COMMONS AMENDMENTS (Hansard, 12 July 1995)

§ Lord Mackay of Ardbrecknish

My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 205 to 228 en bloc. In doing so I should like to speak also to Amendments Nos 237, 270, 272, 282, 331 to 333, 336, 338, 340 to 352, 354 to 369, 372, 373, 382, 385 to 390 and 392 to 402. We now come to a group of amendments dealing with contracting out. I confess that I find these particularly difficult to follow since, for the most part, they amend existing legislation rather than stand alone, as did many of the previous amendments.

Amendments Nos. 205, 206 and 207 amend Clause 124 which introduces the new contracting-out system for salary-related schemes. The scheme actuary will carry out detailed actuarial calculations to certify that a scheme satisfies the new test of overall scheme quality. The Bill specifies the minimum statutory benefits required under the reference scheme and the actuary will certify, with the aid of a professional guidance note, that a scheme delivers pensions which are broadly equivalent to, or better than, those provided under the reference scheme. These amendments help in the definition of the concept of "broad equivalence" and will add to the protection for members under the new test.

Amendments Nos. 205 and 206 are needed to allow regulations to prescribe which members in occupational pension schemes should be taken into account when considering whether a scheme meets the statutory 1761 standards. We intend to use this power to deal with schemes comprising different sections with different benefit packages.

Perhaps I can say a word at this stage about an amendment that is not needed. We have given further consideration to the potential risk which must exist in any scheme-based test that an employer might skew his scheme. Some members could receive very large pensions and others very little, but the scheme could still pass the test on an overall basis. We have consulted key groups on this issue, including the Institute of Actuaries, the Faculty of Actuaries, the Occupational Pensions Board, the TUC and the Occupational Pension Schemes Joint Working Group.

We intend to bring forward regulations which will set out the criteria for determining whether pensions are broadly equivalent to, or better than, the reference scheme. We propose to prescribe that an actuary could not certify unless 90 per cent. of members could expect to receive pensions as good as the reference scheme level. That should achieve our objective to protect scheme members by preventing any deliberate skewing of benefits in order to manipulate the level of the test. Some concern was expressed in the other place as to whether this was an appropriate use of the powers in new Section 12A. We are satisfied that regulations such as we propose can indeed be made under the powers provided in Section 12A (4).

The fundamental point about the new contracting-out arrangements is that additional pensions under SERPS will no longer accrue for periods during which people are in contracted-out employment. Amendment No. 224 is designed to put beyond doubt that payments of family credit or disability working allowance should not be treated as qualifying earnings for the purpose of calculating SERPS.

Amendment No. 215 provides two new powers in relation to payment of the top-up part of the age-related rebate for contracted-out money purchase schemes, which the man on the Clapham omnibus knows as COMPS. It allows payment of the top-up to be withheld in prescribed circumstances, and in respect of prescribed periods.

The power will be used in cases where the pension rights have been transferred from the COMPS to another scheme before payment of the top-up can be made. Although the top-up will be offered to the new scheme, in some cases the new scheme may refuse to accept the payment. To minimise the chances of an individual losing some rebate in these circumstances, we will be introducing two measures. First, there will be a fast-track payment system for anyone taking a transfer from a COMPS to a salary-related scheme. That will ensure that most, if not all, of the rebate will be included in the transfer payment.

Secondly, we will ensure that anyone considering a transfer of this kind is advised of what may happen should a further payment of top-up rebate arise. The power to withhold the top-up in respect of prescribed periods will be used in respect of the tax year in which state pension age is reached. In that year no SERPS accrues. Since age-related rebates are designed to replace the SERPS given up by contracting out in each 1762 particular year, the actuarially "correct" level of rebate would be zero. That would cause some difficulty because a zero rate of rebate would mean increasing employees' and employers' national insurance liability that year. That would be administratively complicated. We have decided therefore that COMPS members and their employers should continue to receive the flat rate portion of the rebate up to the time they reach state pension age. Amendment No. 216 ensures that people transferring from a COMPS to another contracted-out scheme do not suffer a delay in receiving their rebate. The amendment provides a power to prescribe situations in which the top-up shall be paid to a party other than the scheme to which the earner belonged at the time the entitlement to that payment arose. It will ensure that no extra burdens are placed on schemes by requiring them to pass on further payments following a transfer.

To some extent Amendment No. 348 mirrors Amendment No. 215. It provides a power to prescribe periods in respect of which no appropriate personal pension rebate will be payable. This power will be used to provide that no rebate will be paid in respect of the year in which state pension age is attained since no SERPS accrues in that year. The difference is that this measure will have no effect on the take-home pay of the individuals concerned since they pay full rate national insurance contributions and the rebate is paid directly by the DSS. The administrative problems which arise with COMPS do not therefore arise in this case.

Amendments Nos. 237, 272 and 273 will increase the flexibility for "hybrid" occupational pension schemes to contract out of SERPS. They allow occupational pension schemes to contract out while holding both defined benefits and defined contribution contracted-out benefits. Hybrid schemes will be able to offer a number of different benefit patterns. They will allow different members to be contracted out by different routes within the same scheme, and the same member to be contracted out under a scheme by different routes in respect of different periods.

§ Lord Mackay of Ardbrecknish

My Lords, I did say Amendment No. 273. The noble Baroness is quite right. Clearly, she is listening. I was performing a little test to see whether everyone was listening. I should not have said Amendment No. 273. I should have said Amendment No. 237. This will probably not be the first time I get my numbers mixed up—and a great number there are.

I was talking about hybrid schemes. The new clause inserted by the amendment is a positive response to points raised during consultation and which arose in the other place. It will allow considerable scope for prescribing conditions in regulations to allow us to consider the consequential amendments which may be needed to make this work properly. This is a wide-ranging regulation-making power and we have 1763 therefore concluded that any regulations made under it should be exercised by the affirmative resolution procedure. Amendment No. 237 achieves that.

Amendments Nos. 338, 341, 354 to 359, 361 to 369, 372, 373, 385, 392 to 397 and 399 to 401 are designed to simplify the legislation. That may not at first sight appear to be apparent. However, they concern the legislation relating to determining and reviewing procedures covering contracted out matters. They will allow the contributions agency to deal with administrative matters such as the issue, variation and withdrawal of contracting out certificates. Our intention is broadly to mirror in regulations the arrangements currently followed by the Occupational Pensions Board. Other areas where there may be disputes, such as the questions about whether an employment is or should be treated as contracted out, will follow the established procedures which are set out in Section 17 of the Social Security Administration Act 1992. We believe that this will provide a more streamlined and logical structure to the legislation covering determination and reviews.

I have attempted to give a very brief but magical mystery tour along the motorway of contracting out. There are some byways which I have not gone down. But if some noble Lords wish me to go down a byway, I shall do my best to deal with any points that arise. Perhaps I may say a word for clarification. Amendment No. 273 is not in this group. I should have said Amendment No. 237. I beg to move.