Pensions Bill [H.L.]

HL Deb 16 February 1995 vol 561 cc869-906

8.23 p.m.

House again in Committee.

Lord Marsh moved Amendment No. 145YR:

After Clause 53, insert the following new clause:

("Repayments

.—(1) In any case where a payment ("the first payment") has been made by any person under section 53 to a scheme following an actuarial valuation of the scheme assets which disclosed a shortfall (within the meaning of that section) and a subsequent actuarial valuation of the scheme assets discloses that the value of the scheme assets exceeds the value of the scheme liabilities, that person shall become entitled, at the time the subsequent valuation is signed, to a refund of an amount—

1. (a) equal to the amount of the first payment, or,
2. (b) the excess,

whichever is the less.

(2) Where paragraph (b) of subsection (1) has applied in relation to a scheme, then that subsection may be applied again on a subsequent valuation which discloses a further reduction in the shortfall to permit the person concerned to recover an amount equal to the amount of that further reduction.

(3) In relation to a scheme the terms of which do not permit the trustees or managers to make a refund falling within subsection (1), subsection (1) shall be construed as conferring power on the trustees or manager to make that refund.

(4) The provisions of this section are without prejudice to Schedule 22 to the Taxes Act 1988 or section 33 of this Act.").

The noble Lord said: The proposed new clause is fair, simple and, I am sure, totally non-controversial and I hope that the Minister will say something helpful about it. It allows a company which under the MSR puts money into the fund to get it back again, in particular in the case of a closed fund or where the age profile produces minimal contributions.

The value of pension schemes inevitably fluctuates with the markets. When a scheme's assets eventually rise with the markets, the employer normally takes a pension holiday. That option is not necessarily available in the case of closed schemes. Those schemes are closed to new entrants, with the result that they tail off eventually to zero. As a result, there is little if any scope for recovering the overpayment through a pension holiday.

It may be argued that the overpayment will be returned in due course as a so-called surplus under the Taxes Act 1988. But there are many strings to that bow and this Bill adds a great many more. The process takes so long that, particularly as regards small businesses, it is a nightmare. It is a simple statement of fact that it is neither fair nor sensible that an employer who has had to pay what could well be a large sum of money in order to meet a temporary shortfall should not be able to get the money back and put it to work for the business when the problem for which it was paid in in the first place has ceased to exist. I beg to move.

Baroness Turner of Camden

I have some sympathy with the amendment moved by the noble Lord, Lord Marsh, because I am aware of certain closed funds to which the arguments could apply. The only problem that I have with the amendment is that nothing causes greater anxiety and agitation among scheme members—even scheme members who are not affected—than the belief that repayments can be made or surpluses can be returned to employers. There is often a great deal of agitation in relation to suggestions that that should be done.

I should be happy about the amendment if it included a reference to agreement by the regulatory authority for a repayment to be made. If that were the case, I should give the amendment wholehearted support because one could say that the members of the schemes would have some guarantee that the whole scheme would be exercised with their security in mind.

Lord Mackay of Ardbrecknish

The noble Lord, Lord Marsh, argued strongly in support of his amendment. It covers the same area as the amendments which we dealt with before the dinner break. I wish to begin by reiterating an important point: the minimum solvency requirement is purely that. It is a floor below which scheme funding should not fall. It may be helpful if I introduce a point that perhaps did not emerge before the dinner break. Under the valuation basis that we now propose for a minimum solvency requirement, the liabilities represented by non-pensioner members would be valued largely by reference to equity returns.

Under the modifications announced last December, up to 25 per cent. of the pensioner liabilities of large schemes may be valued by reference to equity returns. The Committee will therefore be reassured to know that this means that the value of the liabilities will move to a certain extent in harness with the value of scheme assets. As such, the risk of schemes being tipped by short-term market movements into making large and unnecessary cash payments will be much lower than some Members of the Committee fear.

Earlier we discussed ways that might be devised to help an employer who had had to put a great deal of money into the fund. I am advised that there are ways of ring-fencing assets with a legal underpin, which answers the question asked by the noble Lord, Lord Eatwell. I tried to explain that bank guarantees or some similar arrangement could be used to get an employer over the difficulty of the scheme being less than 90 per cent. with contributions continuing on a slightly lower plane over the next four years, going to 100 per cent. Of course, if one were to carry on with the assumption behind those concerns, if the markets picked up there could be another valuation showing that the fund had a clean bill of health and that the payments could stop.

I return to the Amendment No. 145YR. It suggests that in that event the money already paid could be paid back to the employer. That is exactly what the amendment deals with. It would be damaging to the whole concept of trust-based schemes if we enabled funds to pass freely from the scheme to the employer. The importance of the trust fund is that it provides a means of ensuring that, if the employer becomes insolvent, the pension scheme assets are separate from him and are not accessible to his creditors.

Payments from surplus are allowed to be made to an employer but only when certain conditions and criteria are met. Among them is an Inland Revenue criterion that the fund is funded at a level of 105 per cent. of the scheme's liabilities. I do not pray that in aid as a particular comfort because there are a number of hoops in relation to an individual scheme, as well as Inland Revenue criteria, through which an employer would have to go before he could recover some of the surplus. In the circumstances envisaged, he would have a reduced contribution after that kind of calculation. That is an important point because, in those circumstances, there could be an agreed change to the schedule of contributions reflecting the new circumstances.

As I have explained already, I recognise that there has been much nervousness about the potential impact of our minimum solvency proposals on some schemes and their sponsoring employers. As I tried to explain at the beginning of this series of amendments, the changes which we announced to the minimum solvency calculations will provide a more stable measure for assessing the adequacy of scheme funding. Fears that there will be widely fluctuating contribution rates are unfounded. The extended time limits will certainly allow for market recovery if a scheme drops below the minimum simply because of unusual short-term movements in prices. Therefore, it would be wrong to take the fairly dramatic step of making it possible for a scheme to repay money, so to speak, to the employer in the circumstances envisaged.

While I have a great deal of sympathy with the scenario presented by the noble Lord, Lord Marsh, the changes that we have made and some of the explanations that I have given about the ability to use bank guarantees will at least demonstrate that we are going some way towards addressing the problem, although I appreciate that we are probably not going as far as the noble Lord wishes to.

8.30 p.m.

Lord Marsh

Inevitably these amendments have produced a somewhat complex and occasionally confusing debate. I believe that we have all found it extremely difficult to follow the debate as it moved at an ever-increasing speed and became ever more complex on the way.

All Members of the Committee interested in this area will wish to read carefully this evening's debate. I suspect that, having read it, there may be those who will wish to discuss matters with Ministers and officials to try to achieve greater understanding. The issues are important and many of us will wish to return to this area on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 54 [Sections 49 to 53: supplementary]:

The Earl of Buckinghamshire moved Amendment No. 145ZYS:

Page 31, line 4, at end insert: ("(2) The Secretary of State shall take account of employers' views in establishing and modifying—

1. (a) the prescribed periods referred to in section 51(7), section 53(3a) and section 53(3b); and
2. (b) the prescribed manner referred to in section 49(3).

(3) Where the Secretary of State determines that the prescribed periods or the prescribed manner referred to in subsection (2), or both, should be modified, he shall prepare and lay before each House of Parliament—

1. (a) the draft of an order giving effect to his decision; and
2. (b) a report containing a statement of his reasons for that determination.").

The noble Earl said: This amendment requires the Secretary of State to take account of employers' views in modifying the MSR and requires him to consider the effect on employers and prescribes both the time period and the method of calculation and, when he has done that, requires him to seek the agreement of both Houses of Parliament.

We have had a long debate today on the merits or demerits of the MSR and the various alternatives put forward. I do not wish to go into that debate again. Most companies will not wish to be under-funded either on an ongoing basis or on minimum solvency. But there are anxieties that, if the assumptions are drawn too tight, employers will be extremely anxious because they may have to pay more money into the scheme than would otherwise be the case.

Whether or not we like it, there are anxieties about how the operation of the MSR will work. I suggest that legislation should require consultation to take place with employing companies in certain prescribed periods for returning to solvency and also there should be a prescribed manner for calculating assets and liabilities.

I appreciate that the Committee has expressed considerable disquiet about moving from primary into secondary legislation by using regulations. I suggest in this case that we use regulations for that situation. If those provisions were made in primary legislation, the machinery for making changes in the MSR and the time periods would prove quite difficult. We have seen a good example of that this afternoon in view of the time it has taken us to debate the MSR issue.

I suggest that there should be consultation with the employer companies and that, when the consultations take place and the Secretary of State makes his decisions, he should place those before the House and give his reasons for the decisions that he has reached on that issue. I beg to move.

Lord Mackay of Ardbrecknish

I have listened with care to my noble friend. I invite him to look a lot further down the Marshalled List to Amendment No. 171. That is intended to introduce a new clause after Clause 109 which will place a statutory duty on the Secretary of State to consult those he considers appropriate before making regulations under any of the provisions in this part of the Bill.

We fully accept that it is proper for the Secretary of State to consult on the content of regulations—but not only on the minimum solvency requirement and certainly not only employers and employer organisations. We therefore propose this much wider duty to consult in the new clause. I am certain that, in producing regulations on so central a matter as the minimum solvency requirement, the duty to consult such people as the Secretary of State considers "appropriate" will always be interpreted as including employers.

In the past the Government have always consulted widely on .pensions legislation. In that way we have been greatly assisted by the knowledge and experience of employers, pensions professionals, practitioners, members and their representatives. We feel it is right to continue to seek views across a broad spectrum of opinion. Having drawn my noble friend's attention to Amendment No. 171, I hope that he will rest assured that we shall be doing a great deal of consulting on the regulations.

Baroness Seear

Before the noble Lord sits down, will he tell us whether the regulations will be subject to the affirmative resolution procedure?

Lord Mackay of Ardbrecknish

I am almost certain that they are subject to the negative procedure.

Baroness Seear

We may wish to return to that matter.

The Earl of Buckinghamshire

I am extremely grateful to the Minister for drawing my attention to Amendment No. 171. I am just relieved to see that it is not to be moved this evening. On that basis, I beg leave to withdraw the amendment.

Clause 54 agreed to.

Clause 55 agreed to.

Clause 56 [Equal treatment rule: supplementary]:

Baroness Hollis of Heigham moved Amendment No. 145YS:

Page 31, line 36, at end insert: ("( ) The reference in subsection 55(3) to treatment which is less favourable is to treatment which for the purposes of the Sex Discrimination Act 1975 constitutes discrimination with the meaning of subsection 1(1) (a) or (b) of that Act.").

The noble Baroness said: In moving this amendment, I shall speak also to Amendment No. 145YUB. I shall speak fully to these amendments and more briefly to subsequent amendments.

Amendment No. 145YS is the first of a series of eight amendments to Clauses 55 to 59. They seek to bring domestic law into line with European law following the six decisions on pensions in the European Court of Justice on 28th September 1994.

The right to equal treatment as regards occupational pensions stems from Article 119 of the Treaty of Rome, which requires equal pay for equal work between men and women. In the absence of domestic legislation to claim equal pay, individuals in all member states may rely directly on Article 119 before their national courts and the courts are required to interpret national law, so far as is possible, so that it is consistent with European law.

The Barber case of 17th May 1990 held that pensions were deferred pay and, therefore, covered by Article 119. Many of the subsequent issues followed from that case. The equal pay act, with which, therefore, pensions are now aligned, allows employees to bring claims to industrial tribunals for discrimination in pensions. However, unlike the Sex Discrimination Act, the equal pay Act does not embody the concept of indirect discrimination (which is the subject of Amendment No. 145YS) where individuals are compared with individuals, whereas many of the problems in pensions are indirect and can be determined only by comparing the experience of one group with another and then seeing how much that difference is attributable to gender.

The obvious example here would be part-time workers. Even if male and female part-time workers were treated similarly, none the less, given the fact that part-time workers are overwhelmingly women—indeed, nearly half of all women work part time, while only about 5 per cent. or 7 per cent. of men do so—if part-time workers enjoy fewer rights than full time workers, they experience indirect discrimination.

At present the Bill follows the equal pay Act and brigades pensions with that and, therefore, does not rectify indirect discrimination. We believe that it must do so. Indeed, that is vitally important to the pension field. The Barber case also left unanswered further questions which the European Court cases tested last year. For example, the first of those concerned the date from which benefits had to be equalised. Secondly, the time limits within which claims had to be made were considered. For example, if the rights of full timers under the Barber case were equalised back to 1990, part-timers could join a scheme backdated to 1976 when Article 119 applied; but on what conditions? Thirdly, the court considered which benefits precisely have to be equalised: public as well as private occupational pensions or state as well as private pensions.

The Bill could have clarified the position in some of those areas. However, it has failed to do so. Therefore, employers and employees will not have a clear understanding of their duties and rights. That is likely to result in more complex cases and higher costs. Moreover, it will probably not end appeals to the European Court of Justice on the grounds that Article 119 will have to be prayed in aid to resolve all of the issues that the Bill fails to address.

Many of the issues are featured in separate amendments. However, perhaps I may now move precisely to Amendment No. 145YS. That amendment would make clear that the equal treatment rule provided for in Clause 55 covers both direct and indirect discrimination. As I said, the Equal Pay Act did not incorporate the concept of indirect discrimination in 1970. However, it was defined by the Sex Discrimination Act 1975.

The clarification is necessary because the ECJ ruled that Article 119 of the Treaty of Rome should be interpreted as incorporating the concept of indirect discrimination, not least, as I said, in the context of part-time workers. Unless we do so, the ECJ's decisions in the cases of Fisscher and Vroege, for example, regarding the position of part-timers will not be incorporated into UK law.

The second amendment, Amendment No 145YUB, is again part of the wider subset. The amendment would ensure protection for a person who raises a question over unequal pension provision. In that sense, it is not dissimilar to an amendment moved by my noble friend Lady Turner on the first day of Committee regarding protection for unfair dismissal of trustees. Under the amendment, the individual would be able to claim damages for victimisation under the Sex Discrimination Act if he or she suffered any detriment as a result of raising specifically issues of equal treatment. The effect of that protection would be that an employer would risk unlimited damages in respect of such victimisation. Therefore, the first two amendments on equal rights, given the judgments of the European Court of Justice, are designed to ensure, first, that the Bill covers indirect discrimination, which we think is vitally important to pension law; and, secondly, that it protects against unfair dismissal and victimisation. I beg to move.

Baroness Seear

I should like briefly to support the amendment and endorse the remarks made by the noble Baroness, Lady Hollis. The issues are implicit and part and parcel of the battle that many of us, including the European Commission, have been fighting for a long time; namely, to get rights for part-time workers. That would include the pension rights that we are discussing. It would also include not only female part-time workers but also male part-time workers. As an increasing number of men—and this is likely to continue—will spend at any rate part of their lives in part-time jobs, we must take on board when considering such matters the fact that we are moving into a situation in the labour market where both men and women will have periods of employment which are much less than full time. Unless the rights of male and female part-time workers are covered in the legislation, it will have very grievous effects on the ultimate pensions that people of both sexes will be able to claim when they finally retire.

8.45 p.m.

Lord Mackay of Ardbrecknish

At the risk of bringing the politically correct movement down on my head, I should like to say that it is with some relief that I move from the minimum solvency requirement to something as simple as sex—

Baroness Seear

It is not just a matter of sex.

Lord Mackay of Ardbrecknish

We have looked at Amendment No. 145YS—indeed, the noble Baroness may be more pleased with the second part of my reply to her amendments than she anticipates—and we have concluded that the amendment is unnecessary. We believe that importing a reference to Section 1(1) (a) of the Sex Discrimination Act into Clause 55 will not achieve anything. That provision, which defines what is generally known as "direct discrimination", merely states that that means less favourable treatment of a person on the grounds of a person's sex. Those words can be found in Clause 55. The reference to Section 1(1) (b) of that Act would make explicit that "less favourable treatment" in Clause 55 includes—as the noble Baroness pointed out—what is known as "indirect discrimination". However, I can assure the Committee that there is no doubt that Clause 55 already covers such treatment because, as drafted, it mirrors the wording of the Equal Pay Act 1970. Indeed, the House of Lords, in the form of our noble and learned friends, the Law Lords, has confirmed that indirect discrimination is covered by that Act. The amendment would not limit the scope of those provisions to treatment which is unlawful under the Sex Discrimination Act, but it would narrow the expression, "less favourable treatment" so as to cover only such treatment as is within Section 1 of the Sex Discrimination Act, whereas those words would otherwise bear their normal wider meaning. I hope that that explanation goes some way towards helping the noble Baroness.

It may be helpful to remind the Committee briefly—as the noble Baroness has already done; and, indeed, I repeat the words used by her noble friend earlier when I say that I broadly agree with what she said in her introduction—that the European Court of Justice has made it clear that pensions are pay. We therefore consider it appropriate that domestic legislation should follow the pattern established for equal pay which has now existed for some 25 years, together with a body of case law. I can assure the Committee that adopting that approach will not mean a more restricted approach to equality than that covered by the Sex Discrimination Act—indeed the contrary is true. With those assurances, I trust that the noble Baroness will feel able to withdraw the amendment.

I turn now to Amendment No. 145YUB. As the noble Baroness has explained, the amendment would bring the provisions of this Bill within the ambit of Section 4(1) of the Sex Discrimination Act 1975. That would mean that individuals who wished to bring an equal treatment claim before a tribunal or court would be protected against vitimisation on account of the fact that they had done so. I can sympathise with the intention behind the amendment, which is to provide potential claimants with the added security of knowing that they will have protection from any reprisal by their employer, and I shall carefully consider what the noble Baroness has said. However, I am not able to accept the amendment today because the Sex Discrimination Act is worded in very general terms and covers a number of different areas which may have implications for a number of other departments which will need to be consulted. Nevertheless, we shall look most carefully at that aspect because we fully appreciate the argument in favour of the kind of cover that the noble Baroness advocates. We shall certainly look to see how that might best be achieved.

Baroness Hollis of Heigham

For once when we thank the Minister for his reply it is rather more heartfelt than merely perfunctory, certainly as regards Amendment No. 145YUB and unfair dismissal. Any amendment which would seek to protect the position of the individual going before a tribunal would be welcome. I hope that the Minster will bring forward an amendment on that at Report stage. It would be much welcomed.

l heard what the Minster said about the Equal Pay Act in the light of the House of Lords judgment covering situations of indirect as well as direct discrimination. I have certainly not received a briefing to that effect. I am not in any sense challenging the Minister on that because I am simply not aware of how complete or incomplete the House of Lords' judgment is. Would the Minister be prepared to write to me and to spell that out in much greater detail so that if we are unsatisfied on some particulars we can revisit this issue on Report? If the Minister's letter addresses those issues, we shall not need to return to the matter. If I may have those assurances, I shall be happy to withdraw the amendment. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No, 145ZYT:

Page 31, line 42, after ("(2A)") insert ("(save for sections 2(4) and 2(5) and for the amendments to that Act for the purposes of this part of this Act set out at subsection (4) (d) below)").

The noble Baroness said: I move on to the second batch of European law amendments. In moving this amendment, I wish to speak also to Amendments Nos. 145YT, 145YUA and 145YUC. I feel as if I am dealing with an American food chain when I read out the lettering that is adopted by the conventions of this Chamber.

all speak first to Amendment No. 145ZYT. We do not think that applications of Sections 1 to 2A of the Equal Pay Act 1970 are a lawful or appropriate way of ensuring compliance. Perhaps the Minister has a different reading of this in terms of any House of Lords decisions. We also believe that the Bill should allow breaches of the equality rule to come before an industrial tribunal or a county court or the High Court. The EOC and the TUC have both complained to the European Commission that the present tribunal procedures are cumbersome, often ineffective and take a long time. They are taking at least 18 months to four years, and something like 40,000 cases are, I understand, currently in the industrial tribunal queue.

It is also the case that tribunals can be dealing with extremely large sums and there is no legal aid for litigants going to a tribunal. Pensioners in particular who may be seeking to recover damages are likely to be poor and not necessarily supported by a trade union or a friend. Amendment No. 145ZYT would allow cases, especially where there are substantial sums involved, to continue to go to the county courts. That seems to us reasonable. Amendment No. 145YUC—the last of the quartet—would refine that by directing claims below £25,000 to tribunals and those above that figure to the civil courts. It would also delete the capping of damages that this Bill would ensure—a capping which we suspect in any case is contrary to European law.

I now move on to Amendment No. 145YT, which deals with some of the time limitation issues. The first point I wish to make is that applying the Equal Pay Act appears to limit damages for pension inequalities to a maximum of two years preceding the point at which the legal action was commenced. The Minister may not be able to answer these points now but I should be grateful for an exchange of letters. What is the situation, as regards time limits, of part-time workers who have already submitted claims to industrial tribunals for damages going back to 1976? How far back can they claim for what damages?

Secondly, what happens to those who claim—not necessarily part-timers but anyone—after the Bill has become law but for periods before it became law? Thirdly, will it introduce a two-year time limit only for those who claim after the Bill has become law for periods after the Bill has become law? I hope the Minister will consider the issue of the interlocking time limits and the time period for which one can claim damages. I have a further question on time limits. Our understanding of the application of the Equal Pay Act is that any action for damages or compensation must be brought within six months of retirement as opposed to six years under, say, trust law. We believe that is far too short and tight a time scale because it takes several months before people may realise the implications of the pension situation. We believe that on all of these issues Clause 56 is hopelessly ambiguous and where it is not ambiguous we suspect that it is contrary to European law.

Finally, on Amendment No. 145YUA we again believe that Clause 56(6) is hopelessly vague. Does it mean that no claim for periods earlier than 17th May 1990—I refer to the Barber case—can be brought, so that a woman cannot claim a right under the equality clause to the same pension now as a comparable man because there were disparities before 17th May 1990, or will she be fully equalised? We need the Minister's thinking on that.

As I say, these are probing amendments. We are happy to accept that these may not be the sort of issues that the Minister wishes to deal with at this stage in Committee, but we need some clarification in the light of these European cases and this Bill, and our reading of the Equal Pay Act because we suspect that, as a result of this, there will still continue to be a necessity for many appeals to Article 119 and the European Court of Justice because this Act is incomplete or simply improper. I beg to move.

Lord Mackay of Ardbrecknish

I am grateful to the noble Baroness for explaining what is intended by the amendments we are discussing. I do not think that the noble Baroness used the word "probing" but I believe she wants me to explain what the clause means. I shall do so because this is an important issue.

The European Court of Justice, in the Barber case and subsequent clarification cases, established the principle that equal treatment is to be provided for service from 17th May 1990. Thus all occupational pension schemes must now provide equal treatment from that date. The provisions of Clauses 55 and 56 require just that.

The court also ruled in the Dutch cases of Vroege and Fisscher that the cut off date of 17th May 1990 did not apply in respect of the right to join a scheme and that in appropriate cases access could be granted as far back as 1976. However they went on to make clear that national time limits may be applied to such cases.

As the Committee will know, a great number of part-time and former part-time workers have now made claims for retrospective membership of their employers' schemes. The position is that currently there is no directly applicable national time limit for claims of this kind. It will therefore be a matter for the courts and industrial tribunals to decide in the particular case what limit should be placed on the making of the claim and any limitation on periods of retrospective membership which may be granted.

However, we cannot continue to leave the position of time limits uncertain. The Bill provides for the time limits which apply under the Equal Pay Act to be applied in the event of disputes and enforcement concerning the equal treatment rule. These limits, which will apply in respect of claims made after this Bill is enacted, will require claims to be made within six months of leaving the relevant employment and will place a limitation on retrospective membership of two years before the date of claim. The application of the Equal Pay Act time limits is only logical given that the European Court has ruled that occupational pensions are pay. They have also applied since 1978 to claims under the existing, more limited, equal access regulations.

We do not think it would be appropriate to give industrial tribunals discretion to waive the time limits for bringing claims in cases where they believed it was appropriate to do so. Neither is it right to provide for damages to be awarded for a breach of the equal treatment rule back as far as 1976. This would again break away from the long established limits and rules set out in the Equal Pay Act, which have worked well up to now. And as I have already explained, the European Court has stated clearly that national time limits may be applied to claims for retrospective access to schemes. Furthermore, the proposed amendments would create great uncertainty and potentially enormous costs for employers called upon to pay these damages in respect of years long past. It should also be remembered that the Bill's provisions are not intended to provide damages but to ensure that employers grant access retrospectively within the limits laid down in the Equal Pay Act so that individuals can subsequently obtain the benefits of that membership in the form of a pension.

I turn now to Amendment No. 145YUC. This seeks to differentiate between the judicial institutions which should consider equal treatment claims, depending on the level of damages being sought.

I do not agree that it is appropriate to provide for such differentiation. In the case of claims for equality of access to schemes, I have made clear why we consider that the provisions for disputes and enforcement in the Equal Pay Act should apply. In the event of a successful claim we consider that a limitation of two years before the date of claim should be placed on any retrospective membership granted by the tribunal. The effect of a successful claim will not be the award of damages, simply that the employer must provide the employee with membership of the scheme for the period concerned and that the benefits flowing from that membership are payable from the scheme at the appropriate time. That is exactly what would happen under the existing equal access legislation, which has been in force since 1978.

We believe that the route we have chosen to adopt is clear and fair to all concerned. It would be appropriate for industrial tribunals to handle disputes of this kind, as they do equal pay claims, and inappropriate for the civil courts to handle cases involving claims for amounts in excess of £25,000. Industrial tribunal procedures are certainly simpler and easier to follow than formal court procedures. No fees are required. Many people will feel that that is preferable. The idea that there are no delays in the courts is optimistic. There are delays in the court system also.

For the sake of completeness, I should add that before the Bill becomes law it is for the courts and industrial tribunals to decide on the time limit for past periods. As I said, there is currently no time limit. After the Bill is enacted for past periods, under the Equal Pay Act, the time limits will apply if the claim is made after the Bill becomes law. After the Bill becomes law the position for the periods thereafter will be as I indicated—six months and two years.

I have explained the matter at some length, but I know that the noble Baronesses consider it an important issue. I have explained the Government's thinking and how we have arrived at our conclusions on the time limits for this country which we believe are consistent with the Equal Pay Act and the European judgment. I hope that with that rather long explanation the noble Baroness will withdraw her amendment.

9 p.m.

Baroness Seear

Before the Minister sits down I should like to ask him to think again about the six-month period. It is not very long if one is not familiar with these matters. When one retires one does not move in the circles where people talk about how one can get equal pay and how tribunals work. It seems a very short period. I cannot think that it would cost any more or cause any great inconvenience to extend it to a year, or even to nine months.

Lord Mackay of Ardbrecknish

It may be because I am so involved in the Bill, but there seems to be plenty of publicity about the issue in the newspapers and on television and radio.

Baroness Seear

They talk about nothing else in my local hairdresser.

Lord Mackay of Ardbrecknish

Yes. I would have thought that they would have talked about the appearances of the noble Baroness in the House of Lords when they see her on television.

I hear what the noble Baroness says, but the ground on which we arrived at our conclusion is the simple ground that the court ruling said that this was pay, and we have taken the time limits from the Equal Pay Act.

Baroness Hollis of Heigham

Before we decide what to do about the amendment, can the Minister clarify one point? I understood—but I may have misunderstood—that the Vroege and Fisscher cases provided only that domestic time limits for bringing claims should be applied but did not say that damages could or should be limited. Therefore, that would still allow individuals to go straight to the European Court of Justice under Article 119, whatever the Minister may have said. Is that correct?

Lord Mackay of Ardbrecknish

I am not entirely sure about the answer to the second part of the question. I know that the two cases made it clear that national time limits may be applied to such cases.

In relation to damages we are talking about access to pension schemes. That is the primary point. I dealt with that as the essence of the matter.

The answer to the second question of the noble Baroness is no. In relation to national time limits I have said that the court clearly decided that national time limits may be applied in such cases.

Baroness Hollis of Heigham

My second question does not permit an answer of yes or no. I wonder what the Minister thinks he is saying.

Lord Mackay of Ardbrecknish

We have now gone some way from the original question. Perhaps the best and tidiest way to proceed is for me to consider the question in some detail and give the noble Baroness a proper response.

Baroness Hollis of Heigham

I thank the Minister. As I said, these are probing amendments and we need further information.

Like the noble Baroness, Lady Seear, I was disappointed. I see the thrust of the Minister's logic. If one says that a pension is deferred pay one applies procedures as though one were in the workplace. However, the Minister is well aware, because the noble Baroness put the point forcefully, that once one is retired one is not in the workplace. One is not tapped into that information. One does not have trade union support. One does not receive the literature and information. One does not have the financial resources to pursue claims in the normal way.

While I take on board some of the points that the Minister made, the period in which one should be able to bring an action could at the very least be extended to a year. When one retires one tries to sort out one's money, one's mortgage, domestic arrangements and so on. A great deal happens in a short time. The Bill seems not to reflect the real life situation in which people find themselves.

I am not persuaded about damages, although the Minister will provide further information in his letter. We accept the time limit for bringing claims but not yet in relation to damages. I do not accept his reasoning about the civil courts. While we recognise that tribunals have many virtues, there is a long queue of some 40,000 people. Although tribunals are to some extent the equivalent of small claims courts, once claims are no longer small claims but large claims involving substantial amounts of money—in some cases amounting to six figures—there is an argument for saying that they should be brought within the more formal proceedings of county courts and the High Court, where legal aid is available. I wonder whether we can persuade the Minister at least to give us an undertaking that if he thinks there is sense in the argument he will come back to the matter.

Lord Mackay of Ardbrecknish

Just as the noble Baroness will read what I said, so we shall read the proceedings and pick up the various points because we wish to get the Bill right and fair.

The six-month period to which we refer does not come into effect until the day of enactment. Between now and then current cases are a matter for the court or tribunal. I am happy to study what the noble Baroness said regarding the court point. I am not convinced on that. I shall ask a simple question as to how many cases exceed the limit of £25,000. I suspect that there are not many. Consistent with the Act, which is the context into which we put the provision, I still believe that an industrial tribunal is the best place. However, I shall read with care what the noble Baroness said.

Baroness Hollis of Heigham

As the bulk of cases have still to go through the courts, we do not know what the percentage will be. However, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 145YT not moved.]

Baroness Hollis of Heigham moved Amendment No. 145YU:

Page 32, line 12, at end insert ("or such earlier date as provided in subsection (7) below. (7) If on any valuation day the amount of the scheme assets is greater than 105 per cent of the amount of the scheme liabilities the amount of the excess shall in a prescribed manner be applied in providing equalisation in the terms on which members are treated in relation to pensionable service from a date before 17th May 1990.").

The noble Baroness said: Amendment No. 145YU turns to a slightly different issue and is grouped with Amendment No. 145YX. It seeks to make clear that when trustees make scheme amendments to comply with the equal treatment rule those are subject to Clause 60 in the Bill, which places restrictions on amendments which adversely affect members' accrued rights. The effect is to ensure that accrued benefits are equalised on the more favourable terms. The European Court of Justice has ruled that that is required under European law.

Unfortunately, the ECJ said that there was nothing in European law which forbids adverse changes in benefits to be accrued in the future, but there are already strong arguments that that is against our domestic employment law. We wish to know the Government's intentions on the issue. It is a probing amendment. We believe that it is an issue on which there is a case for levelling up.

Amendment No. 145YX proposes that retrospective equalisation should be required to the extent that a scheme has a surplus in excess of 5 per cent. of its liabilities. The only argument that has been used against that proposal is one of costs. We believe that where there is a surplus that argument cannot apply. Again, we shall welcome a response from the Minister on that issue. I beg to move.

Lord Mackay of Ardbrecknish

Amendment No. 145YU would mean that any surplus in a pension fund would have to be used for the purpose of providing equal treatment between men and women for periods before 17th May 1990, the date of the European Court of Justice ruling in the Barber case.

The European Court has clearly ruled, notably in the Ten Oever and Coloroll cases, that equalisation is not required before 17th May 1990, but is required for service after that date. This is a minimum requirement and there is nothing in this Bill which would prevent schemes using a surplus to provide equality for earlier service if they wish to do so. However, we do not believe that it would be right to impose more stringent requirements or a heavier regulatory burden on schemes than European law requires. We do not believe that it should be a matter for Government to dictate that any surplus should be distributed in favour of scheme members in this way. I am therefore unable to support the amendment.

Turning to Amendment No. 145YX, I entirely agree with its sentiments. However, we do not believe that it is necessary. Clause 58 gives trustees or managers of schemes such power as may be necessary to enable them to amend scheme rules to provide equal treatment. The clause does not grant trustees or scheme managers a wide power to amend scheme rules at will. The power under this clause is limited to amendments to provide equality.

The European Court of Justice has made clear that equal treatment is required for periods of service from 17th May 1990, and that where such equality has not been provided benefits are automatically levelled up to the more favourable treatment until such time as the scheme equalises benefits for periods of future service. Clauses 55 and 56 of this Bill are intended to have the same effect.

Although the court ruled that Community law did not preclude schemes from equalising benefits at a less favourable level for periods of service before 17th May 1990, the provisions of Clause 60 would, in effect, prevent this from happening.

Clause 60 is overriding in effect. It prevents detrimental amendments being made in relation to any rights accrued before the date of the modification unless the trustees have satisfied themselves that the certification requirements or the requirements for consent have been satisfied. I can assure the noble Baroness that Clause 60 provides the necessary safeguards that she is seeking and that there is no need to make Clause 58 explicitly subject to that clause. Perhaps in view of my explanation she may be prepared to consider withdrawing the amendment.

Baroness Hollis of Heigham

I wish to study the Minister's reply. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 145YUA to 145YUC not moved.]

Clause 56 agreed to.

Clause 57 [Equal treatment rule: exceptions]:

[Amendments Nos. 145YV and 145YW not moved.]

Clause 57 agreed to.

9.15 p.m.

Clause 58 [Equal treatment rule: consequential alteration of schemes]:

The Earl of Buckinghamshire moved Amendment No. 145YWA:

Page 32, line 40, at beginning insert: ("Subject to subsection (1A) below").

The noble Earl said: I wish to move this amendment and speak to Amendments Nos. 145YWB, 148A and 148B. They deal with the equalisation of pension rights and the objective is to ensure that the company's consent is sought before trustees or managers make alterations to the scheme. Where the company refuses to give such consent to any recommendations or decisions made by the trustees or managers, then the scheme must refer the matter to OPRA to be resolved.

There are two reasons for asking for Amendment No. 145YWA to be considered by the Minister and the Committee. The first is that there is more than one way to equalise pension ages in pension schemes. Thus, some schemes are more costly than others and the employer will clearly wish to have control over costs.

The second reason is that, while the equalisation of pension ages has arisen from European Court judgments, it is nevertheless a benefit improvement over which the employing companies would wish to have control. I realise that the issue can cause difficulties between trustees, managers and the employing company. Because of that, I have suggested that OPRA should have the power to intervene in those situations. I beg to move.

Lord Mackay of Ardbrecknish

The European Court of Justice has ruled that both employers and trustees of a scheme are bound by Article 119 of the Treaty of Rome and they must both ensure that pension schemes treat men and women equally within the limits of their respective powers. Clause 58 will give trustees the power to make alterations to a scheme to comply with the equal treatment rule where they do not otherwise have these powers, a duty which will be incumbent upon employers by virtue of Section 1 of the Equal Pay Act 1970 as modified by Clause 55 of the Bill.

The effect of my noble friend's Amendments Nos. 148B, 148A, 145YWB and 142YWA would be to ensure that the trustees or managers of a pensions scheme seek the employer's consent in writing to any changes to scheme rules which they wish to make under Clause 58. In cases where the employer did not give that consent the occupational pensions regulatory authority (OPRA) would have the power to intervene.

I can certainly understand that employers might be hesitant about giving trustees the power to make changes to schemes without first consulting them. However, we have given some thought to this point and concluded that this is unlikely to happen in practice. Employers are already bound by European law to provide equal treatment and scheme rules normally require trustees to obtain the consent of the employer before a change is made. It is difficult to imagine a situation where trustees would not consult the employer and reach agreement as to how equalisation should be provided for any future service. Clause 55 of the Bill will also provide for schemes without an equal treatment rule to be treated as if they had one and for the more favourable treatment to apply.

Turning to the question of what should happen where there is a dispute between the parties, since the Barber ruling it has been clear that pension schemes must provide equal treatment. Individual scheme members can rely directly on Article 119 as interpreted by the European Court's ruling before our own courts and industrial tribunals. What is more, Clause 58 of the Bill already provides a mechanism for allowing schemes to be equalised for the future without the involvement of OPRA. We intend that OPRA should enforce statutory obligations designed to snake sure that schemes are secure and appropriately funded so that they are in a position to pay the promised benefits. The equal treatment provisions do not fall into that category and other remedies are available for handling disputes between employers and trustees—for example, the pensions ombudsman and the courts.

I can understand that employers in particular might like to see an overriding requirement in the Bill that any changes to scheme rules should be expressly consented to by the employer. I am not able to accept this amendment today, but would be willing to give the matter some further consideration, though I cannot promise more than that at this stage.

The Earl of Buckinghamshire

I am grateful for the Minister's reply, which I shall read carefully and I shall return to the matter at a later stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 145YWB and 145YX not moved.]

Clause 58 agreed to.

Clause 59 agreed to.

Clause 60 [Restriction on powers to alter schemes]:

The Earl of Buckinghamshire moved Amendment No. 145YY:

Page 34, line 2, after ("might") insert ("adversely").

The noble Earl said: This is quite a curious amendment. The clause currently states that scheme rules cannot be changed to the benefit of their members without their consent. I seek to be able to have a scheme improved without having to obtain the consent of all its members at the same time. It is entirely correct—and happens in any case in all the trustee rules—that you cannot make changes which are adverse to the accrued rights of members. But I am curious to know whether consents are needed if improvements are envisaged.

Fortunately, the only time when agreements to improvements would be required—it is an argument which perhaps tells slightly against the amendment—is if employers were selectively to start improving one section of a scheme or provision for one group of members of a scheme which would be contrary to the interests of the other members of it. That would be quite a difficult situation.

In a sense this is a probing amendment. I should like to hear what my noble friend the Minister feels about it. I beg to move.

Lord Mackay of Ardbrecknish

The purpose of Clause 60 is to prevent amendments which have a detrimental effect on members' accrued rights. The only exception to the rule is where individual members have given their consent to such an amendment.

The circumstances which determine whether an amendment could possibly have an adverse effect on any category of scheme members will usually be unique to the scheme. The interaction of different rules and entitlements can frequently mean that what appears to be a beneficial amendment can adversely affect the rights of a small minority of members. Making a decision on whether an amendment is adverse to any individual scheme member or group of members is often not straightforward. Whoever is vested with the power to make amendments—the employer or the trustee, depending on the terms of the scheme rules—will need in virtually all cases to seek the advice of an actuary.

This amendment would give whoever has the power to make modifications the authority to determine whether a modification has an adverse effect, without first being required to seek the advice of an actuary and certification from him. Given the complexities of occupational pension schemes, we do not believe that that is safe. Having listened to my explanation, and on the basis that we are both aiming in the same direction, I hope that my noble friend will be able to withdraw his amendment.

The Earl of Buckinghamshire

I am very grateful for my noble friend's reply. As I worked through the amendment I think I probably understood that he would give me that answer. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 60 agreed to.

Clause 61 [Power of trustees to modify schemes by resolution]:

Lord Lucas moved Amendment No. 146:

Page 34, line 40, after ("section") insert (" 76 or").

The noble Lord said: In moving this amendment I shall speak at the same time to Amendments Nos. 147 and 148. Perhaps I may say how pleasant it is to be able to deal with numbers only.

These amendments will clarify Clause 61. The clause enables trustees to modify schemes to comply with certain requirements of the Bill. Amendment No. 146 will enable trustees to modify their scheme to comply with such terms and conditions as may be imposed by the compensation board under Clause 76 as well as Clause 77. Amendment No. 147 adds clarity to subsection (2) (d) by making it refer to specific subsections of Clauses 33 and 69. Also, by replacing "or" with "and" at the end of line 41, it also makes clear that trustees may amend their scheme for any other purposes under subsections (2) (a) to (2) (d) as well as for any additional purposes which may be prescribed under paragraph (e). Amendment No. 148 applies the clause to Northern Ireland. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendments Nos. 147 and 148:

Page 34, line 41, leave out from ("section") to end of line and insert ("33(2), 69(2) or (3), 83 or 84, and").

Page 35, line 6, after ("(2) (d)") insert ("or any corresponding provisions in force in Northern Ireland").

The noble Lord said: I have already spoken to these amendments. With the leave of the Committee I shall move them en bloc. I beg to move.

On Question, amendments agreed to.

Clause 61, as amended, agreed to.

Clause 62 [Grounds for applying for modifications]:

[Amendments Nos. 148A and 148B not moved.]

Clause 62 agreed to.

Clauses 63 and 64 agreed to.

Clause 65 [Modification of public service pension schemes]:

Baroness Seear moved Amendment No. 149:

Page 37, line 12, at end insert: ( "( ) Notwithstanding the provisions of section 148 below, any order made by the appropriate authority under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.").

The noble Baroness said: Even in the absence of the noble and learned Lord, Lord Simon of Glaisdale, we return to the question of regulations. Under this clause considerable powers are given to the Secretary of State, as indeed they are throughout the Bill, to make regulations. While we accept that it is a Bill which will require regulations to be made, and we do not deny that that is the case, we also want to ensure that adequate parliamentary control is maintained.

In Clause 65 it is an "appropriate authority" that can make the regulations. According to the scrutiny committee on procedures, where a Secretary of State makes a regulation it is subject to parliamentary control—only through the negative procedure, but at least it is some element of control. But that is only if the Secretary of State makes regulations; if it is an "appropriate authority"—by which I take it to mean a Minister other than a Secretary of State—then not even the negative procedure applies to ensure that there is a modicum of parliamentary control. That is the reason for tabling the amendment. I beg to move.

Baroness Hollis of Heigham

I rise simply to show solidarity on this matter. We believe it to be a good amendment.

Lord Mackay of Ardbrecknish

It might be helpful if I explained a little more about what Clause 65 provides. This clause allows an "appropriate authority" to modify a public service scheme for the same, limited, purposes that the new regulatory authority is able to modify private sector schemes under Clause 62. Those purposes are: to allow such a scheme to comply with the contracting out requirements; and, to allow a payment to be made to the employer from surplus in such a scheme, but only where it is trust based.

This clause brings forward powers currently contained in Section 141 of the Pension Schemes Act 1993. We examined the purposes for which schemes may be modified under that Act and concluded that many of the modification powers are no longer needed. Consequently, this clause provides more restricted powers to modify schemes than currently exist under the Pension Schemes Act.

The powers to modify for contracting-out purposes could, in theory, be applied to all public service schemes. However, almost all public service schemes are presently contracted out of SERPS. We anticipate that those schemes will wish to remain contracted out when the new contracting-out regime comes into effect, and would expect them to have no difficulty in meeting the new requirements without amendment. Consequently, the power to modify for contracting-out purposes would only be used very rarely, if at all.

The powers to modify a scheme to allow payments from surpluses to the employer can only affect a limited number of public service schemes, because the powers can only be used to modify a trust-based scheme. The main public service schemes are not trust based and so cannot be affected by this power. There are some trust-based public service schemes, but those are mainly small schemes set up for the staff of non-departmental public bodies. In general, the intention throughout the Bill is that trust-based public service schemes should be treated in a similar way to private sector schemes. In respect of payments from surpluses to the employer they will need to meet the same requirements as private sector schemes (set out in Clauses 33 and 69).

I recognise that powers to modify schemes, particularly in relation to surpluses, can give concern and the noble Baroness has tabled an amendment with which I have some sympathy. I have also noted that the Scrutiny Committee has drawn attention to this clause. However, this is a matter in which the departments that are responsible for public service schemes have the main interest. I would need to take their views on the best way forward. For that reason, perhaps I may ask the noble Baroness to withdraw her amendment and allow me to take it away for further consideration.

9.30 p.m.

Baroness Seear

We can never resist such blandishments as an offer from the noble Lord to take the amendment away and think about it, especially at this time of night. However, I should like to say—I seem to have said the same thing several hours ago —that the Minister's reference to the fact that only a small number of schemes are left out and that most people would be covered is not satisfactory. A great deal of law has to be passed for exactly that reason. A small number of people fall through the net and those are the people who attract abuses. I hope that we shall not hear any more of the argument that it does not really matter because nearly everyone is all right: and that for the rest it is just too bad. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 65 agreed to.

Clause 66 [Preferential liabilities on winding up]:

Baroness Turner of Camden moved Amendment No. 150:

Page 37, line 40, at end insert ("including any liability, calculated and verified in the prescribed manner, for increases to pensions").

The noble Baroness said: In moving this amendment, I should like to speak also to Amendment No. 151. It has been grouped with Amendment No. 150A but that deals with a different point. My two amendments are concerned essentially with the rights of pensioners. Clause 66 relates to priority liabilities on wind up. It sets out the order in which the various claims are to be dealt with should a scheme be wound up. What bothers me about the present order is that it is to some extent reversing the order which currently exists in a number of schemes and, since it is legislative, it will override whatever is in those rules.

My amendment relates to increases in pensions paid in line with whatever is the prescribed arrangement. As the Bill is drafted, existing pensioners come at the bottom of the league, yet 11 believe that they do have a claim to be considered higher up the rank, so to speak. The reason is very simple. Once a pensioner, for most people that is all there is. He or she can look to no more improvement, because working life is at an end, except by way of increases to the pension in payment, which are usually paid in accordance with a formula contained within the scheme. However, an active member who is still in employment has the opportunity to improve his or her position either through promotion or by job change or simply by securing increased earnings or paying more into the scheme by way of additional voluntary contributions or whatever. It has been pointed out to me that if the Bill is not amended the position of existing pensioners in the event of wind up could have been worsened.

In the briefing I have received from trade unions they acknowledge that this is the case but their remedy for overcoming it is by ensuring that there are pensioners among the trustees and that they should be there by statutory requirement. However, as we know, the Committee rejected the proposition which we made that there should be pensioner members among the trustees as a matter of law, so we are left with what could be a worsening position with no right of representation. I therefore hope that the Minister will agree with me that something ought to be done in these circumstances. I beg to move.

The Earl of Clanwilliam

I support the noble Baroness very sincerely in her amendment. Pensioner trustees should be represented at some stage, especially where there are more pensioners than there are active members.

Baroness Seear

We also strongly support this amendment from these Benches.

The Earl of Lindsey and Abingdon

It is my intention to speak only to Amendment No. 150A. The purpose of the amendment, which refers to preferential liabilities on winding up, is to try to obtain a more balanced equation between those who are just below or just over retirement age. As worded at present, in Clause 66 there is a distinct advantage for those referred to in subsection (3) (b) over those in subsection (3) (c). In other words, I am looking for a more level playing field. Bearing that in mind, I should like to give an example of, say, a 56 year-old person having paid into a scheme an aggregate contribution identical to that of an older member. That person should not get significantly worse returns on his own investment after a period of 20 years' service.

Lord Mackay of Ardbrecknish

This is an important issue. I shall take a few minutes to explain what exactly we intend by this clause, and why, and also to answer the points made by the noble Baroness and my noble friends.

This clause would ensure that the liabilities covered by the minimum solvency requirement are, so far as possible, secured; and that the purpose of the minimum solvency requirement is not frustrated by scheme priority rules which would apply scheme assets on wind up on a different basis. Thus, the requirement on schemes to cover the "preferential liabilities" in the clause will ensure that a scheme which is 100 per cent. solvent on the statutory minimum solvency requirement basis will in fact, on wind up, attribute to each member the actuarial value of their accrued rights, including their rights to indexation.

However, this clause also contemplates the situation that schemes may wind up less than 100 per cent. solvent on the statutory minimum solvency basis, or otherwise be unable to meet their liabilities in full. Obviously, we hope that schemes will not wind up in a position where they are unable to secure the benefits promised. We believe that the minimum solvency requirement and the wide range of other measures for enhancing scheme security which we have discussed will minimise the chances of schemes winding up in this position. But we live in the real world. Things could go badly wrong and we must address the question of how we should deal with that situation.

Where a scheme does not meet the statutory minimum solvency requirement it is inevitable that some of the preferential liabilities will not be met. The proposed priority order will ensure that there is an equitable distribution of assets. It is only right that pensioners should receive some priority over active members and that they should, if possible, suffer no reduction in their income. That is reflected in the priority order.

Additionally, the position of pensioners will be further protected as a consequence of the actuarial valuation basis to be used for the purpose of calculating liabilities under the clause. This will need to be consistent with the valuation basis used for calculating a scheme's minimum solvency requirement. As such, pensioner liabilities will need to be valued by reference to the returns on gilts. This means—in simple terms—that, on wind up, the scheme will need to attribute more cash to them than would be the case if the assets were simply distributed pro rata to all members (pensioner and non-pensioner) in proportion to their accrued rights. This will be the case even where, on a scheme basis, the minimum solvency requirement calculation would allow a proportion of the pensioner liabilities of a very large scheme to be valued by reference to equities.

We have given long and careful thought as to whether pensioners should be given any further protection under the preferential liabilities and whether indexation should be given the same priority as the pension in payment to existing pensioners. However, indexation can be very costly and will mean that more of the available assets will be used to fund escalating payments to existing pensioners.

As I have already said, this should not cause problems in a scheme which meets the minimum solvency requirement. If more of the assets are used to provide for the future increases of existing pensions there will be fewer assets available to secure the accrued rights of the other members. Some members—and my noble friend Lord Lindsey made this very point—who may be close to pensionable status may be left with insufficient funds to deliver their accrued pension rights and without the ability to repair damage to any large extent. In these circumstances, someone has to lose out. We believe that it is more equitable, so far as possible, to protect the basic pension entitlement of all scheme members and share out whatever residual assets may be available to provide pension increases. This seems better than offering total protection to one class of member and prejudicing the rights of other members who may well be in a no better position than a pensioner to make the loss good.

Those arguments are applicable to Amendment No. 150A. I appreciate that the purpose of this amendment is to protect the position of an older, but not yet retired, scheme member. It would tend to ameliorate the present situation in which pensioners' rights can be fully secured while the rights of someone just short of retirement can be significantly reduced.

I think my noble friend's heart is in the right place. The clause as drafted achieves a similar effect in a different way. It gives a reasonable degree of priority to the basic accrued rights of all scheme members. I hope that my noble friend will therefore agree that his amendment is unnecessary. With that explanation of what is a complicated, but could in certain rare circumstances be an extremely important, issue, I hope that the noble Baroness will feel able to withdraw her amendment.

Baroness Turner of Camden

I am not really surprised by the Minister's response, although I am a little disappointed. I ask him to accept that indexation is a very important issue for many pensioners, particularly those who have been on a pension for some years because the value of their pension in relation to earnings has fallen as the years have gone by.

I am not very happy with the Minister's response, but I shall take further advice before Report. A number of representations have been made to me on this issue. It has been pointed out to me that there are already pension schemes and pension scheme rules whereby pensioners and indexation for pensioners have the priority which I am seeking to give in my amendment. As I understand it, that will be overruled by this legislation once it is on the statute book. Therefore, although I feel unhappy about this, I am not willing at this time to press the amendment to a Division, so I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

The Earl of Lindsey and Abingdon moved Amendment No. 150A:

Page 37, line 43, after ("accrued") insert ("save that any member of a scheme to which this section applies who has accrued 20 years service and attained the age of 50 shall be entitled to a pension actuarially reduced or otherwise as if entitled under subsection (3) (b) above.").

The noble Earl said: I thank my noble friend the Minister for his comprehensive reply, which was more encouraging than I had expected. However, I still feel that the older pensioner of, say, 65 who, in addition to his company pension, is already drawing a state pension has a substantial advantage over an early leaver. I believe that that still applies because of the actuarial reduction in his benefits. Having said that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 151 not moved.]

Clause 66 agreed to.

Clause 67 [Discharge of liabilities by insurance, etc.]:

Lord Haskel moved Amendment No. 151A:

Page 38, line 22, after ("requirements") insert ("being a scheme acceptable to the member").

The noble Lord said: In moving Amendment No. 151A, I should like to speak also to Amendments Nos. 151B and 163B. I am not sure why Amendment No. 163B has been grouped with this amendment, but I shall attempt to speak to it.

Clause 67(3) lists four ways of winding up a scheme. Paragraphs (a) and (b) allow members' rights to be transferred to other occupational or personal pension schemes. Paragraph (c) allows a scheme to be wound up by purchasing annuities from insurance companies chosen by the members. However, paragraphs (a) and (b), under which members' rights can be transferred, do not require that members should agree. They require only that the new scheme should satisfy the "prescribed requirements". Winding up a scheme is obviously a major decision and I believe that members should be consulted about it, whatever the way in which it is wound up. The amendment therefore seeks to iron out the differences in treatment and requires the members' agreement irrespective of the destination of the members' rights.

Amendment No. 163B deals with payments made in anticipation. It is a probing amendment and is intended to provide an opportunity to make it clear that, when the board makes a payment in anticipation of compensation, the trustees will not become liable personally for repayment. The legislation as it stands says merely that the board can recover part or all of such payments to trustees where it subsequently decides that the necessary criteria have not been met or that the payments were excessive. Without a guarantee that they will not become liable personally, there is a risk that trustees will not apply for such payments and scheme members will lose out. I beg to move.

9.45 p.m.

Lord Mackay of Ardbrecknish

At present most occupational schemes require the trustees to discharge the member's liabilities by purchasing an annuity when the scheme winds up. That is not always the best method of securing a member's pension rights and in the cases of large schemes the costs and volume required may make that avenue impractical.

The Government believe that the trustees should have a number of options for discharging their liabilities. That will provide them with the flexibility to follow the most favourable avenue for members.

Clause 67 will enable trustees to discharge their liabilities by purchasing annuities; by paying the actuarial value of their accrued rights; by enabling members to take transfer credits in another scheme; or by enabling the member to take a personal pension. Secondary legislation will provide that individual members will have a period of six months in which to consider the trustees' proposals, take advice and, if they wish, to put forward an alternative option.

The noble Lord will appreciate that, as a transfer to another occupational pension scheme and a personal pension are individual arrangements, they are dependent on the member's consent. Without that consent, the trustees could not discharge pensions liability through either of the routes to which I have specifically referred. I hope on that basis the noble Lord is prepared to withdraw the amendment.

I am not entirely sure whether the noble Lord spoke to Amendment No. 163B which relates to the Compensation Board. I do not want to answer an amendment that has not been spoken to, especially at this time of night.

Lord Haskel

Yes, I did speak to it.

Lord Mackay of Ardbrecknish

I thank the noble Lord. One becomes so immersed that one begins to wonder whether one has heard the argument or just read it. Amendment No. 163B concerns the operation of the Compensation Board. The board will be able to make interim payments to schemes to ensure that scheme members, particularly pensioners, do not suffer undue financial hardship. The board will be able to make those payments when it has reasonable grounds for believing that compensation is appropriate. That is essential. It allows the Compensation Board to act quickly and effectively. But the board may decide after further investigation that compensation is not, after all, appropriate or that too much has been paid. There is therefore provision for the board to recover any payments made if that happens. It must be right for the board to be able to do so, because all compensation payments are funded ultimately through the levy paid by other schemes.

I understand the noble Lord's concern that those recoveries should not penalise scheme members. Of course, the intention of the Compensation Board is to assist, not penalise, scheme members; and we do not envisage that the board would press for recovery if it would be detrimental to scheme members. But we believe that that is a matter for the board to determine. Each case will be different and the board will be in the best position to determine what impact any recoveries will have on scheme members. However, we recognise that an important issue has been raised. Indeed, the National Association of Pension Funds has already brought that to our attention and we have undertaken to think about it further. We shall certainly do so after having this short debate.

Lord Haskel

I thank the Minister for his explanation about Amendments Nos. 151A and 151B. That clears up the matter very well. On Amendment No. 163B, I am pleased that the Minister will look into the matter further. The point I wanted to make was merely that it should not be trustees who are liable personally for any repayment. I hope that when the Minister is looking into the matter that point will be taken into consideration. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 151B not moved.]

Clause 67 agreed to.

Clause 68 [Deficiencies in the assets]:

Lord Lucas moved Amendment No. 151BA:

Page 39, line 30, after ("verified") insert ("by a prescribed person and").

The noble Lord said: I shall speak also to Amendments Nos. 151CA, 170A, 170B and 170C. The effect of Amendment No. 151BA is to insert a power into Clause 68 which allows regulations to make it clear that the calculation of a debt on the employer is to be undertaken by a suitably qualified actuary. This is an existing provision of the Pension Schemes Act 1993, Section 183(3). The amendment simply ensures that the provision will continue.

Amendment No. 151CA will allow for certain schemes to be exempt from the deficiency on wind-up provisions. This means that schemes which are exempt from the minimum solvency requirement under Clause 49(2) can also be excluded from these provisions. It is important that Clause 68 can be made to dovetail with the minimum solvency requirement. This amendment, therefore, also introduces a general power to modify the provisions as they apply in certain circumstances.

Although there is an existing power to modify Clause 68 included in Clause 108, this is limited to particular sets of circumstances. The power to modify minimum solvency is not limited in this way and it is desirable that the same wider power is introduced into Clause 68. The other amendments are consequential. I beg to move.

On Question, amendment agreed to.

Lord Haskel moved Amendment No. 151C:

Page 39, line 37, leave out ("not").

The noble Lord said: The amendment makes any debt due from the employer when a scheme is wound up a priority under the terms of the Insolvency Act 1986 and the Bankruptcy (Scotland) Act 1985. The money in question is, in effect, the employees' past earnings over which they have had no control and hence should be regarded as a priority debt. The argument made against that previously was that it was impractical for other potential creditors to ascertain what were the employer's unmet pensions liabilities. This argument is no longer valid as they can now seek information on how far a potential debtor's pension scheme complies with the MSR and the contributions to its schedule. I beg to move.

Lord Mackay of Ardbrecknish

I hope that I can persuade the noble Lord to withdraw his amendment because I am afraid that I cannot accept it.

The objective of insolvency law is, so far as possible, the equal distribution of assets among unsecured creditors. As the law stands, the trustees of the pension scheme are ordinary creditors of the employer. The PLRC report identified a significant reason why a deficit should not become a priority debt.

Bearing in mind the value of many pension schemes relative to the value of the employer company, the creation of a contingent debt of a size potentiallygreater—sometimes several times greater—than that of the employer could deter potential creditors from investing in the company and, as the PLRC report states: be a major obstacle to the provision of credit". Nevertheless, we are obviously anxious to ensure that pension schemes are properly funded. That is the basic rationale for the minimum solvency requirement under the requirements and schemes to establish a schedule of contribution consistent with meeting that requirement. Any contribution unpaid before the due date becomes a debt on the employer. This applies while the scheme is ongoing and offers the trustees a clear means of securing funds due from the employer to the scheme. It should reduce the risk of a deficiency arising in the event of an employer insolvency or of the scheme winding up.

Clause 68 provides a further layer of protection for scheme measures. It re-enacts existing employer debt provisions, which mean that any shortfall in the fund at the point of employer insolvency will also be a debt on the employer. With the MSR in place, there should be less need for schemes to resort to these provisions.

We believe that they should remain in place as a useful additional contribution to members' security. But we do not believe that it would be appropriate to go further and to make any such debt a priority debt to the disadvantage of other creditors mainly, as I have pointed out, because of the adverse effect that that might have on the availability of credit for employers sponsoring defined benefit schemes. In the light of what I have said, I hope that the noble Lord will withdraw the amendment.

Lord Haskel

I thank the noble Lord for that explanation. We are trying to look after members' interests. The money in question is employees' past earnings, and earnings have always been a priority debt whenever there has been a liquidation. However, I shall read what the Minister said and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 151CA:

Page 39, line 40, at end insert: ("( ) This section does not apply to an occupational pension scheme falling within a prescribed class or description. ( ) Regulations may modify this section as it applies in prescribed circumstances.").

On Question, amendment agreed to.

Clause 68, as amended, agreed to.

Clause 69 [Surplus on winding up]:

Lord Lucas moved Amendment No. 152:

Page 40, line 8, at end insert ("the requirements of subsection (3A) and (in prescribed circumstances) (3B), and any prescribed requirements, are satisfied. (3A) The requirements of this subsection are that—").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 153 and 154. The effect of these amendments is to provide that, in a scheme which is winding up and has excess funds remaining after all liabilities have been secured, including limited price indexation increases, the trustees must notify scheme members of their intention to make a payment to the employer. This will enable scheme members to make representations to the trustees. The amendment also provides that, where a member is concerned at a decision of the trustees to grant a payment to the employer in these circumstances, he will be able to ask the authority to check whether the trustees have complied with the statutory requirements.

On Question, amendment agreed to.

[Amendment No. 152A not moved.]

Lord Lucas moved Amendment No. 153:

Page 40, leave out line 19 and insert: ("(e) notice has been given in accordance with prescribed requirements to the members of the scheme of the proposal to exercise the power.

(3B) The requirements of this subsection are that the Authority are of the opinion that—

1. (a) any requirements prescribed by virtue of subsection (3) are satisfied, and
2. (b) the requirements of subsection (3A) are satisfied.").

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 154:

Page 40, line 20, leave out ("(3)") and insert ("(3A)").

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 155:

Page 40, line 28, at end insert: ("( ) If, where this section applies to any trust scheme, the trustees purport to exercise the power referred to in subsection (1) (c), or give their consent under subsection (2), without complying with the requirements of this section, sections 3 and 9 apply to any of them who have failed to take all such steps as are reasonable to secure compliance. ( ) If, where this section applies to any trust scheme, any person other than the trustees purports to exercise the power referred to in subsection (1) (c) without complying with the requirements of this section, section 9 applies to him.").

The noble Lord said: This amendment was spoken to when I moved Amendment No. 136. I beg to move.

On Question, amendment agreed to.

Clause 69, as amended, agreed to.

Clause 70 [Assets remaining after winding up: power to distribute]:

[Amendment No. 155A not moved.]

Lord Lucas moved Amendment No. 156:

Page 41, line 16, at end insert: ("( ) If, where this section applies to a trust scheme, the requirements of this section are not complied with, section 3 applies to any trustee who has failed to take all such steps as are reasonable to secure compliance.").

The noble Lord said: This amendment too was spoken to when I moved Amendment No. 136. I beg to move.

On Question, amendment agreed to.

Clause 70, as amended, agreed to.

Clause 71 [The Compensation Board]:

Lord Lucas moved Amendment No. 156A:

Page 41, line 21, after ("be") insert ("so").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 161B, 161D, 161E and 161F. Amendments Nos. 156A and 161B make it clear that the Secretary of State will appoint the chairman of the compensation board and ensure that the board will be able to make payments out of any funds it holds, not only those directly attributable to the levy. Amendment No. 161D deletes one of the definitions listed in Clause 74 as the expression is not used in Clauses 74 to 78, while Amendment No. 161F brings the wording of Clause 75 in with that in Clause 76. Amendment No. 161E concerns the recovery of lost assets where compensation is payable.

The amendment is necessary because under trust law trustees have a duty to recover any lost assets. The fact that compensation is payable does not remove that duty; nor do we think that it should do so. It is in the interests of scheme members that missing assets should be recovered so that pensions can be paid in full as far as possible. But there is a risk that some trustees will relax their efforts to recover assets in the knowledge that the compensation scheme will safeguard most of the pensions. That would increase the costs of the compensation scheme, and any increase in costs would be borne by other schemes paying the levy. We need to be sure that measures are in place to protect the interests of other pension schemes and ensure that there is no abuse of the compensation scheme. I beg to move.

On Question, amendment agreed to.

10 p.m.

Baroness Seear moved Amendment No. 156B:

Page 41, leave out lines 23 and 24 and insert: ("(3) In addition to the chairman, the Board shall comprise—

1. (a) a member appointed after the Secretary of State has consulted—
1. (i) organisations appearing to him to be representative of employers, and
2. (ii) the chairman,
2. (b) a member appointed after the Secretary of State has consulted —
1. (i) organisations appearing to him to be representative of employees, and
2. (ii) the chairman,

and such other member or members as the Secretary of State may appoint after consultation with the chairman.").

The noble Baroness said: We are now considering the compensation board, which is obviously another very important institution being established under the legislation. The point of the amendment is that, as proposed, the selection of the people who will be on the compensation board seems to be a somewhat cosy arrangement between the Secretary of State and the members of the board. In other words, the Secretary of State appoints the chairman and then, in consultation with the chairman, he appoints two other people.

In these days when there is so much talk of how people get on to quangos—and I shall not go into that argument—I should have thought that it was most important to make it absolutely clear that the compensation board is not just a creature of the Secretary of State. As the industry will fund the compensation board, it must be appropriate after the chairman has been appointed for members of the board to be selected in consultation with representatives of employers and trade unions. If the funding of the board is to be met by the industry surely as a matter of sheer justice control of it should at least be influenced by selection from both sides of industry. I beg to move.

Baroness Turner of Camden

Amendment No. 157, which is tabled in my name, has been grouped with the amendment of the noble Baroness. However, having studied both amendments, I must say that I prefer the wording put forward by the noble Baroness. I support everything that she has said. As I am sure the Minister will agree, it is important that the new institutions which come into existence as a result of the legislation can command a significant measure of public support, especially among the sections of the public most nearly affected. In my opinion, representatives of employers and employees should be on the board. I support the amendment.

Lord Mackay of Ardbrecknish

We fully recognise that members of pension schemes and employers who stand behind such schemes have a paramount interest in the running of the compensation schemes. I have listened with care to the arguments put forward by both noble Baronesses and I have a great deal of sympathy with their views. Indeed, we have now reached the position where I shall go even further than expressing a great deal of sympathy and say that I am prepared to accept Amendment No. 156B as drafted.

Noble Baronesses

Oh!

Loard Mackay of Ardbrecknish

I thought that that might bring a certain amount of joy to the Benches opposite; and I was not wrong.

However, as the noble Baroness has allowed us to do, we reserve the right to make any further appointments after consultation only with the chairman. I should like to congratulate both noble Baronesses on raising the issue. I am sure that the noble Baroness, Lady Turner, will agree to withdraw her amendment in due course. I shall try to remember to say the right thing when we reach the next amendment of the noble Baroness, Lady Seear.

Baroness Seear

I believe that this is the first time in the 24 years that I have been in this Chamber that I have had an amendment accepted. Therefore, I am especially glad. I thank the Minister for his sympathetic response.

On Question, amendment agreed to.

[Amendment No. 157 not moved.]

Clause 71, as amended, agreed to.

[Amendments Nos. 158 and 158A had been withdrawn from the Marshalled List.]

[Amendment No. 158B not moved.]

Schedule 2 [The Pensions Compensation Board]:

Baroness Seear moved Amendment No. 158C:

Page 98, line 33, at end insert: (" . where—

1. (a) the Compensation Board give a decision on any matter dealt with by them by means of a formal hearing or review, and
2. (b) they are requested on or before the giving or notification of a decision, to state their reasons for the decision,

they shall furnish a written statement of those reasons.").

The noble Baroness said: This is a small amendment to ensure that if a matter is passed to the compensation board for a formal hearing or review written statements should be given if requested. I beg to move.

Lord Mackay of Ardbrecknish

I will not repeat the exercise of the previous clause. After all, I would obtain an extremely bad reputation if I did that too often. However, I can inform the noble Baroness, Lady Seear, that at paragraph 10 of Schedule 2 the details of the board's procedural arrangements are to be set out in regulations. There is a similar provision in Clause 73 concerning the procedures to be adopted on review. I am pleased to tell the noble Baroness that it is our intention that both of these sets of regulations should include a requirement for the board to provide written statements including reasons for its determinations in all cases. This would, in fact, go further than the noble Baroness's amendment, which would require written statements only on request. On the basis of this assurance, which seems to me every bit as good as the previous one, I hope the noble Baroness will withdraw the amendment.

Baroness Seear

I think on this occasion I do withdraw the amendment, do I not? If we are going on at this rate we had better complete the Bill and stay all night. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendments Nos. 159 and 160:

Page 98, line 40, leave out ("in relation to") and insert ("to an application for compensation under section 75 in respect of").

Page 98, line 42, leave out paragraphs (b) and (c) and insert: ("(b) determine the amount of any payment under section 76, (c) determine whether any payment should be made under section 77 or the amount of any such payment, or").

The noble Lord said: I beg to move Amendments Nos. 159 and 160 and speak at the same time to Amendment No. 163. These amendments ensure that a formal application for compensation must have been made before the Pensions Compensation Board can make decisions. They also allow the board to make payments in anticipation both when it is likely that the scheme will qualify for compensation, and where it is already clear that the scheme will qualify but the final amount cannot yet be determined. Amendment No. 160 adds decisions on the amount of any payments in anticipation to the functions which the compensation board cannot delegate. I beg to move.

On Question, amendments agreed to.

Schedule 2, as amended, agreed to.

Clause 72 agreed to.

Clause 73 [Review of decisions]:

Baroness Turner of Camden moved Amendment No. 160A:

Page 42, line 8, at end insert (" or independent recognised trade union").

The noble Baroness said: This clause provides for the compensation board to review its decisions in particular circumstances. It also sets out that it may do so on application to it of a person who appears to have an interest. That is all right but what we seek to do with this amendment is to write into the Bill the obligation of the board to review in the event of an application by an independent recognised trade union.

As I am sure everyone now knows, the unions have for a long time taken a strong interest in pension provision. They employ their own experts and they run their own training courses. My union, MSF, has its own training college and has been running courses for trustees and potential trustees for many years. It also publishes a great deal of material for scheme members and runs seminars so that members are kept up to date with developments in the pensions field. Individual unions have been encouraged in this area by the Trades Union Congress, which has its own in-house experts and has been doing a great deal of briefing on the Bill.

The reason we think it would be a good idea to write this provision into the Bill is that unions stand behind their members when it comes to pension difficulties. When necessary they have been willing to fund court actions, which of course are very expensive. It therefore seems entirely appropriate to give them a role when it comes to review of compensation board decisions. They are likely to have the expertise available to help members, who on their own may not feel able to ask for a review even though they may feel one is justified. I hope that the Minister will see that that is sensible and will agree with the proposition. I beg to move.

Lord Mackay of Ardbrecknish

I understand the concern of the noble Baroness that trade unions should be able to apply for a review of a decision taken by the compensation board. I recognise that in representing its members' interests a trade union may wish to apply for a review, particularly if those members could face financial hardship.

Under the Bill as currently drafted the compensation board will be able to accept requests for reviews from any persons appearing to the board to have an interest. That will, rightly we believe, give the board a great deal of flexibility. The board will be able to accept review applications from employers and trustees, as well as scheme members. It will also be able to accept them from people acting on their behalf, including trade unions—in short, from anyone it considers has an interest. However, we would not consider it appropriate to identify any or all of those people in the Bill. Indeed, the way in which the amendment is drafted would effectively separate trade unions from those who have an interest. I presume that that is not what the noble Baroness intended.

I believe that the Bill gives the compensation board the flexibility to do what the noble Baroness wishes. Therefore, I do not believe that there is any need to include a specific reference to trade unions.

Baroness Turner of Camden

I thank the Minister for that response. I made a careful note of what he said and I shall read Hansard tomorrow.

I am glad to hear that the Minister believes that the board has the necessary flexibility to receive representations from trade unions representative of scheme members. I hope that we shall find that it works out like that so that unions are able adequately to represent their members with difficulties in pension provision.

In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 73 agreed to.

Clause 74 [Cases where compensation provisions apply]:

[Amendment No. 160B not moved.

Baroness Turner of Camden moved Amendment No. 161:

Page 42, line 38, leave out paragraph (b).

The noble Baroness said: The amendment proposes the deletion of Clause 74(1) (b). Among the list of entitlements to compensation there stands the requirement that the employer should be insolvent. If we take the Maxwell case as an example, the problem with that is that the Mirror Group was not and never has been insolvent. Had that condition existed at that time the Mirror Group pension scheme members would not have been eligible for compensation under the clause. I do not believe that that was originally the intention. I believe that that is perhaps an accidental effect of the Bill.

It may well be that the Government feel, perhaps with some justification, that if the employer has the funds available the employer should be made to refund whatever is missing or to pay the necessary compensation. However, the provision could have the effect of driving a firm into insolvency when it might not otherwise have been insolvent. That might not be to the advantage of either existing scheme members or the employees involved.

It seems to me that subsequent clauses in the Bill give the compensation board enough flexibility to take account of the employer's circumstances without having this very rigid provision that the employer must be insolvent before compensation can even be considered.

Perhaps the Minister will be good enough to respond to that point. I shall be interested to know why the Government felt that it was necessary to include this as an absolute requirement. I beg to move.

10.15 p.m.

Lord Mackay of Ardbrecknish

The overall effect of the qualifying conditions in Clause 74 is to restrict the scope of the compensation scheme. We believe that this is an important feature of the scheme. As the Pension Law Review Committee recognised, a wide compensation scheme, covering all risks, could encourage reckless behaviour in the knowledge that all losses would be covered in the event of scheme failure.

The compensation scheme applies only to trust based schemes where the employer is insolvent. There must also be reasonable grounds for believing that assets have been dishonestly removed and the compensation board must be satisfied that it is reasonable that compensation should be paid. In addition, where the scheme is salary related, it must have fallen below the minimum solvency requirement.

We believe that limiting compensation in this way concentrates the resources of the compensation scheme on those risks which are most likely to cause loss and least likely to be reduced by other measures to improve scheme security introduced in this Bill. The compensation scheme is intended to be a scheme of last resort, standing behind a strengthened legal and regulatory framework.

Employers usually have substantial and direct influence on the security of schemes, and for that reason there is risk that they may seek to use the existence of a compensation scheme as a means of avoiding their responsibilities. The prime responsibility to fund a scheme lies with the employer. It is only when the employer is unable to fulfil his obligations by reason of his insolvency that the question of external funding in the form of compensation should be considered. I hope that in the light of my explanation, and indeed the Pension Law Review Committee's specific recommendations that compensation should be payable only when the employer is insolvent—

Baroness Turner of Camden

Before the noble Lord sits down, will he be good enough to respond to my comment on the Maxwell affair? Under these provisions, the Mirror Group pensioners would not have been entitled to compensation because the Minor Group was never insolvent.

Lord Mackay of Ardbrecknish

If the noble Baroness will allow me to take the matter away, I shall write to her.

Baroness Seear

I was about to ask the same question. When the Minister replies to the noble Baroness regarding the Minor Group, will he consider whether there could be a role for the compensation board in bridging the gap—it has been a very big gap—between moneys being recovered from the Maxwell scheme and payments to the pensioners? The board could have a secondary function in tiding over in circumstances such as those which arose with the Maxwell scheme.

Lord Mackay of Ardbrecknish

Perhaps I may say this in general terms. An employer who is still solvent is obviously liable to meet the deficit under the various provisions. We have discussed some of them today on the employer-debt provision. Indeed, where there is a takeover the debt is on the old employer and not on the new one in the circumstances that we envisage.

Noble Lords will remember that some time ago we discussed whether the compensation board could take back money that it had given in the event of a situation not being as bad as had been considered. Another situation which may arise is that the pension fund may well be able over time to restore to itself the assets which had been illegally removed. In such circumstances the compensation board might help to keep the pensioners in payment. I think that that is right. However, on the specific question regarding Maxwell, I prefer to write to the noble Baroness.

Baroness Seear

Is there any provision in the Bill as it now stands which enables the compensation board to do what the Minister has just outlined and keep the pensioners paid during an interim, painful period before the money has been recovered? Is that within the power of the compensation board?

Lord Mackay of Ardbrecknish

I believe that we have probably passed that stage—although we are moving at such a rate that I find it as much as I can do to keep ahead of the amendments.

The circumstances the noble Baroness describes are those we envisaged when we discussed the pay-back to the compensation board; namely, that the board will be prepared to step in before it is absolutely certain that all is lost. In the eventuality that all is not lost the board would be due some money back. Therefore I think that the answer to the question is yes.

Baroness Turner of Camden

I thank the Minister for that response, some of which was quite encouraging. Under subsection (1) (e) of Clause 74 fairly wide powers are given anyway to the compensation board to take account of all circumstances. The phrase is: reasonable in all the circumstances". So there are wide powers. Even if we took out subsection (1) (b), "the employer is insolvent", there is still the ability to take account of the employer's position under paragraph (e). That is what I said in the beginning. However, I shall await with interest the Minister's response to the query I raised over the Minor Group pensioners. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 161A not moved.]

Lord Lucas moved Amendment No. 161B:

Page 43, line 3, leave out from second ("of') to ("an") in line 4 and insert ("funds for the time being held by them,").

The noble Lord said: I have already spoken to this with Amendment No. 156A. I beg to move.

On Question, amendment agreed to.

[Amendment No. 161C not moved.]

Lord Lucas moved Amendments Nos. 161D and 161E:

Page 43, line 26, leave out paragraph (f).

Page 43, line 40, at end insert: ("(4A) Where this section applies to an application for compensation under section 75, the trustees must obtain any recoveries of value, to the extent that they may do so without disproportionate cost and within a reasonable time. (4B) If subsection (4A) is not complied with, section 3 applies to any trustee who has failed to take all such steps as are reasonable to secure compliance.").

The noble Lord said: I have already spoken to these amendments with Amendment No. 156A. I beg to move.

.On Question, amendments agreed to.

Clause 74, as amended, agreed to.

Clause 75 [Applications for payments]:

Lord Lucas moved Amendment No. 161F:

Page 43, line 47, leave out ("Payments may be made") and insert ("Compensation may be paid").

The noble Lord said: I spoke to this with Amendment No. 156A. I beg to move.

On Question, amendment agreed to.

Clause 75, as amended, agreed to.

Clause 76 [Amount of compensation]:

Lord Lucas moved Amendment No. 161G:

Page 44, line 17, after ("scheme") insert ("and the Board have determined the settlement date").

The noble Lord said: I beg to move Amendment No. 161G and speak at the same time to Amendment No. 163A. These amendments together will ensure that any payments made before the amount of compensation can be finally calculated are interim payments and any payments after that are compensation proper. I beg to move.

On Question, amendment agreed to.

[Amendment No. 161H not moved.]

Lord Lucas moved Amendment No. 162:

Page 44, line 33, leave out from ("if') to ("exceeds") in line 34 and insert ("the maximum amount mentioned in subsection (3) (a)").

The noble Lord said: I beg to move Amendment No. 162 and at the same time speak to Amendment No. 162AA. These amendments will ensure that the correct amount is taken into account in calculating compensation for salary-related schemes. I beg to move.

On Question, amendment agreed to.

[Amendment No. 162A not moved.]

Lord Lucas moved Amendment No. 162AA:

Page 44, line 37, leave out ("amount or aggregate") and insert ("maximum amount").

On Question, amendment agreed to.

[Amendment No. 162B not moved.]

Clause 76, as amended, agreed to.

Clause 77 [Payments made in anticipation]:

Lord Lucas moved Amendment No. 163:

Page 44, leave out lines 43 to 46 and insert: ("(1) The Compensation Board may, on an application for compensation under section 75, make a payment or payments to the trustees of a trust scheme where in their opinion (a) section 74 applies, or may apply, to the application, and").

The noble Lord said: I spoke to this amendment with Amendment No. 159. I beg to move.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 163A:

Page 45, line 2, at end insert:

("but the Board have not determined the settlement date").

The noble Lord said: I spoke to this amendment with Amendment No. 161G. I beg to move.

On Question, amendment agreed to.

Baroness Seear moved Amendment No. 163AA:

Page 45, line 9, leave out ("the payment") and insert ("so much of the payment as they consider appropriate").

The noble Baroness said: This amendment seeks to give discretion to the compensation board not to demand the total payment if there is reason to believe that its application will be very draconian. It makes it possible for the compensation board to make adjustments for so much payment as it considers appropriate. Amendment No. 163AB seeks to insert:

"but nothing in this subsection authorises the recovery from any person of a sum if in all the circumstances and in particular having regard to an action taken by that person in consequence of a payment, it would be unreasonable to recover that sum".

The idea is that the compensation board does not have to go the whole way but can use its judgment in modifying the amount that it demands. I beg to move.

Baroness Turner of Camden

This amendment seems very reasonable to us and we support it.

Lord Mackay of Ardbrecknish

This amendment comes fairly close to the discussion that we had a few minutes ago. The compensation board will be able to make payments in anticipation to schemes. This is an essential measure to ensure, as I said in my intervention, that scheme members, particularly pensioners, do not suffer undue financial hardship. To ensure that the board can act quickly, it will be able to make these payments when it has reasonable grounds for believing that compensation is appropriate but before a final decision has been made. After further investigation, however, the board may decide that compensation is not, after all, appropriate. Therefore, there is provision for the board to recover any payments made. All payments of compensation are funded through a levy paid for by other schemes. I believe therefore that it is right that the board should have the power to make those recoveries.

The board has discretion over the recoveries that it makes and we do not envisage that it would press for recovery if the scheme has little or no assets. The clause as drafted would not prevent it making partial recovery if the scheme has insufficient assets to repay in full. It is the intention of the compensation board to assist members and not to penalise them.

We recognise that there is an important, more general issue, regarding recoveries made by the compensation board. I understand that there are concerns that the recovery of such payments may adversely affect members, as both the noble Baronesses indicated perhaps. The National Association of Pension Funds has already brought this matter to our attention and we have undertaken to consider the issues further. On that basis, I hope that the noble Baroness will agree to withdraw her amendments.

Baroness Seear

We are again grateful to the noble Lord for saying that he is prepared to consider these amendments. We are doing rather well tonight. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 163AB and 163B not moved.]

Clause 77, as amended, agreed to.

Clauses 78 and 79 agreed to.

Clause 80 [Schedules of payments to money purchase schemes]:

[Amendment No. 163BA not moved.]

Clause 80 agreed to.

[Amendment No. 163BB not moved.]

Clause 81 [Schedules of payments to money purchase schemes: supplementary]:

[Amendment No. 163C not moved.]

Clause 81 agreed to.

Clause 82 agreed to.

Lord Mackay of Ardbrecknish

I beg to move that the House do now resume.

Moved accordingly, and, on Question, Motion agreed to.

House resumed.

House adjourned at twenty-nine minutes past ten o'clock.