HL Deb 11 October 1999 vol 605 cc183-92

("—(1) In this Part—

(2) References to the person responsible for a pension arrangement are —

  1. (a) in the case of an occupational pension scheme or a personal pension scheme, to the trustees or managers of the scheme,
  2. (b) in the case of a retirement annuity contract or an annuity falling within paragraph (d) or (e) of the definition of "pension arrangement" above, the provider of the annuity, and
  3. (c) in the case of an insurance policy falling within paragraph (d) of the definition of that expression, the insurer.").

Clause 25 [Activation of pension sharing]:

[Amendments Nos. 67 to 69 not moved.]

Lord Astor of Hever moved Amendment No. 70: Page 29, line 8, leave out ("2") and insert ("3").

The noble Lord said: My Lords, in moving Amendment No. 70, I shall speak also to consequential Amendment No. 71.

As presently drafted, the pension sharing order or agreement will be treated as ineffective in Scotland if the person responsible for a pension arrangement to which the order or agreement relates does not receive copies of, inter alia, the pension sharing order or agreement and the relevant decree of divorce or declarator of annulment within two months of the date of the extract of the decree or declarator. It is anticipated that the burden of sending the relevant documents to the person responsible for the pension arrangement will rest with the parties to the divorce or annulment. In practice this will normally be the person who will benefit from the pension sharing.

The effect of the amendment is to extend the period available in which the person responsible for the arrangement can receive the relevant documentation and information as may be prescribed. We on these Benches are of the view that a two-month time limit may not allow sufficient time in which to serve the appropriate documentation. While subsection (10) makes provision for the court in Scotland to extend the two month period, it will apply only in exceptional cases and an application must be made to a sheriff. Rather than burden the courts with unnecessary applications to extend the period, the time limit should simply be extended to three months. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendments Nos. 70 and 71 relate to the process of pension sharing applying in Scotland. While in England and Wales it will be the courts that will send the relevant matrimonial documents to the person responsible for the pension arrangement—and so start the period during which the pension share must be implemented—in Scotland the process in an action for divorce is driven by the parties to that divorce. So in Scotland it would be for the parties to send the relevant documents to the person responsible for the pension arrangement.

When preparations for the Bill were first being made, the pensions industry suggested to officials in the DSS that it would be necessary to include in the Bill a provision that would encourage the parties in Scotland to submit the relevant documents with due speed. Noble Lords will understand that it could be possible for the submission of these documents to be delayed. It may be that one party to the divorce might see an advantage in delaying matters. The result would be that the pension share would be delayed, perhaps indefinitely, and that would undermine the intentions behind Part IV of the Bill.

Accordingly, when in June 1998 the draft Bill was published, the Government included the provision that is now Clause 25(7). This provides a two-month time limit for the pension arrangement to receive the relevant documents, otherwise the pension sharing is treated as ineffective. This was in direct response to the Government listening to and reacting to the views of the pensions industry. We believe that it allows sufficient time for the parties to submit the relevant documents.

However, the Government were prepared to consider this provision further when the Law Society of Scotland suggested that there might be genuine circumstances where it would not be possible for the parties to submit the relevant documents within the two-month period. The Law Society thought it would be invidious if this were to happen. It sought a provision that would allow judicial intervention in exceptional circumstances. Consequently the Bill includes a provision in Clause 25(10) to allow the sheriff to extend the two-month period in exceptional cases.

As there is already on the face of the Bill a provision that would allow the two-month period to be extended in exceptional circumstances, we do not need the amendments suggested by the noble Lord opposite. The effect of the amendments would be to provide a three-month period in all cases. This would extend the period during which the parties and the pension arrangement would have to wait before the pension arrangement could even begin to implement the pension sharing. This would lead to all-round frustration and would unduly delay the settlement of post-divorce arrangements.

I think the exceptional circumstances provision meets the need underlying this amendment without introducing unnecessary delay. I hope that the noble Lord will not press his amendments.

Lord Astor of Hever

My Lords, I thank the Minister for that explanation. I am sorry that she has not gone the small distance and accepted three months rather than two months, but I do understand her reasons, particularly on the exceptional arrangements. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 71 not moved.]

Clause 26 [Creation of pension debits and credits]:

Lord Astor of Hever moved Amendment No. 72: Page 29, line 43, leave out ("of the appropriate amount") and insert ("calculated in accordance with section 28").

The noble Lord said: My Lords, in speaking to Amendment No. 72, I shall speak also to Amendments Nos. 76 to 81, 85 and 86 in this group of rather technical amendments.

Clause 26 is pivotal to the pension sharing provisions in that it specifies that the relevant member's pension rights will be subject to a debit and the former spouse will become entitled to a pension credit equal to the amount of the debit. This clause is intrinsically linked to Clause 28 which provides a mechanism for calculating the reduction of the benefit. It is vital that the basis for quantifying the pension debit is clear. We feel that. Amendment No. 72 is necessary to link the process of calculation to Clause 28.

Clause 28 provides for pension debits which reduce in certain circumstances the benefit or future benefits to which the member is entitled. We believe that a distinction should be drawn between pension arrangements which provide defined benefits and those whose members can qualify for money purchase benefits. Amendments Nos. 76 and 77 are designed to ensure that where there is a defined benefit it is the extent of that benefit which is reduced. However, where there are accrued rights to qualifying money purchase benefits, the debit will take the form of a reduction of the money in the member's pension pot. The current wording of the clause does not provide for a reduction in the money purchase pot as it focuses on the benefits ultimately payable from the scheme.

Amendment No. 78 is a consequential amendment necessary to take account of the distinction between accrued rights in qualifying money purchase schemes and other qualifying benefits or future benefits referred to in subsection (1)(b). Amendment No. 79 clarifies which benefits or future benefits are to be taken into account for the purpose of calculating the reduction of benefits or future benefits. It ensures that only those benefits or future benefits to which the person was entitled at the time of the transfer are taken into account. Accordingly, death in service benefit would not be reduced because a member would not be entitled to benefit from it at the time of transfer.

Subsection (2) deals with the case of an active member of an occupational pension scheme who is in pensionable service on the day the order or agreement takes effect. The current drafting of the clause does not make it clear which benefits or future benefits are to be included for the purpose of calculating the extent of the pension debit. This amendment removes any ambiguity.

Amendment No. 80 ensures that a reduction in a qualifying benefit does not result in a reduction in a non-qualifying benefit. It is not intended that certain benefits such as a widow's death in service pension, for example, would be reduced as they are not qualifying benefits in terms of Clause 28(3). In the view of the Law Society of Scotland, such benefits will be reduced if they are a proportion of the member's pension. This amendment will highlight that the distinction between qualifying and non-qualifying benefits has to be made at an early stage so that the extent of the pension debit can be accurately determined and non-qualifying benefits not unjustifiably reduced.

Amendment No. 81 is a consequential amendment which extends the application of the definition of a qualifying benefit to include proposed Clause 28(2)(a). Finally, Amendments Nos. 85 and 86 insert definitions of the words "accrued rights" and "money purchase benefits" in the Bill. This will ensure that there is clarity in the terminology adopted in our proposed amendments to Clause 28. I beg to move.

1.45 a.m.

Baroness Hollis of Heigham

My Lords, I am deeply disappointed to see that there are not at least 15 speakers wishing to support the noble Lord and his amendments. They are important but extremely technical amendments. They are concerned essentially with the mechanics of the pension debit—the reduction in the pension rights of the member whose pension has been shared.

The amendments proposed reflect a concern, which I understand is shared by the Law Society of Scotland, that the provisions in the Bill relating to the pension debit would be clearer if the treatment of money purchase benefits was separated out from the treatment of other benefits. The main effect of the amendments would be that where money purchase benefits have been shared, then the pension debit should be calculated and deducted on the transfer day—that is the day on which the relevant pension sharing order or provision takes effect. By contrast, if the benefits concerned are salary-related, then the pension debit should be calculated at an appropriate date in the future; for example, when the member retires and draws his pension.

In creating this distinction between money purchase and salary-related benefits, the amendments seem intended to tie the reduction under Clause 28(1) to a particular date, depending on the type of benefits to be shared. We do not believe that that is either desirable or necessary. As drafted, we believe that the provisions in the Bill will provide the flexibility to deal not only with the vast range of pension schemes that exist but also with contingencies such as early ill-health and deferred retirements.

A further implication of the amendment is that Clause 28(2) as drafted could be interpreted as requiring two deductions in members' pension rights in the money purchase case. However, the Government's view is that this is not the case. As we have made clear in the Explanatory Notes to the Bill, the policy intention is that for a member of a money purchase scheme, the debit will take the form of a once and for all reduction of a percentage of the money in the pension "pot" at the time liability for the pension credit is discharged.

It is clear from the noble Lord's remarks that behind Amendments Nos. 79 and 80 lies a concern that death in service benefits will be reduced following a pension share. Again, we do not believe that that is the case. Subsection(3) of Clause 28 defines a benefit as a qualifying benefit only if the cash equivalent of the pension debit includes an amount in respect of that benefit. However, the cash equivalent will not include the value of a death in service benefit, which means that it would not be a qualifying benefit and therefore would not be reduced as a result of pension share. For completeness, I should add that essentially this group of amendments does not change the way in which the member's salary-related pension benefits are reduced following a pension share.

As I said at the outset, Clause 28 is a difficult provision on which much effort was expended when the pension sharing provisions were drawn up. We are not persuaded that the amendments tabled actually change the way in which the provisions work. Instead they introduce a degree of rigidity into the process which might of itself create difficulties; for example, in dealing with hybrid schemes where the member has a mixture of salary-related and money purchase benefits or where the scheme rules provide for an unusual package of benefits.

I do hope that the brief explanation that I have provided, on what is difficult territory for lay people such as myself, will be sufficient to persuade the noble Lord to withdraw the amendment. Again, I am more than happy to follow this up with any further correspondence that seems appropriate.

Lord Astor of Hever

My Lords, I thank the Minister for that reply and I apologise to the House for introducing at this very late hour these technical and complicated amendments. However, they are matters of great concern to the Law Society of Scotland. In view of the late hour, I shall not add anything. I shall read Hansard carefully and consider what the Minister has said. Possibly we can correspond. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 73 to 75 not moved.]

Clause 28 [Reduction of benefit]:

[Amendments Nos. 76 to 81 not moved.]

Clause 29 [Effect on contracted-out rights]:

Lord Astor of Hever moved Amendment No. 82: Page 32, line 9, leave out subsection (3)

The noble Lord said: My Lords, I rise to move Amendment No. 82 and to speak to the consequential amendment, Amendment No. 83. Amendment No. 82 removes the provision for the reduction of guaranteed minimum pension in consequence of the pension debit. We are of the view that the proposed Section 15A is incompatible with Clause 28. Clause 28 assumes that benefit under a pension arrangement is calculated in accordance with scheme and statutory provisions and then the pension debit applies.

Clause 29(3) would, however, alter the basis of calculating benefits by reducing the member's guaranteed minimum pension for the purposes of calculating revaluation under Schedule 3 to the Pension Schemes Act 1993.

In terms of Clause 28, the member's benefit continues to be calculated as if the pension sharing had not taken place. When the member's benefits come into payment on his retirement—the future benefit referred to in Clause 28(2)—a negative deferred pension is calculated and deducted at that time. If the member's GMP is reduced in terms of new Section 15A at the time of the order, that would alter the method of calculating the member's benefits as a scheme would no longer test its benefits against the full GMP or calculate revaluation and protection based on the full GMP. The member's total benefits are already reduced by Clause 28(1) once they come into payment, so there is no need for any special provision for GMP.

We must ensure that these clauses are workable before they become law. I accept that the Minister's department has gone some way to be flexible in this matter in correspondence with the Law Society of Scotland. However, the society has made it clear that it does not feel that the concessions go far enough. Clause 29(3) should therefore be deleted. I beg to move.

Baroness Hollis of Heighani

My Lords, Amendments Nos. 82 and 83 proposed by the noble Lord would result in an inconsistency in the legislation on pension sharing and the general rules on contracting out. In particular, it would pull the provisions in Clause 29 out of line with those in Clause 28. The latter clause makes provision for each qualifying benefit which forms part of the member's shareable rights to be reduced by the appropriate percentage specified in the pension sharing order.

Perhaps I may briefly explain the function of Clause 29(3). For consistency with the provisions in Clause 28, this subsection inserts a new Section 15A into the Pensions Schemes Act 1993 that provides for the reduction of the guaranteed minimum pension as a result of a pension debit. The practical effect of Section 15A is that the scheme trustees will be discharged of their liability to pay a full GMP to the member whose rights are subject to a pension debit.

As noble Lords are no doubt aware, employers making occupational pension provision can contract their employees out of the state earnings-related pension scheme. Prior to 6th April 1997, the contracting-out bargain required employers operating salary-related schemes to pay a minimum level of pension. That was called the GMP. From 6th April 1997 individuals no longer build up an entitlement to a GMP for future service; instead, the scheme has to satisfy an overall test of quality.

Section 15A puts it beyond all doubt that schemes can pay a reduced GMP as a result of a pension sharing order or agreement without breaking the contracting-out rules. In the absence of Section 15A, members with GMP rights whose pension rights were reduced by a pension sharing order might consider themselves as remaining entitled to a full GMP and take steps to secure it. That would be contrary to the policy intention and could leave schemes at risk of having to foot the bill for the part of the pension debit relating to the GMP.

I hope that that brief explanation has reassured the House, and in particular the noble Lord, Lord Astor, that Section 15A is indispensable to the correct operation and proper interpretation of the legislation. It provides an important protection for trustees who put a reduced GMP into payment when the member retires. I therefore urge the noble Lord to withdraw his amendment.

Lord Astor of Hever

My Lords, the House will be grateful to the Minister for that full reply. In the light of what she has said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 83 not moved.]

Clause 34 [Requirements relating to pension credit benefit]:

Baroness Hollis of Heigham moved Amendment No. 84: Page 42, leave out lines 28 and 29.

Clause 43 [Interpretation of Chapter I]:

[Amendments Nos. 85 and 86 not moved.]

Lord Astor of Hever moved Amendment No. 87: Page 48, line 32, after ("(1)") insert—

  1. ("(i) where the benefits secured by the annuity are payable to the trustees of a trust, to the trustees of that trust, and
  2. (ii) where the benefits secured by the annuity are payable to the beneficiaries").

The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment No. 88. These are probing amendments to establish who is responsible for pension arrangements in terms of the Bill.

In view of the Minister's earlier comments tonight, I hope that she will accept that I merely seek clarification. The amendments would remove any ambiguity which currently exists in relation to who is responsible for pension arrangements. There is doubt as to who would be responsible in the case of a buyout policy written under the trust.

One argument is that the order applies to the insurer and that that restricts the amount payable to the trustees. The other argument is that the insurers should pay the money to the trustees and then the trustees ought to be responsible for implementing the order.

The amendments remove that ambiguity and make it clear that the trustees are always the "responsible person" and that the insurer would come in as responsible person only if there were no trustees. I beg to move.

2 a.m.

Baroness Hollis of Heigham

My Lords, we have heard that Amendments Nos. 87 and 88 are intended to modify the definition of "person responsible for a pension arrangement". I am grateful to the noble Lord for explaining the reasons behind the amendments. I agree with him that where specific definitions in legislation lack clarity, we should, as far as possible, try to correct that. To that end, these are helpful amendments. However, I do not accept that the definitions to which these amendments refer are unclear. I understand that in discussion with officials the National Association of Pension Funds has indicated that it is content with the current definitions as drafted.

The Bill places various obligations on persons responsible for pension arrangements. The term "pension arrangement" is a new definition. It primarily covers occupational and personal pension schemes, but it also includes other types of pension provision, such as retirement annuity contracts, buyout policies and insurance policies used to discharge liability for the pension credits acquired by a former spouse as a result of a pension sharing order. This is because we want pension sharing to be available in respect of all pension rights where it is practical for those rights to be shared, not just pension rights held in an occupational or personal pension scheme.

There will be a number of obligations on persons responsible for pension arrangements; for example, to provide information and valuations and to implement pension sharing orders within specific time-scales. We believe that Clause 43(2) is clear about who is responsible for meeting these obligations. In cases where rights are secured under an annuity contract or insurance policy, we believe that it is appropriate for the responsibility to rest with the annuity provider or the insurer, even in those cases where the policy is written under trust; that is, where the benefits are paid to the pension scheme trustees. With these types of pension arrangement the insurer is generally responsible for the day-to-day administration of the annuity contract or insurance policy, while the trustees usually have only a peripheral role. In our view, therefore, it would be an unnecessary burden to place the responsibility for the arrangement on the trustees in such cases as the amendment suggests.

If, exceptionally, an annuity provider or insurer has difficulty in implementing a pension sharing order because of the action or inaction of the trustees of a pension scheme, OPRA will take this into account in determining what needs to be done and has the power to impose sanctions. Again, we do not believe that there is a case for shifting responsibility to the trustees. I hope that that clarifies the position and that, in the light of my explanation, the noble Lord will feel able to withdraw his amendment.

Lord Astor of Hever

My Lords, I thank the Minister for that reply which clarifies the matter. I was particularly pleased to hear her remarks about NAPF. I have not spoken to that body. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 88 not moved.]

Schedule 6 [Effect of state scheme pension debits and credits]:

Baroness Hollis of Heigham moved Amendments Nos. 89 to 91: Page 106, line 19, after ("before") insert ("the end of"). Page 107, line 2, after ("before") insert ("the end of"). Page 107, line 41, after ("before") insert ("the end of").

Baroness Fookes moved Amendment No. 92: Before Clause 49, insert the following new clause—