MFR and which we expect to be exempt from the minimum requirement include most public service schemes; schemes in which a Minister of the Crown has given a guarantee, such as the British coal and

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mineworkers' schemes; and schemes with less than two members. I wonder whether that answers the noble Lord's question.
Lord Skelmersdale: Not quite. The amendment refers to subsection (2), which says that regulations under subsection (1)(b)—a prescribed scheme or a scheme of a prescribed description—
"may provide for exemptions from all or any of the provisions of this Part".
The question is whether those two go together, as it were, or whether there will be further regulations exempting some types of scheme from some provisions of this part.
Baroness Hollis of Heigham: That will teach me to try to expedite proceedings.
As well as schemes that will be exempt from the new funding provisions in their entirety, such as money purchase and Crown-guaranteed schemes, there will be some schemes for which some but not all the provisions should apply. The power to do this is in subsection (2) of the clause, as the noble Lord identified, which Amendment No. 280 seeks to remove. Without subsection (2), a scheme could only be fully bound by, or fully exempt from, the new funding provisions.
The problem with that approach is that defined benefit schemes are not homogenous. We also need to cater for the specific situations that may arise during the life of an occupational pension scheme. The power in subsection (2) enables us to adapt legislation to fit the circumstances now and in the future. For instance, we may exempt schemes that are winding up from many of the new requirements, such as drawing up or revising a statement of funding principles, or putting a schedule of contributions in place.
Where a scheme is in the process of winding up, it would he inappropriate to ask it to remedy the situation as if it were not winding up. That is the use of such a power. Where a scheme is winding up, members' interests will be protected by other legislation, such as the debt on the employer provisions, the statutory priority order and ultimately the PPF. We want that power to be able to exempt them from subsection (1).
The power in subsection (2), together with the power in Clause 222 to modify the scheme funding provisions in prescribed circumstances also enables us to place appropriate requirements on particular schemes, such as those operating on a pan-European Union basis across national borders, or multi-employer schemes operating on an industry-wide basis.
Taking these powers to make adjustments to the scheme funding provisions in regulations enables us to consult the pensions industry and other key stakeholders such as the CBI and the TUC on our proposals, and provides for the possibility of further modifications in the light of operational experience or the development of different types of scheme. Discussions with representatives from these groups are already under way and will continue as the detailed provisions are developed.
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I trust that the noble Lord will accept that some schemes are wholly exempt and some schemes may be because they are in the process of winding up. There may be some extremely complex pan-European schemes where one wants more finesse than the Bill allows. That is why we need the powers in subsection (2).
Lord Skelmersdale: I seem to remember an expression on the west coast of Scotland that, "We think better later". I got much more out of the noble Baroness's second explanation than I did out of her first. I am very grateful to her, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 211 agreed to.
Clause 212 [The statutory funding objective]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 280A:
Page 146, line 8, leave out "that limits the amount of its" and insert "rules that limits the amount of the scheme's"
On Question, amendment agreed to.
On Question, Whether Clause 212, as amended, shall stand part of the Bill?
Lord Higgins: I think it would be appropriate to rise now because this clause is of considerable importance, as indeed are—
Baroness Hollis of Heigham: I am a little puzzled. We are talking about Clause 212, but it is preceded by government amendments which have not yet been dealt with.
Lord Higgins: I can help the noble Baroness. I got confused by this as well this morning. There is a mistake in the grouping. I notified the office about that and hoped that it would notify the noble Baroness and others. At present, Amendment No. 280 is in the wrong place.
Baroness Hollis of Heigham: As I understand it. Amendment No. 281 is an amendment to Clause 215.
The Deputy Chairman of Committees (Lord Lyell): I am following the Marshalled List, and, as I understand it, we have agreed to Amendment No. 280A. I was putting the Question whether Clause 212 shall stand part, and the noble Lord, Lord Higgins, wished to speak to it. I apologise—I had marked Clause 213, but the noble Lord wished to speak to the Question whether Clause 212 shall stand part. No doubt he will wish to speak to the Question whether Clause 213 shall stand part also.
Lord Higgins: As I understand it, I am now speaking to the Question whether Clause 212 shall stand part. The noble Baroness was confused because an earlier version of the grouping presented the clauses in the

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wrong order. It took me about a quarter of an hour this morning to work out what had happened, and I cannot do it on my feet now.
Baroness Hollis of Heigham: I picked this up again at 3 o'clock this afternoon and the error is still there. Anyway, that is fine.
Lord Higgins: In that case, although I reported it, nothing happened. However, I think that I am right in saying that we are now on the Question whether Clause 212 shall stand part—the statutory funding objective.
As I began to say, this is a very important clause, as are those which immediately follow it. It effectively substitutes a statutory funding objective for the previous minimum funding requirement. Indeed, I believe that the minimum funding requirement is still in operation.
I was not involved in the original legislation to introduce the minimum funding requirement, but there is a widespread view that it had serious technical problems and unfortunate consequences for the investment market. There was a strange effect on particular companies which came up against the limit of the minimum funding requirement. However, from my own experience, the fund of which I was chairman never got anywhere near the minimum funding requirement, but was funded above that. Even so, we might have had concerns at times about whether we were adequately funded. The minimum funding requirement effectively has not worked. That has been demonstrated by the number of company schemes which have gone bust. Presumably, if they had been funded at an appropriate level, they would not have done so.
Can the noble Baroness tell us how many schemes are currently under their minimum funding requirement? I suspect that it is a very considerable number. Therefore, I welcome the change proposed by the Government—namely, a scheme-specific funding objective which will be based on advice from the scheme actuary and would make it apparent to members and trade unions that the scheme was adequately funded.
I gather that the department's pristine intention has been somewhat adjusted or, at any rate, affected by the European pensions directive. This includes various provisions, so that instead of having sensible expressions in the Bill such as the actuarial value of liabilities, we end up with references to schemes' "technical provisions"—a totally meaningless expression which I understand is eurospeak for what one would normally call the value of the liabilities. However, it seems that this is the reality of the situation. I am not clear why we did not object to this kind of absurd terminology when the directive was being formulated, or perhaps we did and were overruled. However, there are other aspects that give cause for concern. It is appropriate to raise the following matter in connection with the clause that we are discussing.
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I gather that the directive also requires that the fund should hold sufficient and appropriate assets. Whereas the expression "technical provisions" may become a term of art and reasonably well refined, the expression "sufficient and appropriate assets", at the other end of the scale, seems to be so vague as to be virtually meaningless. However, this is an important matter.
It is also the case, if I understand it correctly, that the powers in the Bill as they stand at the moment would enable someone simply to adopt the MFR in its old form using the same powers. I gather that that is certainly not the Government's intention but is that a possible way in which the powers could be used?
What is more worrying is the aspect of the matter—if I understand the point correctly in the directive to which this clause is related—which requires that the sufficient and appropriate assets have to be there at all times, which may not be the case at all with schemes at present. It is not clear what the expression "at all times" means, or whether the directive or this clause should make provision for them to be sufficient and appropriate for a limited period. It also raises difficult questions about how you value the liabilities together with the assets at a moment of time in terms of discounting for the fact that they are all not due at a particular moment. The expression "sufficient and appropriate assets at all times" presumably means at all times taking into account the fact that the liabilities and the assets do not relate to a moment of time but are spread over time.
5.15 p.m.
There is concern that this clause could be interpreted to mean effectively that a scheme has to be funded on a full buy-out basis at any moment. I guess that a number of schemes are not in that position at the moment. The Minister may have data that illustrate whether that is true. While I think it is right that we should get rid of the minimum funding requirement, which has proved useless and an irritation at times, we should be careful to examine exactly what the Government are proposing as regards the statutory funding objective. I have sought to spell out some of the possible doubts about what it means. I should have thought that this is a matter of very considerable concern.
Later we shall discuss the recovery period and so on, which is related to some extent to what I have just said. I hope that the noble Baroness will reassure us on these points, which are clearly very important, as the whole future viability of any scheme seems to be related to this clause.
The relevant heading, which is not part of the Bill, refers to scheme funding. It would be clearer if it referred to schemes' funding, as scheme funding might appear in this context to refer to the pension protection scheme rather than to the schemes of pension funds. I should be grateful for the Minister's response.
Lord Oakeshott of Seagrove Bay: Behind this technical and rather dusty wording, there are questions of great significance for the economy, for

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business and for individual pension funds. Can the Minister tell us her department's current estimate of the overall impact on pension funds of moving from the current MFR arrangements to the statutory funding objective, as it is called, either under current conditions or when it comes into effect? Can we have some order of magnitude, some idea of whether this will be a tougher or less tough target and by roughly how much, in money terms? That is very important in assessing this.
We would also be grateful if the noble Baroness could give us further information on the sort of schemes where the gap between one and another will be greater. To have some overall estimate of the effect would be exceptionally useful.
Baroness Hollis of Heigham: I am certainly happy to respond. I endorse everything that the noble Lord, Lord Higgins, has said about the welcome there has been for moving from the MFR to scheme-specific funding. This has been widely welcomed by the industry for two broad reasons.
While not wanting to use terms such as "one size fits all", I have been struck by the fact that MFR is very top-down. As a result, trustees have not owned the funding of their schemes as one would have hoped. They have been too reliant on a formula coming from their actuaries or their accountants and have not owned it themselves. One reason for that is that MFR, as most people would now agree, focused perhaps too narrowly on the connection between assets and liabilities and did not take into account the strength and solvency of the company and therefore the capacity, over time, to remedy matters.
As was mentioned in a previous debate, a very strong company such as BT could be allowed a number of years to rectify matters, whereas a company that was much flakier might have a higher level of scheme-specific funding but less capacity to remedy up to meeting its full liabilities. There are two broad grounds. Scheme-specific funding is a determination by the trustees on funding methods, which can be ongoing or discontinuous depending on whichever method is adopted, given the advice of their actuaries and reflecting their investment principles. That allows a more realistic—we hope—structure for the pension promises originally made to be delivered.
The noble Lord asked me how many schemes are currently underfunded under MFR. I am amazed that I have the answer—I am very impressed with myself. I am told that, as of December 2003, some 45 per cent of schemes were less than 100 per cent funded on the MFR basis. He also asked whether a scheme could accept or adopt the MFR in a slightly lazy-minded way and simply move over. That could happen only if the trustees and the scheme actuary made a series of decisions which effectively put the individual scheme at this level. They could not, under the legislation, simply adopt the MFR. In other words, they could arrive at a scheme-specific funding level which presumably was aligned with that of the MFR; they could not simply introduce the MFR in lieu of scheme-specific funding.
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The noble Lord's third point was about the European directive and the phrase "technical provisions". The noble Lord, Lord MacGregor, has raised this point as well. Under the new scheme funding requirements, each scheme will be required to meet the statutory funding objectives of having sufficient and appropriate assets to cover its "technical provisions". Where that statutory funding objective is not met, the scheme's trustees must put a recovery plan in place.
The term "technical provisions" is used but not defined in directives. I circulated some background material on this earlier. It is worth putting this point in Hansard because, as the noble Lord, Lord Oakeshott, said, it sounds dusty but is actually key. We consider that "technical provisions" mean the amount that the trustees, on actuarial advice, judge that a scheme needs to have in its fund now to be able to meet its accrued pension commitments as they fall due, to be paid in the future, as far as can be reasonably foreseen, according to sufficiently prudent assumptions on factors such as investment returns, life expectancy and so on, and taking account of all commitments for future benefits and contributions.
The Bill describes technical provisions as the amount required, on an actuarial basis, to make provision for the scheme's liabilities. The intention is to require schemes to value their liabilities on a full solvency basis: that is, the cost of discharging all their accrued liabilities by the purchase of insurance company annuities.
Lord Higgins: Is there legal advice that that definition is acceptable in the terms of the directive?
Baroness Hollis of Heigham: I shall come on to that, because one of the points that the noble Lord raised cross-refers back. I believe that I shall be able to meet that point. The European directive was originally extremely heavy in terms of valuations required: it required full valuations every year. We were able to get a derogation from that to triennial valuations with interim valuations where there has been a material change. I believe that that will substantially reduce some of the burdens on companies in a sensible way.
The noble Lord then asked about sufficient and appropriate assets at all times. I am assured that that applies only to schemes which are operating on a cross-border basis. Cross-border schemes will have to comply with the scheme funding provisions in Part 3 of the Bill, as modified under the powers in Clause 222, to take account of that requirement. For example, it is likely that schemes will be required to undertake annual valuations and send a copy of the valuation report to the Pensions Regulator, but it applies only to a section of schemes.
The noble Lord cheerily asked a question about apostrophes. He may be quite right about that. There was rather a nice line in the New York Times, which I read when I was in the States this summer and which I should like to share with the Committee. It said that President Bush was hostile to all taxes, including syntax. I cannot help feeling that this may be one case where he may come up against that.

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Finally, the noble Lord, Lord Higgins, asked me for statistics on the overall impact on scheme-specific funding and on the financial implications for schemes. The pension benefits must obviously be properly funded in order that the benefits can be paid as they fall due. I do not have a cost figure in the sense that the actual cost of providing the pension benefits promised by DB schemes is not altered by the replacement of the MFR with the new scheme. The noble Lord needs to return to his question. The cost of a scheme being able to meet its full pension promise as defined classically is not altered by whether you have MFR or scheme-specific funding: that remains a constant. In that sense the requirement of schemes to meet their pension promise remains unchanged and, therefore, the cost to do so remains unchanged.
But certainly MFR and scheme-specific funding allow trustees to make different decisions, whether on an ongoing or discontinuous basis, on the advice of their actuary, and to take into account different considerations, such as the strength and solvency of the company, in how they best meet that obligation of delivering the full pension promise at the point at which a member leaves. I do not know that I can add to that. I do not know whether the noble Lord wishes to press me further, in which case I invite him to do so. I hope that I have met some of the questions that the noble Lord, Lord Higgins, raised.
Lord Higgins: I am certainly grateful for that reply. The figure that the Minister mentioned of 45 per cent of schemes being at the moment below the MFR is a frightening one. I am not clear how those concerned with supervising the schemes enabled that situation to come about. Would I be right in thinking, however, that with a scheme-specific funding system introduced (assuming, ceteris parabis, all else being equal) rather more than 45 per cent would manage to meet immediately their scheme-specific funding level? The noble Baroness shakes her head.
5.30 p.m.
Baroness Hollis of Heigham: Not necessarily, because scheme-specific funding is about seeking to ensure that the scheme will be able to discharge its full liabilities as and when its members seek to draw those liabilities down. Each scheme will be different; one scheme will proceed on an ongoing basis and another on a discontinuous basis, while another may have a different ratio of deferred members to active members. They may have different salary structures and may, reasonably or otherwise, be making different assumptions about longevity. They may have different strategies relating to future salary increases by the employer. All those things will come into the scheme funding schedule, such that the trustees on the advice of the actuary must produce a funding strategy to satisfy the regulator that the funding promise will at an appropriate time be able to be met.
I do not believe that one can do such an easy read-across. It was possible with MFR because it was standardised, which is why I was able to produce those
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statistics—slightly to my own surprise. It cannot be done with scheme-specific funding in the same way. What we can do is to ensure that the regulator works with the trustees on the advice of the actuaries to ensure that, given certain assumptions and decisions made by the trustees, the pension promise of that scheme should be met in full over a realistic and appropriate period of time.
Lord Higgins: Making the change from MFR to scheme-specific funding may have an effect on whether or not the employer decides to close the scheme. Again that will depend on individual cases and it is uncertain how that will go.
The Minister in her first reply, rather than in her recent intervention, said that we had obtained a derogation from the European directive—if I recall correctly, with reference to whether the "at all times" provision applied or not. Is that a permanent derogation? She went on to say that the "at all times" provision applied only to schemes on a cross-border basis. Some of them, such as that of Shell, would be very important. But it seems very odd to have one standard for cross-border schemes and another for UK schemes. There are obviously implications as to whether the European directive and those enthusiastic for it were trying to have a scheme always funded on a full buy-out basis. I gather that was something that the Chancellor of the Exchequer was not wildly enthusiastic about, which I can understand.
These are serious points. We should consider to what extent the present wording of the clause represents the best we can do. The original intention of the Treasury seems to have been significantly altered in some respects by the implication of the directive. I shall make other points on subsequent clauses.
Lord Oakeshott of Seagrove Bay: The Minister invited me to press her further on this matter. I obviously did not ask my question clearly enough.
I understand and accept that changing the funding objective does not make any difference to the actual assets that one has or to the actual cost at any one time, and does not change the pension promise. However, my question was—and I repeat it. I hope, more clearly—what does the department believe the effect of changing from the MFR to the statutory funding objective will have, on average, on the liabilities or underfunding of schemes?
The Minister did not begin to answer that question. She proudly pulled out of her notes the figure of 45 per cent of schemes being underfunded on an MFR basis in December 2003. On the new statutory funding objective proposed, what proportion does the department estimate would have been underfunded at that time? I do not think that it is nearly good enough to say, "We've no idea, it will depend on the individual trustees". Has no estimate or assessment been made by the department? That was what I was asking—and I ask it again more clearly, I hope.
Lord Higgins: The Minister said that it would be possible for a scheme to devise an arrangement which

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was the equivalent of the old MFR. Given that that arrangement has failed to ensure that schemes are properly funded, do we need to tighten up the clause so that a particular scheme could not in effect reproduce the MFR, with all its inadequacies?
Baroness Hollis of Heigham: On that last point, I was at pains to say that it is not that those schemes will replace MFR but that they could end up with the same figure as they reached under the MFR scheme. Under MFR, they might well have been 95 per cent or 98 per cent funded; they may get to the same point by completely different paths.
With reference to the question asked by the noble Lord, Lord Oakeshott, I cannot see how one can answer it until one knows the type of scheme funding principles adopted by individual schemes. There is clearly a difference between ongoing and discontinuous schemes, with assumptions being made about having a full buyout immediately or over time. It would be a question of what would be appropriate, given the assumptions being made about salary increases and so on. Perhaps the noble Lord could tell me, but I do not see how one could make that estimate.
I can see how at the end of a period of time in which schemes have in place the scheme funding assessment one could do an account and see where one scheme was 90 per cent funded, another 85 per cent and another 92 per cent. One might turn that into a sum, add the difference up and show the difference between where the schemes were and where they needed to be. I do not see how one could do that in advance, because each scheme would be judged by its own criteria, which it has yet to set up.
I may be being dense, but I do not see how I can answer the noble Lord's question. That is the whole advantage or—if he likes—difficulty of moving away from MFR. I suspect that it is one of the reasons why the PPF has to have a separate set of valuations—in order to produce precisely the standardised scheme that the noble Lord is asking for, which will not be provided by scheme-specific funding. The question there is whether it is possible to meet or exceed the compensation offered by the PPF.
I do not believe that I can answer the noble Lord's question, and I do not believe that we shall have the information until scheme-specific funding strategies are in place, and we can see the degree of shortfall by individual schemes. That will vary from scheme to scheme; it may align itself with MFR, or it may not.
Lord Oakeshott of Seagrove Bay: I believe that the Minister can answer me—and the answer that I am hearing loud and clear is that the DWP has made no estimates and does not know what the effect will be. That is a fair summary of what the Minister has just said: the department has made no estimate of what the effect will be. The 45 per cent figure will obviously no longer be relevant. The department has no idea what the figure will be, or whether there will be more or less underfunding. The department has no views on what
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would be an appropriate method; the department shrugs its shoulders and leaves the matter to individual funds. That is really what the Minister said.
Baroness Hollis of Heigham: That is a provocative and frankly absurd way in which to put the matter. I was trying in a reasonably thoughtful way to say to the noble Lord that he was asking a question that prejudges answers to questions that have not yet been addressed by individual schemes. Only when we have that information can we make that estimate. For the noble Lord to say that we are shrugging our shoulders is absolutely absurd, and he knows it. I do not mind him in the least deciding to enliven proceedings by going in for a bit of combative rhetoric.
Normally, I would have hoped that with the noble Lord's background and experience, he would be more reflective about the situation in which funds will find themselves. Until we know by what method they seek, on the basis of actuarial advice, to propose a scheme-funding structure and get it evaluated by the regulator, we will not be able to add the sums up. For me to suggest otherwise would lack integrity. For the noble Lord to say that when I cannot tell him the answer to his question, it shows that we are simply shrugging our shoulders, is to put a spin on the matter. I hope that on reflection he will realise that what he said was good fun but actually absurd.
Lord Oakeshott of Seagrove Bay: I shall try once more, then. The trouble is that I first asked the question in a very low-key way and got no answer at all. I have asked two or three times now whether the department has made any estimate of the overall effect of the change.
Baroness Hollis of Heigham: No—but I put it to the noble Lord that there are about 10,000 DB schemes out there. How many of those does he believe will go for the scheme-specific funding on an ongoing basis or a discontinuous basis? He has five seconds in which to answer.
Lord Oakeshott of Seagrove Bay: I shall take that as a no.
Baroness Hollis of Heigham: I am asking the noble Lord a question about the sort of information that we would need even to begin to make the sort of assessment that the noble Lord has invited me to make. That is the whole point of scheme-specific funding, which is bottom up. If we were laying down an MFR funding assessment from the top, we could take a measurement and say how big a slice was missing.
The industry has welcomed the detailed scheme-specific funding, with its assessments of assets liabilities, future salary increases, assumptions about longevity, staff turnover, the ratio of deferred pensioners and so on. That funding is individually constructed on individual schemes—so I cannot then be blasted by the noble Lord for not being able to produce the information, which is available only when there is a top-down funding assessment, such as the

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MFR. If the noble Lord believes that the department could and should have made an estimate, what methodology does he think that it should have employed which would have been sufficiently robust?
Lord Oakeshott of Seagrove Bay: I am only asking a simple question about whether the department has or has not made that assessment. I have now got an answer, although it seems difficult to get it clear. But if that is the answer, that is fine.
Baroness Hollis of Heigham: The answer is not difficult to get clear. It is difficult to make an answer, for the reasons that I have given. The noble Lord wants me to give an answer that would not have integrity, because the schemes have not made a decision about how they will assess their scheme funding, and the regulator is not yet in a position to authorise that decision as appropriate. But that is not the department shrugging its shoulders.
To say that I cannot give the noble Lord the information I would like when, by definition, it does not exist, is not to walk away from the problem. It is a proper, truthful and honest assessment of the situation. It is no use the noble Lord putting a spin on that; the fact is that we do not have that information, for the best of reasons and not for the worst. The best of reasons is that the schemes will produce that information, not the Government, and that is why we have abandoned the MFR standard. I do not believe that I can go beyond that; the figures do not exist because the schemes have not yet introduced their scheme-funding method. Only when they do can we assess the shortfall between that and the capacity to meet full wind-up buy-out promises. At that point, I am sure that we shall all be very happy to share that information.
The noble Lord, Lord Higgins, asked about the European directive. The directive does not require a domestic scheme to be fully funded, in the sense that it must at any time be able to buy annuities and deferred annuities to discharge all its accrued liabilities immediately. That is unrealistic and inappropriate for an ongoing scheme, because liabilities fall in over time. We are coming back to the FI 17-type debate here.
Looking at the official journal of the European directive, I believe that it is clear that the concern over cross-border schemes is that there may be no capacity for a cross-European scheme to have a statutory recovery period to be negotiated with the regulator. That is why they are requiring funding at all times. Paragraph 3 of Article 16 states:
"In the event of cross-border activity as referred to in article 20, the technical provisions must be fully funded at all times in respect of the total range of schemes operated at all times. If these conditions are not met, the competent authority"
of the home member state—
"shall intervene according to article 14".
To comply with that requirement, the home member state may require the replacing of the assets and liabilities.
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There could be a cross-border scheme which would be subject to the regulatory authority of the home member state—for example, the Netherlands—rather than to the UK, even though quite a number of members of the scheme worked and lived in the UK.
5.45 p.m.
Lord Higgins: So does that mean that Shell, for example, has to be fully funded?
Lord Oakeshott of Seagrove Bay: Perhaps I may help the Minister. I suspect that it depends whether the Shell UK pension scheme is separate from the European one, but I am only guessing.
Baroness Hollis of Heigham: Yes, that may be right. That is our reflex, but perhaps the noble Lord will let me look into that regarding the Shell case.
Lord Higgins: I gave Shell only as an example so that does not really help. But it seems surprising anyway that we should have different standards for cross-border schemes than we have for our UK schemes if a cross-border scheme is based in the UK.
Baroness Hollis of Heigham: In the UK?
Lord Higgins: Yes. It seems that a scheme based in the UK which has cross-border implications would always have to be fully funded on a buy-out basis, whereas a UK scheme would not. I cannot see any justification other than the fact that we are stuck with a super-European directive which would require that.
Baroness Hollis of Heigham: We will be dealing with cross-border matters under Part 7. I promise to look at every damn cross-border scheme I can think of to see whether it is protected by a separate free-standing scheme, as the noble Lord, Lord Oakeshott said. I hope the noble Lord, Lord Higgins, will permit us to concentrate our debate on the Shell situation when we deal with Part 7 of the Bill. Pan-European schemes are the most complicated aspect of an extremely complicated Bill.
Clause 212 agreed to.
Clause 213 [Statement of funding principles]:
On Question, Whether Clause 213 shall stand part of the Bill?
Lord Higgins: This clause seems relatively straightforward. I am not clear why there are civil penalties relating to it or how civil penalties would apply as a sanction. What kind of civil penalty is implied?
Baroness Hollis of Heigham: Of all the issues that could have been raised on this clause this is the one that I had not expected. Please allow me to check the clause.
Lord Higgins: Perhaps I may help the noble Baroness. The clause as such is very important, but it appears to be relatively straightforward compared with the previous clause. However, right at the end it

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says that if the clause is not complied with there will be civil penalties. I am not clear what would happen. Does the Pension Protection Fund sue the trustees?
Baroness Hollis of Heigham: The regulator is entitled to impose fines in respect of specified breaches of the requirement of the legislation, continuing the powers under the powers of the Pensions Act 1995.
Lord Higgins: There are some variations in the way in which sanctions apply, and what is apparently envisaged here are fines and so on; whereas, for example, we shall deal later with a clause about whether trustees or the company can give advice. At the moment if one gives advice—as I know only too well, having to avoid that—one is subject to criminal penalties, which is an absurd arrangement. But I am content with what the Minister said.
Clause 213 agreed to.
Clause 214 [Actuarial valuations and reports]:
Lord Higgins Lord Higgins moved Amendment No. 280B:
Page 146, line 32, leave out from "intervals" to "of" in line 33.
The noble Lord said: The amendment relates to the intervals at which the trustees have to produce actuarial valuations. Again, I assume that the provision is designed to get round—if that is not a dangerous way in which to put it—the European directive. Normally, the process would be triennial; apparently, it is all right if there is an actuary's report in the middle. Any prudent scheme normally does that, but I was not clear why the process was phrased in such a roundabout way, rather than simply saying "every three years". I beg to move.
Baroness Hollis of Heigham: The noble Lord has summarised in four lines what would have been a four-page speech. What he has said is exactly right. Basically, we thought that it was unreasonable to ask for full-scale valuations every year; we are going therefore for triennial valuations, as is customary, with interim valuations to meet the agreement that we have come to. Normally, we would expect the actuaries to do those interim valuations in any case, if there were significant changes in the funding either of assets or liabilities.
Lord Higgins: I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 280C not moved.]
Clause 214 agreed to.
Clause 215 [Certification of technical provisions]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 281:
Page 147, line 30, leave out from "212" to end of line 31.
The noble Baroness said: Amendments Nos. 281, 283 to 288A, 292 to 294A, 340B and 350ZB all make minor technical changes, which are necessary to ensure clarity and consistency. I am happy to read out what all the individual amendments do, but it may be that the Committee would accept them without my doing so.
There is one point that I should like to establish. The technical drafting amendments simply clarify whether the provisions apply to the future or the past. However, it might be helpful to clarify an issue on which we have received a number of representations. We are aware that a requirement to seek the agreement of the sponsoring employer raises particular issues for schemes in which the rules of the scheme give the trustees or scheme actuary the responsibility for determining the level of contributions payable to the scheme. Such a requirement would override existing rules of the scheme in a way that could have an adverse impact on the security of members' benefits. We have concluded that it would not be appropriate to override existing rules of schemes in that situation. We therefore propose to modify the new provision under the powers in Clause 222 to provide that when rules of the scheme provide for the trustees or scheme actuary to set the contribution rate, that arrangement may continue.
I wanted to put that detail on the record. The rest of the changes relate to minor technical drafting, but I am happy to describe any of them if it is the wish of the Committee. Indeed, I am happy to circulate my speaking notes if the Committee would like that. I beg to move.
On Question, amendment agreed to.
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 282:
Page 147, line 33, leave out "a reasonable period" and insert "one month"
The noble Lord said: The clause requires the regulator to receive a report in writing if,
"the actuary cannot give the certificate required by subsection (2)…within a reasonable period".
What does the Minister consider to be a reasonable period? I am not wedded to one month or six months, or whatever period. I beg to move.
Baroness Hollis of Heigham: Regulations will give guidance under Clause 84(2)(a) on the code of practice subject to consultation on what is a "reasonable period". We use the term a lot, and we shall have an overview of all its meanings in various contexts. That will be done in consultation with the industry, and will be turned into a code of guidance that it can follow. The other virtue of using that phrase is that it avoids the hassle that we had with OPRA, whereby something like 52 per cent of offences reported to it were of employers paying their contributions a day or a couple of days late. We shall get rid of that level of detailed graffiti.
The overriding issue is that there will be a general code of guidance as to what "reasonable period" means in all parts of the Bill, which will be an easy ready reckoner for practitioners to consult.
Lord Skelmersdale: That is very helpful. Clearly, "a reasonable period" may be unreasonable in some cases and overgenerous in others. I am glad that it will be spelt out in regulations that will end up as a code of practice. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 215, as amended, agreed to.
Clause 216 [Recovery plan]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 283 to 286:
Page 147, line 41, leave out from "must" to end of line 42 and insert ", within the prescribed time—

(a) if there is no existing recovery plan in force, prepare a recovery plan;

(b) if there is an existing recovery plan in force, review and if necessary revise it."

Page 148, line 4, after "preparing" insert "or revising"
Page 148, line 6, leave out subsection (5) and insert—
"(5) Provision may be made by regulations as to other circumstances in which a recovery plan may or must be reviewed and if necessary revised."
Page 148, line 14, leave out from beginning to "must" and insert "The copy of any recovery plan sent to the Regulator"
On Question, amendments agreed to.
On Question, Whether Clause 216, as amended, shall stand part of the Bill?
Lord Higgins: The clause gives rise to the other part of the argument that we began earlier on MFRs, and so on—namely, what is to be done if a particular scheme turns out to be, in nice, simple, non-European terms, in deficit. The question is over what period the scheme should be required to bring itself back into conformity with its statement of funding principles.
The matter is affected to some extent by the European directive. Obviously, if it were in the form of a buy-out situation, that would not matter; but if 45 per cent of schemes are below their MFR, it seems probable that a very considerable number of them will be below any likely or sensible scheme-specific standard. Things will have to be done over various time periods, and it is not clear to what extent the regulator will be able to require a scheme to put its matters right in a particular time. I presume that he would take into account the strength of the employer, so that it would not be appropriate to have the same provision for all schemes. Perhaps, however, that is rather paradoxical; perhaps, if the employer is strong, he ought to put things right straightaway, rather than it be argued that he is a strong employer so that it does not matter if he does not do so for some time. There is something of a paradox there.
Regulations are to specify acceptable recovery periods, rather than the regulator doing so. I was not quite clear why the Government were to specify such periods; presumably, that relates to the solvency of the scheme and of the company. Is it really appropriate for the Government to do that through regulation, rather than the regulator?
The other difficult problem arises when we consider what will happen if the recovery period extends beyond the date of the next revaluation. Does it then roll forward? If the recovery period goes over the next six years, does one start all over when one comes to the next valuation and roll it forward again? In those circumstances, is it possible for the end of the recovery period never to be reached? The noble Baroness looks
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rather puzzled. Not to put too fine a point on it, she did not see this one coming. If the recovery period is six years, does it remain at six years, or does it depend on a valuation taking place in the mean time? The valuation may be either better or worse than was expected when the plan to end the deficit was made, of course.
Those are the main points that arise on the clause, and I would be grateful for the Minister's comments.
6 p.m.
Lord Oakeshott of Seagrove Bay: What is the Government's thinking on a longstop maximum reasonable recovery period? Would 20 years be acceptable under any circumstances? Would 10 years be too much? It would be helpful if we had some indication of the Government's thinking on maxima.
Baroness Hollis of Heigham: The clause is rather important, and it may help if I try to widen the debate. I try to cut my comments down as much as possible, so that we can expedite proceedings, but what happens when a valuation shows that a scheme is underfunding against the statutory funding objective is a critical issue. Where that happens, subsection (1) requires the trustees or managers to prepare or review, and if necessary revise, a recovery plan. The intention is that a recovery plan should be put in place where a valuation indicates that there is a funding shortfall, with no recovery plan in place. If a subsequent valuation shows that there is still a deficit, the trustees or managers will be required to review the recovery plan and, if necessary—for instance, because the shortfall has increased—revise it.
In that sense, no recovery plan is open-ended over three years. For example, if there was an acceptable recovery plan to take place over six years with a three-year evaluation, that does not mean that one has another six years thereafter. At that point, one would be seeing to what extent one could move forward, and therefore whether the contribution came from the employer or whether anything else needed to be made more rigorous in the circumstances. I looked sceptical while the noble Lord was pushing me because the problem seemed more theoretical than real. Over the three years, liabilities and assets may both have changed quite sharply and, as a result, further revaluation would take place at that point. In the light of what has happened to the stock market and so on, the recovery plan may be closer to realisation than was originally expected.
There is a power in subsection (1) to prescribe the time within which the recovery plan must be prepared or reviewed, and if necessary revised. It is worth putting on record that we intend that the period should be 12 weeks from the date on which the actuary signs the valuation report. That is currently the period allowed under the MFR for preparing or reviewing and revising a schedule of contributions and putting it in place following a valuation. Under the new provisions the preparation and review of any recovery plan will be a complementary activity with the preparation and review of the schedule of contributions following a valuation. We do not, therefore, expect the common timetable to cause

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problems for schemes. As required by subsection (2), the recovery plan will be a document showing the steps to be taken to bring the funding of the scheme back on track and the period over which the trustees plan to make good the shortfall.
I want to make it clear that we do not expect to specify in legislation a fixed period for correcting the shortfall. The noble Lord, Lord Oakeshott, asked whether we had a maximum in mind—20 years, 10 years, 50 years, whatever. He will not like my answer at all, any more than he did my previous answer, because he is asking for answers to questions that, by definition, do not have the sort of answers that he would like. The time will depend on the circumstances of the scheme. For example, in an ongoing scheme, it may be appropriate for the recovery period to be the average remaining working life of the members. However, in a scheme closed to future members, where most of the members are pensioners, a shorter recovery period may be more appropriate. I shall not be tempted today to put years on that.
We do not have a fixed period. That is a key difference with the new scheme's funding provisions, and one which has been widely welcomed. One of the main criticisms of MFR was the very inflexible rectification time in which schemes had to get to 90 per cent in three years or to 100 per cent in 10 years. That proved unacceptable to business. The rigidity of that was independent of the solvency of the employer and the strength of the company. It made the fixed target of 90 per cent in three years in practice one of the areas in which MFR was most criticised, as I am sure that Members of the Committee are aware, because of the rigidity of the recovery period independent of the viability of the company.
Under the new scheme funding arrangements, the trustees and the employer, with the advice of the actuary, will be required to work together to develop a customised funding plan for their scheme. It will need to take account of the specific circumstances and nature of the scheme, as required by subsection (3). Trustees will need to have regard, for example, to matters such as the age profile of the scheme members, and whether the scheme is open to new members. The code of practice which the regulator will issue on trustees' duties under Part 3 will give guidance on the matters which trustees will need to take into account in determining how and over what period any shortfall is to be made up.
Although we are not specifying a fixed period for correcting deficits, we are putting safeguards in place to prevent abuse. There are sensible precautions to protect the interests of scheme members and to demonstrate compliance with the requirement of the European pensions directive, which allows schemes to be underfunded for a "limited period of time", provided that they put a "concrete and realisable" recovery plan in place under Article 16. Therefore, recovery plans will be subject to such other requirements as may be prescribed in regulations
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under subsection (3), and subsection (4) requires trustees or managers to take account of prescribed matters when preparing or revising the recovery plan.
It is our intention to require that recovery plans are time-limited and comply with certain limitations to ensure that schemes do not effectively plan to operate with an open-ended deficit. We are currently discussing the nature of those limitations with representatives from employers, the pensions industry and OPRA. For instance, regulations may prevent arrangements under which the whole deficit was repaid towards the end of the recovery period, or may require plans to be structured to restrict the amount of re-spreading permitted.
I do not know whether there is anything further that I can usefully add. Subsection (5) enables regulations to set out other circumstances in which a recovery plan may or must be prepared or revised, following a valuation. Subsection (6) requires schemes to send a copy to the Pensions Regulator, which will allow him to apply closer scrutiny or take regulatory action where it deems that members' benefits may be at risk. I emphasise that we are consulting representatives from employers, the pensions industry and OPRA on what additional information would most assist the regulator in identifying the schemes where members' benefits might be at risk.
Clearly, the size of the deficit relative to the scheme assets, the number of members and the length of the plan are all factors. However, other factors, such as the relative strength of the funding strategy chosen by the trustees will be equally relevant. For instance, members' benefits could be less at risk where there was a larger deficit in a scheme where the technical provisions are calculated on an extremely prudent basis, than where there was a smaller deficit in a scheme where the technical provisions are calculated on a moderately prudent basis.
We will also require schemes to give their members details of any recovery plan that they put in place, when they send them annual information about the scheme's funding position. We will do that through an amendment to the current disclosure regulations for occupational pension schemes. The clause follows the approach taken elsewhere in Part 3.
I have taken some time, but I thought it might be useful to set down some of what we think that we can do and what is being progressed in consultation with OPRA, employers and the pensions industry and will therefore come forward in regulations and guidance. I hope that I have answered some of the questions, except for the ones that are by definition unanswerable. That does not prevent them being asked, but it means that one cannot give the tidy answers that in other circumstances would be helpful.
Lord MacGregor of Pulham Market: I apologise for having to flit in and out of the Committee's proceedings to other engagements elsewhere. The area is very important, and I am grateful to the Minister for spelling it out so far as she could. I want to take her a stage further, however. I can see that, for trustees, managers, employers and actuaries, in certain

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circumstances, it will be vital to get it right. She indicated a number of factors that require flexibility from scheme to scheme. However, it was not absolutely clear, to me at least, whether there would eventually be a firm time limit on all schemes. Naturally, she would not give one today and said that consultation was going on with industry. However, at the end of the day, will there be through regulations guidance to trustees and managers on exactly what the ultimate time limit is within which they have to operate?
I note, for example, in Clause 221(2), that the regulator will have powers to give directions about how and over what period any failure to meet the statutory funding objective should be rectified. That rather suggests that the regulator will have to review, for individual schemes or schemes as a whole, exactly what the limited time period should be. In drawing up recovery plans, trustees, managers and employers would need some clear idea of what that was. Is it ultimately intended that there will be clearer guidance than can be given today?
Lord Higgins: For clarification, did the reference to a 12-week period mean the period within which the recovery plan has to be produced? The Minister indicates that that is so. In line with what my noble friend said, I understand that it is now not the Government's intention to set recovery periods. However, the regulator will presumably do so. Can I be clear about valuations? If, soon after the Bill comes in, a six-year recovery period is set by the regulator, presumably that will be adhered to regardless of whether there is a valuation in the mean time. Will the scheme be six years if the scheme is better off, worse off or the same, or will we get a new recovery period every time that we have a revaluation?
Baroness Hollis of Heigham: The noble Lord's understanding is absolutely right; the 12 weeks is the period to produce the recovery plans, as with OPRA.
We are finding it hard to engage on the point about the six years and renewal because the process is that the regulator will normally intervene in directions only when the trustees and employers cannot agree, fairly obviously. Basically, it will be for the trustees and employers to produce a rectification or recovery plan to be able to meet the scheme funding and take that into account. In the light of that and other information that the regulator has about a company's solvency, investment principles and so on, the regulator may decide that the recovery plan is realistic, needs to be tightened or can be extended. It will certainly not be open-ended, but the regulator may wish to expedite things and accept that the timetable is prudent and appropriate.
At the point of the three-year valuation, the recovery may have been completed. It may not have been, or may need to be expedited because the situation of assets has worsened or liabilities have increased. In light of that, the recovery plan may need to be amended. In that sense, I suspect that that would be a reiterative but sensible process. I cannot answer
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the question in the way the noble Lord put it, again; I have to do it in the form of a dialogue. The outcome is very clear. The degree of intervention from the regulator will be determined by the degree to which the regulator believes that a scheme may be at risk. Therefore, it needs to exercise greater stringency and oversight to prevent a scheme coming into the PPF at some point in future.
I wonder whether I have answered the noble Lord, Lord MacGregor, with the answer that I have just given. All recovery periods will be time limited. That will not be set out in regulations, because we are not talking about MFR. Regulations will give guidance in the code of practice for trustees, but it will be for trustees, on the advice of actuaries, to produce a plan that the regulator is satisfied meets the objective to be able to meet the pension promise as laid down by the rules of the scheme. I do not know whether I can help further.
6.15 p.m.
Lord MacGregor of Pulham Market: The Minister could provide clarification simply by answering on this point. That means that there will not be a fixed time limit right across the board eventually. The regulator will have the power to decide, in terms of the individual scheme, whether the time limit set by the trustees and employer is too long and will therefore, taking into account all the factors, be able to come back and say, "I want a shorter time limit than has been set" or whatever.
Baroness Hollis of Heigham: That is exactly right, precisely because each scheme will be different. It would depend on the valuation, whether ongoing or discontinuous. Information about future possibilities of salary increase and so on, and an assessment of the strength of the company are relevant. The company may say, "We would like five years", and the regulator may say, "You should be able to do this in three years". If the regulator is not satisfied that the scheme is appropriate and realistic, it will come in. That will vary from scheme to scheme; there will not be a common time period. That was precisely the problem of MFR, when there were three years to get to 90 per cent and 10 years to get to 100 per cent, which really took no account of the profile of the scheme, the age of its members, the pay levels of those members, the life expectancy assumptions made by its actuaries and the like. I agree with the noble Lord's description; it is also my understanding that that is the process to be followed.
Clause 216, as amended, agreed to.
Clauses 217 and 218 agreed to.
Clause 219 [Matters requiring agreement of the employer]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 287:
Page 150, line 7, after "any" insert "provisions of a"
On Question, amendment agreed to.
[Amendment No. 288 had been withdrawn from the Marshalled List.]
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 288A:
Page 150, line 13, at end insert—
"(2A) No modification may be made under subsection (2) that on taking effect would or might adversely affect any subsisting right of—

(a ) any member of the scheme, or

(b) any survivor of a member of the scheme.

For this purpose "subsisting right" and "survivor" have the meanings given by section 67A of the Pensions Act 1995."
On Question, amendment agreed to.
[Amendment No. 289 not moved.]
On Question, Whether Clause 219, as amended, shall stand part of the Bill?
Lord Higgins: There are one or two points on the clause, which is concerned with matters on which the employer has to agree with the trustees or managers. I shall ask a question that I have been meaning to ask all the way through. I am not sure why managers keep turning up. There are employers, employees and trustees, but managers have nothing to do with the matter. However, it was noticeable in the case in the courts between Unilever and its fund manager that it was the manager—a glamorous lady matched by an equally glamorous lady on the other side—who constantly turned up rather than the chairman of trustees. I was never clear why. What is the role of managers in all such matters? Their status is rather strange.
The other thing that worries me about the clause is that the trustees or managers and the employer must agree on certain issues, such as,
"the methods and assumptions to be used in calculating the scheme's technical provisions".
I may be quite wrong, but my understanding is that that is not the present position. At the moment, the methods and assumptions to be used in calculating the scheme's assets and liabilities are a matter for the trustees and the actuaries. It is not necessary to get the agreement of the employer to the assumptions. If that is not so, I have been behaving rather oddly on a number of previous occasions, because certainly one did not use to get the agreement of the employers to what was suggested.
In subsection (4), there is mention of a "reasonable period". I have no problem with that, but the relationship between the employers and the trustees is very important. It is important that the trustees act in an independent manner.
Baroness Hollis of Heigham: On the first point about mergers, the noble Lord is quite right. He has asked me this about three times, and each time I have overlooked the point in my response. The provision concerns public sector schemes not protected by Crown guarantee, such as Arts Council stuff—that shopping list of schemes which have managers rather than trustees. They are not protected by Crown guarantee; they are DB schemes and they come within
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the scope of the PPF and pay the levy. That is my understanding where the Bill refers to trustees and managers. I do not know of any exceptions to where it applies, other than in that way.
The noble Lord's substantive point was about the expectations involving the sponsoring employer in the decisions being made by trustees about scheme funding. It may be worth spelling this out. The trustees will be responsible for taking decisions on the governance and funding of the scheme. However, the ongoing viability of the scheme is crucially dependent on the continuing support of the sponsoring employer. The clause requires the trustees to seek the sponsoring employer's agreement when developing an appropriate strategy for funding the scheme's pensions commitments.
While we hope that in most cases the trustees and employer will be able to agree on the funding of the scheme, we recognise that in some cases the trustees may not be able to secure the employer's agreement—if he needs to raise his contribution level, for example. Where that happens, particularly where the employer might otherwise consider closing or winding up the scheme, subsection (2) enables trustees to modify the future accrual of benefits under the scheme, for example, by reducing the scheme's accrual rate from, say, 1/60th to 1/80th. They can do so only where the employer agrees.
Subsection (2A), in government Amendment No. 288A, clarifies what is meant by "accrual of future benefits". Effectively, it prohibits any modification that would adversely affect a member's subsisting rights, as defined in Section 67A of the Pensions Act 1995, as inserted by Clause 251 of this Bill. Those rights are built up in respect of past service.
I should mention that where the trustees and employer agree to such a modification, it is intended that the regulations made under powers in Clause 248(2)(b) will require the employer to consult those scheme members who would be affected by the change. We will, of course, consider the requirement to consult in more detail when we look at Clauses 248 to 250.
Where a scheme is so modified, subsection (3) of Clause 219 requires the trustees or managers to notify the active members of the scheme—those who will be affected by a future change—in writing, within one month of it taking effect.
Where the trustees or managers are unable to agree with the employer on these matters, they are required by subsection (4) to notify the regulator. So, for instance, they will need to notify the regulator where trustees and employer cannot, or do not wish to, resolve matters through modifying the future accrual of benefits.
Subsection (5) empowers the regulator to impose a penalty on a trustee or manager who has failed to take all reasonable steps to comply with the requirements in this clause.
The clause will introduce an important check and balance within the scheme funding regulatory framework, enabling the regulator to intervene and help resolve disputes between the trustees and the employer, as we shall see, I hope, when we consider Clause 221.

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That is the basis of the funding partnership that we expect to see under scheme-specific funding.
Lord Higgins: I do not have a clear answer from the noble Baroness. My understanding is that this is not the present position, because at present the trustees, in conjunction with the actuary, decide what the assumptions are and what the basis of the valuation of the liabilities should be, without any agreement by the employer. Am I wrong? I do not think so.
Secondly, if one looks down the paragraph, the matter ultimately remains unresolved. Supposing that there is no agreement between the employer and the trustees. If the employer agrees—not otherwise, apparently—they may, by resolution, modify the scheme. Supposing that that does not happen either, they have to report it to the regulator, but then nothing happens. How is the matter resolved?
Baroness Hollis of Heigham: In most schemes, the employer currently has the deciding say on the contribution rate. In some schemes—the minority—the trustees do. We seek to establish a collaborative arrangement in which, if the collaboration fails to produce an acceptable scheme of contributions and any adjustments, the regulator would intervene to ensure that it happened. Is there anything further that I can add?
Lord Higgins: There appears to be a change from the present situation.
Baroness Hollis of Heigham: For some schemes, yes.
Lord Higgins: So the Government are going to force trustees, who had previously made the assumptions and agreed on the valuation and so on with the actuary, to get the employer's agreement. The employer may well take the view that he does not want to pay up as much as the trustees think that he should. I had not realised, because it was outside my experience, that there were any schemes in which one had to get the agreement of the employer. It would certainly be undesirable, for those schemes for which the trustees have set the matter, for that to be prevented in future.
If there is a dispute, how is it resolved?
Baroness Hollis of Heigham: A dispute will ultimately get resolved by the regulator.
Lord Higgins: The clause does not say so.
Baroness Hollis of Heigham: In other clauses, the Bill certainly does. Clause 221 states that the regulator resolves disputes, but we will come to that in a moment. For the most part, the employer decides, and that will be modified. As I said when I spoke to a group of government amendments, we will modify the requirement where the trustees already have the power to set the contribution rates. They do not have to seek the employer's agreement. Where trustees already
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have the power, it will not be diluted. Where employers have full power, there will in future be a collaborative process between the employer and trustee.
Lord Higgins: That is not what the clause says. The clause does not say that, if the trustees have the power without the agreement of the employer, that will continue.
Baroness Hollis of Heigham: Clause 222 states that:
"Regulations may modify the provisions of this Part as they apply in prescribed circumstances".
That will be the point at which the existing power of the trustees is not overridden by the changes in Clause 219.
Lord Higgins: Clause 222 could mean anything to anyone.
Lord Oakeshott of Seagrove Bay: Why do we want to leave that to regulations? I hope that I heard the noble Baroness correctly and that she said that, where trustees effectively had the sole power at the moment, the intention was not to change or override that. I would have thought it perfectly simple to have that in the Bill and make that clear. This is an important and topical matter. Of particular relevance is the recent WH Smith case, where Martin Taylor, the chairman of the trustees there, stood up very firmly. If that power is to be diluted, that would be a seriously retrograde step. There is no reason not to have that set out clearly in the Bill.
Baroness Hollis of Heigham: It is not only WH Smith, but the Marks & Spencer case as well, I suspect, where the trustees had unusual powers, to some extent, over the autonomy of their scheme, independent of the employer. The provision is in the form in which it is because of the parliamentary draftsmen. Let me check on it. I take the substantive point that it is not clear in the Bill exactly how the power would be used. Reassurances may need to be given. I shall see whether we need to increase the clarity, either through guidance or through any changes—I would be reluctant to make changes, given what parliamentary counsel have said on the matter. I accept the criticism that it is not obvious that the power in Clause 222 protects the existing powers of trustees against the employers, compared to Clause 219. Some cross-reference may need to be made in Clause 219 to Clause 222, which may serve the purpose.
Clause 219, as amended, agreed to.
6.30 p.m.
Clause 220 [Matters on which advice of actuary must be obtained]:
Lord Skelmersdale Lord Skelmersdale moved Amendment No. 290:
Page 150, line 40, leave out from "prepared" to "by" in line 41.
The noble Lord said: This clause relates to when the actuary gets involved. As the draftsman has put it more elegantly, it relates to matters on which the advice of the actuary must be obtained. Subsection (3) provides that when the actuary is giving advice:
"The regulations may require the actuary to have regard to prescribed guidance".

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That is fine; I have no problem with that. However, I have a large problem with the very unusual formulation of the following words:
"'Prescribed guidance' means guidance that is prepared"—
so far, that is fine—
"and from time to time revised by a prescribed body".
The body is unspecified. To make matters worse, it continues,
"and, if the regulations so provide, is approved by the Secretary of State".
I have two questions. First, what prescribed body is intended to issue the prescribed guidance? Secondly, on what occasion should the regulations provide that the Secretary of State perhaps even second guesses the prescribed body? I beg to move.
Baroness Hollis of Heigham: I may be able to respond quickly to the noble Lord. The prescribed body would be the Faculty and Institute of Actuaries. It will draw up the guidance. The Secretary of State intervenes not on matters of professional judgment but on the process point only. He must be satisfied that the process point is appropriate. Officials are working with the Faculty and Institute of Actuaries to draw that up so that the Secretary of State can then endorse it. It is fairly easy and it should be fine.
Lord Skelmersdale: I am delighted to hear it. I beg leave to withdraw the amendment.
[Amendment No. 291 not moved.]
Clause 220 agreed to.
Clause 221 [Powers of the Regulator]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendments Nos. 292 to 294A:
Page 151, line 5, leave out from "failed" to end of line 9 and insert "to comply with the requirements of section 213 with respect to the preparation or revision of a statement of funding principles;"
Page 151, line 15, leave out from first "to" to end of line 20 and insert "comply with the requirements of section 216 with respect to the preparation or revision of a recovery plan;"
Page 151, line 22, leave out from "to" to end of line 28 and insert "comply with the requirements of section 217 with respect to the preparation or revision of a schedule of contributions;"
Page 151, line 50, at end insert—
"(2A) No modification may be made under subsection (2)(a) that on taking effect would or might adversely affect any subsisting right of—

(a) any member of the scheme, or

(b) any survivor of a member of the scheme.

For this purpose "subsisting right" and "survivor" have the meanings given by section 67A of the Pensions Act 1995."
On Question, amendments agreed to.
[Amendment No. 295 had been withdrawn from the Marshalled List.]
On Question, Whether Clause 221, as amended, shall stand part of the Bill?
Lord Higgins: I wish to raise one small issue. Clause 221(1)(c) refers to the requirement that the actuary certify the calculation of the scheme's technical
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provisions, whereas under previous clauses he simply has to sign what he has produced. I am not clear what the difference is between certifying something and signing it. Clearly, "certify" is the right expression, but previous clauses provide that the actuary must merely "sign". I would have thought that the terms meant the same thing, but I do not know why the terminology differs.
Baroness Hollis of Heigham: Is the issue about where the actuary is unable to certify and therefore has not signed?
Lord Higgins: A previous clause provides that the actuary must sign rather than certify.
Baroness Hollis of Heigham: Can the noble Lord point out where it is provided that the actuary must sign? I presume that he signs where he certifies, and that if he is unable to certify, he does not sign.
Lord Higgins: Clause 214(2)(a) describes the actuarial report as,
"a written report…signed by the actuary",
whereas Clause 221(1)(c) refers to the actuary certifying the calculation. I am not clear about the distinction.
Lord Oakeshott of Seagrove Bay: Clause 214(2)(a) refers to a written report,
"prepared and signed by the actuary".
Baroness Hollis of Heigham: Unless there is a charge of which I am not aware, the difference in terminology arises because Clause 221(1)(c) refers to cases where,
"the actuary is unable…to certify the calculation of the scheme's technical provisions".
Were he able to certify, he would sign it off under Clause 214(2)(a).
I think that the noble Lord's difficulty arises because he inserts a negative. I add my usual qualification that, if I am wrong on this, 1 shall write to him.
Lord Higgins: The noble Baroness is probably right.
Clause 221, as amended, agreed to.
Clauses 222 and 223 agreed to.
Clause 224 [Promoting and facilitating financial planning for retirement]:
Lord Higgins Lord Higgins moved Amendment No. 295ZZA:
Page 152, line 24, at end insert—
"( ) The action must in particular include an estimate of the minimum resources which an individual needs to have to produce a retirement income greater than that which would be provided by means tested benefits."
The noble Lord said: I am trying to find something as lengthy as the number in Amendment No. 295ZZA.
Lord Oakeshott of Seagrove Bay: "Zzzz".
Lord Higgins: It sounds like a BMW.

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This clause concerns retirement planning, which we will no doubt discuss later. My amendment would provide that the action taken by those providing retirement planning advice,
"must in particular include an estimate of the minimum resources which an individual needs to have to produce a retirement income greater than that which would be provided by means tested benefits".
I am extremely sceptical about the entire clause. It is very desirable that people know what they are likely to face—or enjoy—in retirement. In any event, people really want to know whether it is worth providing for their retirement—that is to say, whether they would receive sufficient benefits to remove the need to rely on means-tested benefits. On previous occasions, the noble Baroness and I have exchanged views on the amount of resources needed to float someone off means-tested benefits. The estimates produced by Mr Willetts, Mr Field and the Government vary greatly.
In any event, it is clear that a substantial sum would have to be accrued to make saving worth while. That reflects the enormous expansion by the Chancellor of the Exchequer of the provisions of means-tested benefits. Estimates of the number of people who will end up on such benefits are fairly terrifying, not least because of the likely burden on those who are not on means-tested benefits. Therefore, if we have the exercise of providing information on retirement planning, this would be the most essential element of provision; otherwise people will not know whether it is worth providing for their retirement. I beg to move.
Baroness Hollis of Heigham: I hesitate because I know that the noble Baroness, Lady Barker, is also concerned about this issue. We cannot estimate far in advance people's eligibility for pension credit within the pension planner. It is impossible to tell whether a 40 or 50 year-old will be eligible for disability premiums and what the state of their capital may be.
This morning I made a cross-reference to the pension credit calculator. Somebody on the cusp of retirement, if their information is relatively conventional, could deduce from the Pension Service's calculator whether they would be entitled to pension credit. The Pension Service is happy to circulate copies of the calculator; we simply downloaded it from the Internet. Whether individuals have paid off their mortgage will affect their eligibility for benefits. Another factor is whether they are entitled to disability premiums. In the few months before retirement, one may be able to give people a more reliable estimate of whether they would be eligible for an income-related benefit. We could not do so many years before simply because of the uncertainty of the individual's circumstances. One cannot easily roll them forward.
The noble Lord asked whether saving was worth while. Various calculations have been made of the level of pension pot necessary to float people off income-related benefits. A significant number of health warnings must be attached to the calculation, primarily because one of the most potentially
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"generous" benefits is housing benefit. Around 80 per cent of pensioners are owner-occupiers and will almost invariably have paid off their mortgage by pension age. A pensioner in rented accommodation might well be entitled to housing benefit of £100 or £200 a week under certain circumstances, particularly if they have a disability which requires a particular type of accommodation. So there is a health warning about housing costs, about whether you are living singly or jointly, and about what assumptions one makes about indexation when deciding whether to opt for an index-linked pension or not. Variations of how much is needed in a pension pot can range from around £50,000 to £100,000-plus before someone reaches a pension level that would take them out of the situation covered by pension credit.
I do not want to sound too belligerent but pension credit and its targeting has an undeservedly bad press. I understand that pensioners would prefer to avoid detailed enquiries into their circumstances. But one must remember that pension credit is based on a snapshot at the point of retirement. It has stripped out nearly all the complexities of individual voluntary contributions and private organisations such as RNIB. It is a very simple calculation which, because most pensioners' incomes are stable, would need to be revisited only where there has been a major event: the big two are the death of a partner or the sale of a house and possibly going into sheltered accommodation.
The procedure takes about 15 to 20 minutes on the phone. All our feedback shows that, although many pensioners are apprehensive initially, time and again we receive bouquets of thanks, with people saying that the information was helpful, that the young person to whom they talked was easy to understand and could progress the matter, and that as a result they now receive £20 or £30 a week that they would not get otherwise.
Although pension credit is income-related, one must compare it with the situation that prevailed previously. Before pension credit was introduced, if the widow of a local authority manual worker was entitled to a pension of £100 a month, or £20 a week, from the local authority, she would be no better off than if there was not a penny of pension because it would be lost in a 100 per cent, pound-for-pound reduction against MIG. We inherited that situation from the previous government. We recognised the need for MIG, but it disincentivised the small saver. Pension credit means that such a widow now keeps £60 of the £100 and is therefore, under pension credit, £13 a week better off. I accept that that is based on income calculation but compared to the situation that preceded it there is now no such disincentive for small savers. Given finite resources, it targets the available moneys on the smallest savers who otherwise would have lost the benefit of their savings pound for pound.
Although I understand the noble Lord's criticism of pension credit, means testing and so on, there are benefits. First, it means that around 2 million pensioners receive additional moneys that they would never otherwise have received. Secondly, as a result, it rewards small savers for the first time. Thirdly, in

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practice, all our feedback from the Pension Service shows that the workings of pension credit have proved not only acceptable but reasonably attractive to pensioners receiving the service.
6.45 p.m.
Since the noble Lord has baited me slightly, I wish to make an additional point. In 1997–98, on a relative low income test—60 per cent of median income—after housing costs, 2.7 million pensioners were in poverty. As a result of our activity, the current number on the same relative low income is 2.2 million. The figure has fallen by half a million. Even more dramatic is that in 1997–98 26 per cent of that cohort of pensioners were in poverty—after housing costs, because so many are owner-occupiers—whereas five years on, only 9 per cent of the same cohort are in poverty. Using the baseline of 1997–98, we have taken two thirds of that cohort of pensioners out of poverty, partly because of our targeting of benefits through initiatives such as pension credit. I must say that I am extremely proud of that record.
Baroness Barker: As another survivor of the then State Pension Credit Bill, I cannot decline the opportunity given by the noble Lord, Lord Higgins, to return to the subject. To an extent, the noble Baroness laid down a route towards a discussion on pension credit, which we have had many times in your Lordships' House. I understand that this has happened because of the nature of the amendment. The noble Baroness has avoided the third element of income on retirement: stakeholder pensions, the other much-vaunted part of the Government's pension policy. The provision of stakeholder pensioners will make a prediction of final retirement income much more difficult. Of all the many things that the noble Baroness has said in defence of the Government's pension policy, one of her most telling remarks was that the key determinant of a person's retirement is what they do in their 20s and 30s, not in the years leading directly to retirement.
We support strongly the aim of these provisions. It is extremely important that people have a way of making informed choices at an early enough stage in their earning life to make a key difference to their retirement income. Therefore, the exclusion of contributory benefits and council tax benefit makes the system extremely limited in what it can offer. The noble Baroness mentioned housing benefit but council tax benefit is perhaps a bigger issue for more people.
I thank the department for organising a demonstration on the issue. Those of us who attended it made a clear assessment that individuals could obtain no more than a very rough guide of what their income might be on retirement. It is therefore a very blunt instrument for determining what changes an individual may make to plan for retirement. The noble Baroness will remember that one of the issues that I raised during the demonstration was that care costs were not included in the prompts used to take people through the needs that they may wish to provide for
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during retirement. Given the generation of people about whom we are talking, some provision should be made for care costs.
Given the uncertainty of integrated information that is reliant on benefits, which the noble Baroness has honestly outlined, does she not agree that the Government are selling a promise that ultimately the department will be hard pushed to deliver? At a time when it is possible for people to take remedial action themselves, they will be no clearer about their likely retirement income.
Lord Higgins: I certainly agree wholeheartedly with the noble Baroness who has just spoken; it is important that, if people are going to provide for their retirement, they should do so as early as possible. However, I want to concentrate on the amendment and discuss the clause in a moment or two.
I do not propose to repeat the endless debates that we have had on the pension credit, the stakeholder pension or the state second pension. That constitutes much water under the bridge. I seek to establish that if this advice is to be given—when we have the clause stand part debate I shall express much scepticism about it—at the very least it is only fair to people (indeed, I think that it is misselling otherwise) to give them some indication of how much they have to save for it to be worth while, allowing for all the complications connected with housing benefit and everything else.
While estimates have been varied as to what it is necessary to have to "float yourself off" means-tested benefits, I should not have thought it was seriously arguable that saving £20,000 is no good at all. Mr Frank Field expressed this in more colourful terms, saying roughly that you should spend it at the pub on a Saturday evening. I do not agree with that. He used a more colourful expression which 1 shall not use, but there is no point in saving £20,000 for your retirement. I should have thought that the estimate which is made ought to make that clear. That is the point of the amendment.
Baroness Hollis of Heigham: On that last point I was trying to do some ready reckoning. I am trying to work out what money you would get with a sum of £20,000. I believe that it would be £100 a month, or something like that. I am trying to do sums in my head. Given the pension credit, it would be worth having.
Lord Oakeshott of Seagrove Bay: I do not think that it would be as much as that.
Baroness Hollis of Heigham: I shall check that. I accept that the retirement planner cannot encompass all of the things that may happen to people. For example, an absolute key matter for the woman is whether her partner is the main carrier of the income in retirement and he dies ahead of what might reasonably be expected in terms of longevity tables. That would completely alter their accounts.
I defer to the noble Baroness who has more hands-on experience than I, so to speak, but I think I am right in saying that only about one pensioner in eight, and only about 3 per cent of all pensioners, go into

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sheltered housing, let alone residential care, although they may have home helps, which they may or may not pay for depending on their income. I take on board all the warnings given by the noble Baroness but it is hard to incorporate such eventualities into any assessment. The retirement planner does something slightly simpler. It enables people in their 30s and 40s to project, probably into their early years of retirement in all fairness—into their 60s and 70s—what income they would like and expect to enjoy. Then, given certain assumptions about what savings they have, their expenditure on travel to work, their housing costs and so on, it enables people to assess how far short they are of realising that and how much they need to save in order to be able to remedy it. Bluntly, it is a wake-up call to people who begin, perhaps in their 40s, to realise that their retirement may not be as prosperous as they had hoped and to enable them to see what the options are. For example, can they save more? Can they increase their hours? Should they increase their years of work? Does it mean that a woman does not take retirement as early as she had hoped?
Having said that, I absolutely accept that many other individual contingencies exist and that people will not know whether they are going to happen to them, and which we cannot build into the retirement planner.
Pension credit, which is the big one that I was concerned about when the noble Baroness first raised it, we have covered as best we can so that people at the cusp of retirement can do the read-across to the Pension Service to see what their eligibility will be. But I do not see how one could realistically build in much of the information, as the noble Baroness rightly says, that affects the standard of living, particularly of older pensioners, into a retirement planner at this stage. In other words the retirement planner is most useful in the first 15 years or so of retirement. It may become less useful as ill-health grows, as issues about survival grow and as one is more likely to come within the reach of pension credit because one's income has fallen and not kept pace with the cost of living. That is a legitimate criticism.
Having said that, we are not trying to claim that the retirement planner can answer all of those issues, but it can serve as a wake-up call for people in their 30s and 40s to realise—as we know from all the evidence, including from the Citizens Advice Bureaux—that they have a slightly utopian notion of the income that they think they will receive in retirement. They are not going to get it and they need to know the strategies that are open to them to improve their financial position. I would not wish to claim more for the retirement planner at this point. We shall discuss those people who have received combined pension forecasts, but they have emphatically said that it is very useful and a significant proportion of them have increased their savings as a result.
Lord Higgins: We still have not covered the clear point that these calculations should make people aware of the fact that they have to save a great deal if they are to get any benefit from it. All the other points made by the noble Baroness, Lady Barker, do not focus on that issue. If we are to have this exercise at all, it is important that that particular point—which is the crucial point regarding whether people should save—must be brought out clearly.
Baroness Hollis of Heigham: Could I just press the noble Lord; what does he mean that it will not benefit people? Anyone who has a full basic state pension and has any occupational pension, stakeholder or anything else in retirement, will benefit. That is unlike the regime we inherited whereby if people had income worth between £77 and, say, £105 on today's figures, they would not have benefited. They would have lost 100 per cent. Now they will keep 60 per cent. So it is not true that they will not benefit. What they will not get until they come out of pension credit is 100 per cent of the value, because it is a targeted form of support.
Lord Higgins: I am not talking about pension credit but whether one receives any return for saving a small amount of money.
Baroness Hollis of Heigham: Of course one does. Why does the noble Lord think that one would not? Whatever income £20,000 may as a lump sum produce in terms of a weekly income, one will enjoy either all or part of that in retirement. How much of that one will enjoy will depend on the interaction with pension credit. For example, it will depend on whether one is the second earner in a family. If a woman is bringing in that sum of £20,000 and the husband's occupational pension is already sufficiently generous, they will enjoy every pound of any income earned by that £20,000. I do not understand the noble Lord's point. Of course one will enjoy all small moneys, but the amount one enjoys will depend on the total assessment of household income and how it interlocks with pension credit.
Lord Lea of Crondall: Perhaps I could add a point. The strategic question that faces us all is the low savings ratio and the need for people to increase their provision for retirement. We have all given a general welcome to the new thinking, whether it is in the Citizens Advice Bureaux and other people, to see what we can do. The bias that is introduced by Amendment No. 295ZZA—which is an Alfa Romeo rather than a BMW—is to make people think, "Well don't bother because you might get caught out with your means-tested benefit". But if one looks 20-odd years ahead, the amendment would be a strange form of words to introduce as a requirement on the people who are providing that information, when, as part of the bigger picture, they will have to be balanced in the sort of information they give. It would be a strange instruction to add to this clause, which will have to be developed as the years go by.
7 p.m.
Lord Higgins: I do not want to delay the Committee longer on this. I understand the point the noble Lord is making. The trouble is that the whole effect of the vast increase in means-tested benefits has been to make it less worthwhile to save. I should have thought that there is some case for making that clear to people, even though it has the unfortunate effect of making them face the reality of the situation.
I do not wish to pursue this issue further now, although I should like to come back to it on clause stand part. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
On Question, Whether Clause 224 shall stand part of the Bill?
Lord Higgins: The broader question of the clause, which suggests that the Government should promote retirement planning, is, in one sense, clearly desirable. But one cannot help feeling that the estimates made are likely to be misleading. Take, for example, the state benefits that one is likely to receive. The result of the next general election is likely to be that people will receive a higher state pension than they will under the present Government because of the proposals which we have made. If this had been done in the past, the people who invested in Equitable Life would not have been grossly misled as a result of the failure of the regulatory system under both parties.
There is a whole series of issues here which mean that trying to forecast what is likely to be the outcome may well result in severe disappointment. It seems to me not a function of government to engage in what is inevitably, to a considerable extent, whether it be on the state or the private pension side, likely to be misleading. The whole point of the Bill is to deal with people who will find their pension expectations disappointed. They will find themselves with a very much smaller pension provision than they expected. Yet under the same Bill, the Government are telling people what their pension prospects are. I simply do not think it is possible for the Government to do it with a sufficient degree of probability for it to be a worthwhile exercise.
Baroness Barker: I should like to add to what the noble Lord, Lord Higgins, has said. Let us take the point of the noble Lord, Lord Lea of Crondall, on our previous debate. I cite again, for good reason, the example of an employer with which I work. The employer has a lot of staff who are part time and are not paid very much. The employer has had to think long and hard about whether the provision of a stakeholder pension of a small percentage will actually be beneficial to employees in their older age.
I take the point that one wants to encourage employers, but there are some who, for good and ethical reasons, are deeply concerned about the lack of information with which to model what might happen to their employees. Such employers fear that they may be doing a disservice to low-paid and part-time staff in particular.
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It is not just those employers who wish to abrogate their pension responsibilities to their employees who stand to be caught by this lack of information. I think that the noble Lord, Lord Higgins, is right. The more provision of state pensions is provided to people in the form of one-off allowances, which may or may not be uprated annually, and of discretionary benefits, the more difficult it becomes for anybody, including employers who, for good reason, want to make sure that their employees are not disadvantaged, to make a decent, educated guess at the likelihood of future provision.
Baroness Hollis of Heigham: I can understand all those criticisms, but my question back to both the noble Lord, Lord Higgins, and the noble Baroness, Lady Barker, is: is it better for people to have the information, limited though it is and with all the health warnings that we need to attach to it, than none at all? Until we went into the area of automatic pension forecasts and combined pension forecasts, how many women, for example, did not realise that they would not necessarily get a full basic state pension? I can tell the Committee that it was 70 per cent. If, as a result, they get an automatic pension forecast, they will realise that they do not get one in their own right, and that if they are not married they will not get one by virtue of their partner. That may or may not propel them to the altar, but it may seriously propel them into thinking about their situation in future, and not regarding "him" as being available to pay for their pension.
I am sure that the noble Baroness and I could multiply instances. The pension planner can deal with only the current legislation on pensions, social security and so on, and is therefore subject to change in state pensions and any other form of pension provision, and in the individual circumstances. I accept that, but the alternative is not to have anything at all. Without that, a lot of people will go without the information that they need.
The noble Baroness will agree that the CABs are flooded with people who do not have even the most basic financial literacy. They are in debt, cannot cope, face eviction, do not have any rainy-day savings whatever, and have not even begun to think about their pensions. Those who have access to the pension planner will at least be given some basic comprehension about their basic state pension and what pensions they may get. It may even lead them for the first time into asking their employer whether they have a pension, in some cases. It will at least give them some sense of what they are likely to enjoy, and might give them the opportunity, as my noble friend Lord Lea said, to rectify the situation.
It is a long way from complete, by definition, because we cannot say what the situation will necessarily be for state pensions and private occupational pensions in 30 years' time. None the less, it is salutary for low-paid people, people who have been students at some period in their life, and people who have worked for a period below the LEL—few women know what the LEL is—to realise what the implications will be for their pensions.

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Because the planner cannot do 100 per cent—it can give people only 60 per cent or 70 per cent—that is not a reason for saying that 60 per cent or 70 per cent is not desirable, provided that health warnings are attached. The noble Baroness will know, having gone through the pension plan, that plenty of health warnings are attached. The alternative is not to have anything at all. The reception that we are getting already shows that there is a hunger for the sort of information that the planner will have, backed up by information such as that from the CAB, financial advice, employer advice and so on. We have to transform financial literacy in this country. One of the biggest forms of social exclusion in this country is not where one lives, but how little so many people know about finance and all its implications, and how to make a future for themselves and their families.
I accept all the criticism; I just think that it is unfair. We are being criticised for not doing what we know perfectly well we cannot do and have not set out to do. That tells me that we must make sure that the limitations on such a planner are clearly there. That said, the information has so far been found useful and valuable. Noble Lords who saw it were asked whether they had any comments on the adequacy of the financial planner and to suggest ways in which it should be adjusted. We did not receive a single comment from any noble Lord, but they are coming forward now. I wish that we had received them at the time, and we could have then responded to see whether we could take any of them on board. Most of them are, by definition, about what may happen in future, and we cannot forecast that.
The alternative is not to have a planner. From my limited experience, people—including, frankly, my own sons—have benefited from the information. It has made them realise the situation that they are in, but it is of course incomplete because, by definition, a lot of factors that will affect people's outcome are 30 years in the future.
Clause 224 agreed to.
Clauses 225 and 226 agreed to.
Schedule 10 [Use and supply of information: private pensions policy and retirement planning]:
Baroness Hollis of Heigham Baroness Hollis of Heigham moved Amendment No. 295ZA:
Page 292, line 17, leave out sub-paragraphs (3) and (4).
The noble Baroness said: We made a drafting mistake. It was always our intention that those powers which we seek from the Inland Revenue and so on would be permissive, and that they should follow the Social Security Administration Act 1992. We are simply rectifying a drafting mistake. I hope that Members of the Committee will agree to the amendment.
On Question, amendment agreed to.
Schedule 10, as amended, agreed to.
Clause 227 agreed to.
Clause 228 [Information and advice to employees]:
Lord Higgins Lord Higgins moved Amendment No. 295A:
Page 154, line 13, leave out "and advice"
The noble Lord said: It would be convenient to discuss Amendments Nos. 295B and 295C with this amendment.
I shall deal first with Amendment No. 295A. Clause 228 is concerned with information and advice to employees. It provides:
"Regulations may require employers to take action for the purpose of enabling employees to obtain information and advice about pensions and saving".
I have two concerns. First, the provision places on employers a responsibility to give employees information about a number of areas for which they are not immediately responsible. More particularly, I wish to question the use of the word "advice". My experience in this field has been salutary. One would have liked very much to advise employees on what to do about Equitable Life, particularly because the company's trustees had taken out an AVC, like so many groups of trustees, with Equitable Life. Under the Bill, trustees are no longer required to take out an AVC. Equitable Life went from disaster to disaster, and it was apparent to the trustees that it was doing so. Alas, it was not apparent to the government regulator under either government. However, we could not say to the employees covered by the fund, "For goodness' sake, get out of Equitable Life". Had we done so, we would have been liable for criminal penalties because we were not registered financial advisers.
The provision is a radical change from the current situation. It refers to employers rather than trustees of a pension fund but the same situation appertains: you cannot give advice unless you are a registered financial adviser. This clause suggests that the Government propose to reverse their policy on that matter. I have indicated that that would be a rather good idea in many respects, but it would then raise the issue of the qualifications of the employer or trustees to give financial advice. Employers will not necessarily have the least ability as financial advisers. They may be all right at running a company, but their ability to give financial advice, if they have any, is a matter of sheer chance. So we need to be clear what the Government's policy is on this matter. Will they continue to impose criminal penalties, or will they encourage the unqualified to give such advice? I am somewhat ambivalent about this matter, because the group of trustees with whom I was working were extremely expert and highly qualified to give financial advice, and would certainly have been able to say without a moment's hesitation. "Get out of Equitable Life". But we could not do so. So what is the policy now on employers or trustees giving advice? I beg to move.
7.15 p.m.
Lord Oakeshott of Seagrove Bay: My question to the Minister is, who pays for this advice? It is reasonable for an employer to give information about a scheme, but we are getting into the area of advice. It is right that at the moment employers are at grave risk if they give

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advice, and that advice should preferably be independent—should probably not come from an employer. Is it the Government's intention that employers who are running a pension scheme should have to pay for individuals in that scheme to find advice elsewhere? I should have thought that that would he a disincentive, certainly to small employers.
Baroness Hollis of Heigham: I shall deal with that last question first. Any employer who fails to contribute at least 3 per cent into a pension scheme will, in lieu of that—or as an alternative, or however one wants to put it—be under a requirement within the remit of these provisions. I was asking about costs this morning, and we may be talking about £100 or £150 for an individual scheme member, depending on the assumptions that one makes about how long, who, and so forth. As a result an employer of someone with moderate earnings, such as £15,000–a not untypical stakeholder, for example—may decide that, after corporation tax exemption, it may be cost-effective to contribute to a stakeholder pension, which would obviate the need for paying for advice. There is a trade-off in that regard.
In my own mind, I am quite clear that an employer who is failing to contribute towards a stakeholder pension that he has set up, so that it remains an empty-shell company, will as a result not get employee contributions. As a result, we feel that there should be an obligation on that employer, in the absence of making even the most modest contribution towards the employee's pension, to come within the remit of the clause. That is the compromise.
Lord Oakeshott of Seagrove Bay: I must clarify the situation. This provision, then, applies only to employers who are not making a 3 per cent contribution to pension schemes. It obviously applies only to employers with more than five employees, too, otherwise it would not be relevant to stakeholders.
Baroness Hollis of Heigham: Yes.
Baroness Barker: Does the provision include employers who have offered a stakeholder pension, when the employees have declined it?
Baroness Hollis of Heigham: If there is a stakeholder pension, that must be available. I cannot conceive of a situation in which an employee would decline a stakeholder pension—when, even though the employee is choosing not to contribute, the employer will contribute 3 per cent or 5 per cent.
While the noble Baroness perhaps reformulates her question, let me come back to the question asked by the noble Lord—
Lord Higgins: Where does this 3 per cent business turn up in the Bill? There is not a sign of it in Clause 228; it has suddenly come out of the blue.
Lord Oakeshott of Seagrove Bay: Where is it?
Baroness Hollis of Heigham: At Second Reading, I made it clear that those employers who were not contributing at least 3 per cent would be under an obligation to provide advice and information to their employees.
Lord Oakeshott of Seagrove Bay: So, only those employers—
Baroness Hollis of Heigham: Only those employers are required to do so, though others may choose to do so.
Lord Higgins: There should be something in the Bill to that effect.
Baroness Hollis of Heigham: We shall find out which subsection of the Bill refers to that matter. Let me come back to the point about advice and information, to which the noble Lord, Lord Higgins, referred, and whether employers are qualified to offer advice on the Bill as opposed to information.
In the December 2002 Green Paper the Government stated their views that employers who do not currently provide their employees with access to an occupational pension scheme, make contributions of at least 3 per cent to a group personal pension scheme, or offer schemes with a low take-up have a responsibility to ensure that their employees have access to the information they need to make an informed choice about saving for retirement, with the exception of the very smallest companies with fewer than five employees which, as the noble Lord, Lord Oakeshott, said, are required to designate a stakeholder pension scheme. We are currently undertaking pilot exercises in that regard.
Subsection (3) provides that employers to whom regulations under subsection (1) apply must provide information also to be specified in regulations to the new Pensions Regulator, which ensures that the regulator can measure employers' compliance with any future regulations.
Subsection (4) expands on subsection (3) and allows the Secretary of State to specify in regulations the information that employers must provide to the regulator, the form and manner in which it must be provided and the period within which it is to be provided.
The matter was clear in the Green Paper and in our debates, and it is covered by subsection (3), which states:
"Employers to whom regulations under subsection (1) apply must provide",
this information. Therefore, I believe that the matter is covered there. I am surprised that this is news to noble Lords opposite.
Lord Higgins: I am not clear from what the noble Baroness is quoting, but at all events there is no reference whatever to the matter in Clause 228. It may be in a schedule or somewhere else. The fact that the noble Baroness made the relevant speech at Second

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Reading and the fact that the matter was contained in a Green Paper does not constitute legislation. There is absolutely no indication on the matter in Clause 228. Coming back to the main point, there is surely less reason to suppose that employers in the category that the noble Baroness mentioned are any better at giving advice than any other employer. On the contrary, I should have thought that they would be worse.
Baroness Hollis of Heigham: That is exactly why I should like to come on to the point about advice. The noble Lord is absolutely right on that. That is precisely why employers will not be asked to give advice. None of the options that we are currently planning for involves employers giving regulated financial advice, so the question of employers' liability should not arise.
The pensions information pack, which I was checking with the officials, makes it very clear that employers can give factual information. They cannot give advice but they can give access to people who can give advice; that is, regulated advisers. The document provides a case study. I am happy to circulate this to noble Lords. For example, an employer could say that saving for retirement is an important issue, state pensions form a base but are unlikely to provide everyone with enough income for a comfortable retirement, or that he is offering a stakeholder pension scheme with X, Y, Z company, or that he contributes X percentage of his employees' pay to the company group personal pension or stakeholder pension scheme on top of any contribution that the employee makes, or that the earlier the employee starts paying into a pension and the more he or she pays in, in general the higher his pension will be.
The employer can say that but may not say that an employee should definitely join a stakeholder pension or that he advises an employee to invest in the ABC investment fund, or that an employee would be better off putting his money into something else, or recommends that an employee transfer benefits under his old pension scheme into a certain scheme. What employers can do and what they may not do in this respect is well covered.
The clause that we are discussing contains powers relating to how the regulations will apply. What we are saying in the RIA, which your Lordships will also have, in paragraph 523, is that employers and organisations with low scheme membership and/or low or zero levels of contributions to pension schemes are one of the groups most likely to benefit from pensions information and access to advice through the workplace. I refer also to low-paid workers, part-time workers and so on. Employees in this group may previously not have had access to this information but it will now come through.
What has slightly taken me by surprise is that members of the Committee on the Opposition Benches appear not to have been aware of this provision. It was in the Green Paper; it was referred to on Second Reading; it is in the regulatory impact assessment. For
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those employers who do not contribute at least 3 per cent there will be, in regulations, a requirement that they should offer information and access to regulated advice. I have done the costing and am hoping that, as a result, employers may decide that they are better off contributing to a stakeholder pension at 3 per cent. However, that is their choice. That has always been part of the Bill and, as I say, I am slightly taken aback that it has come as a surprise to Members opposite.
We have been at great pains to make the distinction between information and advice in the documentation precisely to avoid a situation in which a small employer, who is not necessarily very sophisticated regarding pensions, will not be put into a false position leading to a subsequent case of mis-selling. In that sense, I think that we have covered the noble Lord's point.
Lord Higgins: The noble Lord, Lord Oakeshott, and I were equally surprised that the noble Baroness raised these points when the clause is opaque in this respect. One had no reason to suppose that this clause would be defined in the way in which it has been. In any case, if the Government think that advice should be provided, why should this requirement apply only to those who are not making contributions of 3 per cent? It is either a good idea or it is not. In fact, it will impose higher costs on the very employers who are likely not to be in the best position to provide or obtain this information.
It is all very well for the noble Baroness to say that the existing legal and criminal sanctions position will remain the same. This ought to be on the face of the Bill and the legal position on giving or obtaining advice should be made clear.
I am not disputing for one moment that it was mentioned in the noble Baroness's speech—
Baroness Hollis of Heigham: We are talking about Clause 228(1), which states:
"Regulations may require employers to take action for the purpose of enabling employees to obtain information and advice about pensions and saving for retirement".
Subsection (2) states that regulations under subsection (1) may in particular,
"provide that they are to apply in relation to employers of a prescribed description and employees of a prescribed description".
This was always the intention. It was debated in the Commons, where the Liberal Democrats and the Conservatives both questioned some of the points about advice and information. But they were very clear, as far as I can tell, to whom this referred.
I agree that the Bill does not say that the employer must provide at least 3 per cent in contributions otherwise this requirement will apply. That will be dealt with in regulations. But the regulatory impact assessment makes it very clear how one is to understand Clause 228(1) which is about information, and subsection (2) which concerns how it will apply to employers of a prescribed description. Indeed, at Second Reading, the noble Baroness, Lady Barker,

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welcomed the clause and was delighted that it would apply to employers who might not otherwise contribute.
I have been slightly wrong-footed, because I took this as common knowledge between us and thought the real issue was how to protect employers from allegations of mis-selling. This provision was clearly laid out in the Green Paper, consultative documents, the Second Reading debate, the regulatory impact assessment and debates in another place.
Lord Higgins: There is one simple final point to be made. If it is so clear that this should not be in regulations, it should be on the face of the Bill.
Lord Oakeshott of Seagrove Bay: I really think that it is time to give us a chance now. I am very happy to accept the noble Baroness's long and complicated audit trail about how she has always intended this provision to be there and it is in the Green Paper, and so on. All we are talking about is whether it is beyond the wit of parliamentary draftsmen to draft regulations requiring employers who are not contributing at least 3 per cent to provide such information. Then everyone is clear, and we do not
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need to go into whether people in another place knew. Let us keep it simple and not worry about what was in the Green Paper. If that is the intention, let us say so.
Baroness Hollis of Heigham: No. It is not inconceivable that a future government of whatever description might think that 3 per cent was not the right figure and want to change it. As a result, they would need the power by regulations. A figure tying us down to a percentage is exactly the sort of point of information that should be covered by regulations.
Lord Higgins: It can be specified in the Bill that the provision is amendable by regulation. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 295B and 295C not moved.]
Clause 228 agreed to.
Lord Davies of Oldham: This looks to be a highly convenient moment for the Committee to adjourn until 3.30 tomorrow.
The Deputy Chairman of Committees (Lord Tordoff): The Committee will adjourn until 3.30 p.m. tomorrow.
The Committee adjourned at half-past seven o'clock.