Pensions Bill

HL Deb 01 November 2004 vol 666 cc12-78

3.6 p.m.

Report received.

Clause 1 [The Pensions Regulator]:

Baroness Turner of Camden moved Amendment No. 1:

Page 1, line 12, at end insert—

"() The persons appointed under subsection (1)(c) shall include at least one appearing to the Secretary of State to be representative of employees and at least one appearing to the Secretary of State to be representative of employers, in addition to others with a knowledge of life assurance business and administration of occupational pension schemes."

The noble Baroness said: My Lords, in moving the amendment, I shall speak to Amendment No. 121.

This is a very important Bill. It attempts among other things to restore a sense of security to members of occupational pension schemes, and establishes a regulator with more powers than previous bodies of a similar kind. The amendment is similar, though not the same, as the one that I moved in Committee. Membership of the regulator is important from the point of view of acceptability and credibility. In Committee, the amendment that I proposed was rather more detailed and, in the view of some Members of the Committee, rather prescriptive. But I want to insert a requirement that bodies representative of both employees and employers are represented on the governing body of the regulator. Amendment No. 121 would repeat that requirement later in the Bill with regard to the board of the Pension Protection Fund, which is also established by the Bill. Similar, although not precisely the same wording, has been used in relation to the PPF.

We know that the Government will ensure that there are people on the regulator's governing body with a professional knowledge of life assurance and pension schemes, but we want to ensure that two other categories are also represented: employers and employees. I know that in the past governments have always ensured that those categories were represented on previous bodies that have dealt with pensions. It so happens that for a number of years I was a member of the Occupational Pensions Board. I was a Minister's nominee on that occasion; the TUC was separately represented, as were employers. There were also people there with a great deal of experience of the pensions industry. When I was first appointed, we were under the very wise and experienced guidance of our chairman, the noble Lord, Lord Allen of Abbeydale.

The Occupational Pensions Board had very limited powers, and the intention is that the bodies established under this new Bill will have much more power. In the light of the recent experience of the pensions industry, much more will be expected of the body. In such circumstances, credibility and acceptability is even more important. That is why it is important to set out in the Bill which categories will have an absolute entitlement to representation.

It should be emphasised that I am not seeking in this amendment to provide for specific representation with accountability to report back or anything like that. I simply want to ensure that, when these important bodies are established, those most concerned—which means most of us with an interest in occupational pensions—will feel that the important decisions are being made by people with a direct knowledge of the way such decisions are likely to impact on those directly affected.

Therefore, although the rewording is not very marvellous, I shall be satisfied if my noble friend the Minister accepts the principle. Perhaps rather better wording can be devised. I beg to move.

Lord Skelmersdale

My Lords, all due respect to the noble Baroness, Lady Turner, but I hope that the Minister will not accept the principle of the amendment. As the noble Baroness said, she raised this issue in Committee but, naturally, withdrew it for further consideration. I agreed then, and I agree now, with the noble Lord, Lord Borrie, on the basis that I, too, do not like shopping lists in legislation. Indeed, I have a track record in that respect if anyone cares to look it up.

That said, I am aware that the Occupational Pensions Board, on which the noble Baroness, Lady Turner, was a distinguished member, did indeed have designated seats for union and employer representatives. However, life moves on. I am almost certain, although I have not double-checked it, that OPRA did not have such dedicated seats. None the less, that body did have non-statutory employee and union representatives. From what the Minister said in Grand Committee, I am quite sure that any reasonable Secretary of State, in—as the Bill says—consultation with the regulator, will review the balance of the board.

So I do not much like the idea of appointees with knowledge of no less than four specific topics, especially as two members will be executive and by definition will have experience of the life assurance business. There may be only three non-executives, but I still believe that experience will show that more are required, though not necessarily in that particular respect with these particular skills.

Lord Oakeshott of Seagrove Bay

My Lords, we have some sympathy with the intention of the amendment. The problem is that it is worded a bit too restrictively and the word "representative" is probably not appropriate; it has a slightly corporatist flavour. It would be very disappointing if people with this sort of experience were not on the board representing either individually or in combination. I think that the amendment, as the noble Baroness has moved it, is rather too formal and too rigid. I do not think that we would support it in this form.

The Parliamentary Under-Secretary of State, Department for Work and Pensions (Baroness Hollis of Heigham)

My Lords, I, too, will join the chorus of those not supporting my noble friend's amendment. I can be brief because many of the arguments have already been voiced.

We do not think that it is desirable to limit the potential membership of the board by a shopping list of interests that should be represented. I absolutely appreciate and accept—as the noble Lord, Lord Skelmersdale, said—that members of both the regulator and the board must be able to understand and take into account the interests of those who will be affected by their decisions and that members must have understanding of the area in which they operate. To paraphrase the noble Lord, Lord Skelmersdale, I would be amazed if the substance of what my noble friend wanted did not turn out in practice to be the event.

We do not think that the amendment is appropriate on the face of the legislation, primarily because we do not want to use the word "representative" in quite the way it is used. That could cause people to believe that they have to maintain opinions representative of a particular group, and we could then have conflicts of interest.

As I understand it, an example of a current non-departmental public body that has sectional representation on the governing board is OPRA. I am advised that there have been a number of specific examples where members have felt obliged to excuse themselves from taking part in specific decisions because of the conflict with the interests of the groups they were appointed to represent. In the process, we have lost the benefit of their experience, background and wisdom, which we could have had if they did not feel that they had to represent a much more narrowly focused group.

For those arguments and the arguments already expressed, I hope that my noble friend will feel able to withdraw her amendment. We cannot accept it. Our approach is not unusual. None of the other legislation governing appointments to, for example, the Financial Services Authority, the Financial Services Compensation Scheme and the Bank of England's Court of Directors requires sectional representation. It is not a path that we want to go down. We have had problems, or so OPRA tells us, with that path. We think that it is time to move on.

However, I would be amazed if what my noble friend wants in substance does not turn out to be the case in practice. I hope that, having skilfully argued the point both in Committee and on Report, she feels able to withdraw the amendment.

3.15 p.m.

Baroness Turner of Camden

My Lords, I thank my noble friend the Minister for that response. I certainly accept that, in substance, perhaps what I am after will turn out to be the case. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 2:

Page 264, line 32, leave out "pension,"

The noble Lord said: My Lords, it will be convenient, I think, to debate with this amendment Amendments Nos. 3, 4, 122, 123 and 124 and Amendment No. 131 in the name of the noble Lord, Lord Oakeshott.

The amendment is concerned with the pensions which it is appropriate to pay to members of the regulator and the Pension Protection Fund staff. We had a considerable discussion of this subject in Grand Committee in the Moses Room. The essence of the amendment is to be found in Amendment No. 4, which says: The Regulator must make such contributory pensions arrangements, broadly comparable to those in the private sector for such persons as the Secretary of State may determine".

There are two aspects of that. In order to clarify the situation in Committee, I intervened in the speech by the noble Baroness, Lady Hollis, and asked whether they will be civil servants, to which she replied, no, these people will not be civil servants. In response to a further intervention from me on whether the pensions will be on a contributory or non-contributory basis, she said that it will be, non-contributory, but I believe that I am right in saying that there is a contribution payment for dependants, which is a voluntary addition … I am not sure about the details, but it is a largely non-contributory scheme".—[Official Report, 15/7/04; col. GC 347.]

I think that there is growing public concern—one might almost say resentment—at the huge disparity that has been developing, particularly since 1997, the effect that various actions by the Government have had on private sector schemes, and the very large difference that now exists between those who have pension schemes in the public sector and those who have them in the private sector. That is combined with concern about the increasing cost of those public sector schemes. A recent estimate said that unfunded liabilities were reaching something like £600 million, which is an increase of more than 50 per cent since the most recent official estimate of £380 million, in March 2002.

So we are seeing a huge increase in the liabilities of pension schemes in the public sector. The effect of not amending the Bill in the way which is suggested will be to increase that still further. This is, of course, a very marginal change—no one would dispute that—but I think that we have now reached the stage, in the light of general public opinion on the issue and the points that I have just been making, that people would not wish to see the disparity extended further and new groups coming into the kind of scheme that the Government apparently envisage for the staff of these two bodies.

There are three aspects of the problem. First, the scheme is non-contributory. Secondly, it is index linked. Thirdly, it is a final salary scheme. We are all in favour of final salary schemes; the sadness is the extent to which those have been curtailed in recent times. As for index linking, we had considerable debate in Committee about whether that was appropriate and to what extent. The Government are, in fact, reducing it for many schemes.

However, the crucial matter, it seems to me, is whether or not the scheme is contributory. On the problems that I just mentioned, if one looks elsewhere in the public sector, very large numbers of schemes are contributory. As I understand it, members' contributions for the existing police and fire-fighters pension scheme constitute 11 per cent. The relevant figure for the proposed police pension scheme is 9.5 per cent. Generally speaking, schemes in the public sector tend to be contributory. However, that will not be the case for the group that we are discussing. There is anyway a strong case for schemes being contributory in the sense that the individual participates and contributes towards the benefit which he will eventually receive.

Given that these two bodies will be dealing with people whose pension schemes have effectively collapsed and whose expectations of retirement will be severely diminished, it seems strange that the schemes which are being introduced for those operating this rescue plan should be at the very upper end of available pension schemes in all three respects which I have mentioned.

In Committee the noble Baroness drew attention to one or two private schemes which are still non-contributory. However, they are very few in number. Under present circumstances, given the effect of actions which have been taken I would be astonished if anyone started up a new final salary scheme. However, the idea of anyone setting up a new non-contributory final salary scheme seems to me virtually inconceivable. There is a real problem here. We are not suggesting at all that there should not be an appropriate pension scheme; on the contrary we are suggesting that these people's pension schemes should be appropriate.

In Committee the noble Baroness argued that the provision was the same anyway and that it depended how you sliced it between pension schemes on the one hand and pay on the other. Of course, one can do it in different ways. None the less, getting the balance right is an important aspect of the matter. Certainly so far as the public sector in general is concerned, there are also important implications regarding whether matters are settled up front or whether we are yet further increasing the overhang of debt which will fall on future generations. I refer to the whole question of intergenerational transfers and the issues we debated regarding the Government's balance sheet. As I understand it, these liabilities, like other public sector liabilities, will not appear on the Government's balance sheet.

For all those reasons it seems to me that these are sensible amendments. They in no way undermine the overall structure but they would set a framework within which the arrangements for pay and other benefits should be set without running into the kind of problems that I have sought to underline. I beg to move.

Lord Oakeshott of Seagrove Bay

My Lords, I wish to speak to Amendment No. 131 to which my noble friend Lady Barker and I have added our names. I wish to speak also to Amendments Nos. 4 and 124, to which my noble friend and I have added our names, in support of the noble Lords, Lord Higgins and Lord Skelmersdale.

At the beginning of Report I should again declare my interest as a pension fund investment manager since 1976. However, unlike Members of the House of Commons, I do not have to declare an interest as someone who is likely to be a beneficiary of an index linked public sector pension. There is a serious point here. It necessarily falls to us at this end of the Chamber to raise the serious point that symbolically comes out in this set of amendments of whether we can allow to continue the slide into two nations in pension provision in this country, which is highlighted so well in the Turner report.

Turner sets out the four different categories of risk in pension provision: longevity risk; investment return risk; default risk and earnings progression risk. As he points out: In state PAYG schemes and in private DB schemes with price-indexed benefits, the provider bears all these risks and the individual none". We on these Benches oppose the Government's present proposals for the staff of the regulator and of the PPF to receive the full Civil Service non-contributory pensions with unlimited indexation. Usually, of course, in public sector pension provision it is the income tax payer or the council tax payer who takes all the risk. As we have heard, on Turner's best estimate the unfunded liability has now grown to £475 billion. However, in this case in particular the risk of this almost unquantifiable liability for the future will fall instead on all the private sector defined benefit pension schemes in the country, many of which are closed to new entrants and where benefits such as I have mentioned are as rare as hens' teeth.

In Committee the noble Baroness raised the matter of whether a Crown guarantee should be given if there were a separately funded scheme for the PPF. It seems to me that that is rather a red herring. We on these Benches would have no objection if there were a separately funded scheme for the PPF staff, as, for example, with the Financial Services Authority. We would have no problem if it were considered appropriate to give a Crown guarantee for that so that they would not need to pay the levies themselves. We do not mind the state guaranteeing the benefits; what we do mind is that the benefits should be on a much more generous and very different basis from normal good quality private sector benefits. That is why I have tabled the amendment suggesting that they should be broadly comparable to those provided by constituent companies of the FTSE 100 index for their employees in the United Kingdom on similar salaries. We are talking about a good quality private sector scheme, but not a scheme which is virtually unknowable for new entrants in the private sector.

We do not think that the benefits I have mentioned are fair or constitute a fair sharing of the risk between the employees of the PPF and the regulator on the one hand and the members of pension schemes, who are effectively their customers, on the other. We do not believe that the staff in the PPF and the regulator should effectively have their pensions hermetically sealed against the risks faced by private sector pension fund members. For all those reasons we believe that Amendment No. 131 is sensible and that Amendments Nos. 4 and 124 should also be supported.

Lord Lea of Crondall

My Lords, before my noble friend the Minister replies, it may be worth rioting that I had written on my Order Paper the word "symbolism". Two seconds after I had written that word, the noble Lord, Lord Oakeshott, said that to some degree this is a question of symbolism. He then talked about the two nations, which paraphrased what the noble Lord, Lord Higgins, said. If we are at some point to have a debate about Adair Turner and about the whole relationship with the different sectors of the economy, we cannot adopt the principle of the school playground that if someone has a toffee apple but I do not have one, the other person will not have one. That is not the spirit in which the whole question should be approached. I make that simple point.

Baroness Turner of Camden

It seems to me that Amendment No. 4 is rather odd regarding certain schemes being broadly comparable to those in the private sector as the private sector has an enormous range of pension provision at the moment: there are defined benefit schemes; defined contribution schemes; stakeholder schemes; group stakeholder schemes; personal pensions and so on. It seems to me that it is not a good notion for the schemes that we are discussing to be comparable to those in the private sector.

Moreover, I have always felt that having a good public sector scheme as a reference point is a model way of showing how to provide for employees. I do not think that it is to anybody's detriment to have good public sector schemes; they provide an example to the rest of industry and employers of what can be achieved and what ought to be achieved for employees. I do not support the amendments.

3.30 p.m.

Baroness Noakes

My Lords, I support my noble friend's amendments, and want to talk initially about the position of non-executive directors. Most of the discussion to date has been on the broad generality of pensions being provided for the regulator and the Pension Protection Fund, whereas my noble friend's amendment also covers pensions being paid to non-executive directors.

Experience in the private sector is that non-executive directors are not in pensionable employment. That also includes non-executive chairmen, which I understand will be the position for the chairman of the Pensions Regulator. By implication, as chairman of non-executive directors, he will be a non-executive chairman.

The Bill sets out some extremely unusual practices—compared with private sector practice. Would that it were otherwise, since I spend quite a lot of time as a non-executive director when I am not here, but I assure noble Lords that pensions do not come with non-executive appointments.

The debate has ranged more widely, and I certainly support the intent behind the amendments tabled by my noble friend and those in the name of the Liberal Democrats. There is a slight problem, which has been raised, about what is comparable to good private sector practice or FTSE 100 practice, as there is a great variety of schemes. If the amendment is to have any meaning, it should be expressed in terms of modern schemes. We could hone that considerably as modern schemes are contributory and are likely to be money purchase, not defined benefit. A little more definition would be helpful to those who have to operate such schemes. That said, I fully support the direction of travel of the amendments, which are essential for such a body.

Lord Fowler

My Lords, I confirm what my noble friend has just said. As a non-executive chairman of two companies, I certainly confirm that pensions are not paid at all—indeed, I am not sure whether that would be against the rules of corporate governance.

Important points were made by my noble friend Lord Higgins, and supported by my Isle of Wight neighbour, the noble Lord, Lord Oakeshott, on the emerging public cost, the future burden for generations to come and the non-contributory basis of the scheme. I am aware that people like me—an ex-MP and an ex-Minister—are the beneficiaries of a public sector scheme. It could be argued that people in glass houses should not throw stones, but I am encouraged by the fact that ministerial pensions were contributory—and I imagine still are—and that in my time, unlike now, were of such insignificance that an interest in supplementary provision was important. Although it would be untrue to say that I left the Government to spend more time building up my personal pension, that became an interest.

The issue is important because I remember making pensions policy in the old Department of Health and Social Security, which was all done under one roof. When I first arrived my civil servants were strong on public pensions, but were nothing like as strong on private provision. That is no criticism of them; they were men and women of the highest integrity, but they knew very little of the world of private pensions. While I was there, we got round that by forming a small team who did understand all the issues, and by recruiting a rather good Minister of State, called John Major. I am not sure what has become of him, but I hope now that Mr Kinnock is joining us here, he might follow that example.

Most people in this country are covered by private pension provision. Private pensions are currently under more pressure than I have ever seen in my political lifetime. We all know that final salary schemes are closing. The Government are lamentably failing to provide incentives for private saving and, overall, there is a feeling of crisis. It is all very well to have the initial diagnosis of the pension commission, but we still have no policies, and we shall not get them until after the Government are re-elected, if they are.

In the circumstances, we do not want the staff of the Pensions Regulator to be comfortably insulated from all those factors. We want people who understand what is taking place, and who recognise the experience of the vast majority of people. There is no substitute for personal experience. I wholeheartedly support what my noble friend Lord Higgins said. He made an important point, which I hope the Government will accept.

Baroness Hollis of Heigham

My Lords, this group of amendments would amend Part 1 of Schedules 1 and 5, which deal with the Pensions Regulator and the PPF board.

Before addressing the amendments specifically, I shall explain our intention behind the provisions that would be amended. As the noble Baroness, Lady Noakes, recognised, six of the seven amendments—Nos. 2 to 4 and 122 to 124—deal with the pension provision of non-executive members of the Pensions Regulator and the PPF. Each hoard will initially have five non-executive members, plus an non-executive chairman.

Schedules 1 and 5 allow the Secretary of State to determine the amount of contributions for, and payment of, pensions for non-executive board members. However, other than the chairmen, we have no plans to make any pension provision for non-executive board members. We are meeting the concerns expressed today, as we are not proposing to do what some of your Lordships fear.

The six amendments relate to Schedules 1 and 5, which deal with the remuneration of non-executive members of the respective boards—the regulator and the fund. We do not propose to pay pensions to such members at any rate, so I hope that the noble Lord will withdraw his amendments. We share the view that that would be inappropriate for all the reasons adduced by noble Lords.

Amendment No. 131, which was tabled by the noble Lord, Lord Oakeshott, deals with pension provision not only for the chairman but for PPF staff, as opposed to executive board members. We anticipate that the PPF will have 45 to 50 staff in April 2005, increasing to about 100 during subsequent months.

Concern has been expressed, which has been echoed here today, about providing Civil Service pensions that it is believed are salary-related and non-contributory. That is the case for the older classic scheme of the Civil Service. But, since 2002, the new Civil Service scheme, called the premium scheme, fairly closely resembles good practice if not best practice, in the private sector.

The noble Lord, Lord Oakeshott, asked whether we had done any research on comparable FTSE 100 companies. We said that we had been unable to do that, but over the summer, my staff looked at schemes in the public domain—through the pension profiles 2003—and we have information on some 50 of those 100 FTSE schemes. Many of those companies are involved in manufacturing or whatever, and are not necessarily financial service industries. Of those 50 schemes on which we have information—I cannot say whether they are representative of the 100; they were all that we could in good faith get hold of—35 are DB, 24 have 1/60th accrual, five are more generous than the Civil Service scheme, and six are less generous. Twelve have employee contributions running from 0 per cent to 3.5 per cent, 16 have 3.5 per cent, and seven have 5 per cent to 7.5 per cent, which is a mean average of 3.7 per cent employee contributions to DB schemes.

The closest comparators to the Civil Service scheme in terms of the job that the PPF and the regulator will do—Friends Provident, Bank of Scotland, HBOS, Pru, RBS, the Royal Sun Alliance—are non-contributory, according to my latest information. However, it is perfectly possible that they have since been closed to new members; I would not wish to argue about that. Thirty-three of them had price indexation and so on.

The Civil Service premium scheme, to which new members of the board and the regulator will coma, is a DB scheme with accrual rates of 1/60th and a contribution levy of 3.5 per cent. That compares to the 3.7 per cent that was the mean average of the 50 schemes that we have been able to identify. In terms of issues such as some of dependency, the Civil Service scheme is less generous than some others with which we compared it.

Having said all that, I want to say that the Government are virtually meeting the spirit of what the noble Lord argues for. The scheme will be contributory and DB, and will have a level of contribution broadly in line with those 50 of the FTSE companies on which we have been able to get information. In that sense, it is contributory and broadly comparable. Our information is incomplete. None the less, in good faith, one can see that the new Civil Service scheme is broadly comparable.

Lord Oakeshott of Seagrove Bay

My Lords, I thank the noble Baroness very much for that information, so far as it goes. I have two questions. How many of the 50 schemes are open to new entrants, which is obviously the relevant figure? How many of them have unlimited indexation of pensions in payment?

Baroness Hollis of Heigham

My Lords, I said that we did not know on the first point. My information was published in 2003, so by definition it is 18 months out of date. I suspect that the Bank of Scotland and HBOS scheme may very well be closed to new members, for example. I cannot go beyond the information that I have given. However, the schemes are contributory, and I have given the noble Lord the statistics I have on the levels of contribution. In good faith, we cannot get more information than that.

Lord Oakeshott of Seagrove Bay

My Lords, what about unlimited indexation of pensions in payment? That is the critical point that needs to be addressed.

Baroness Hollis of Heigham

My Lords, three questions were put to me. One was whether the scheme was DB. The second was whether it was contributory. The third was whether it was broadly comparable to the private sector in terms of indexation. Many of those schemes have limited price indexation, and some have full price indexation. In that sense, it is perfectly true that the Civil Service is among the best rather than average practice on indexation; the noble Lord is correct on that. However, on other issues, such as dependency, the Civil Service scheme is somewhat less generous.

Lord Higgins

My Lords, the noble Baroness seems to be taking a rather different line from the one that she took in Committee. She said then that the scheme would not be contributory. If I understand her correctly she, no doubt persuaded by the arguments that we put forward at that stage, is saying that it will be contributory. Is that right?

Baroness Hollis of Heigham

No, my Lords. What I sought to say in Committee applied to anyone coming across from the Civil Service. For example, we expect that many of the staff currently in OPRA will be seconded across, in which case they preserve their existing pension rights, which are non-contributory. As would be expected under the TUPE Regulations or anything else, new staff joining the Civil Service after—I think—April 2002 have a choice of a stakeholder personal pension scheme or coming into the new premium scheme, which is contributory. The noble Lord asked us to consider that.

Lord Fowler

My Lords, how many of the 50 private schemes on which the noble Baroness has information allow pensions for non-executive chairmen?

3.45 p.m.

Baroness Hollis of Heigham

My Lords, I do not have that information. We are drawing comparisons between, in some cases for the regulator and the PPF board, highly skilled people and FTSE companies—possibly largely drinks companies, and so on—that may have quite a high number of moderately earning staff. I have not been able to get any information about what I would call more "top hat" pensions, those of people with professional qualifications—accountants, actuaries, lawyers and so forth. That information is not published in existing publications that I have seen. Not surprisingly, companies are rather reluctant to give us detail about the pension arrangements for their highly paid staff, in much the same way as I am sure that they would be reluctant to give us details about their 17 per cent pay increases on average over the past year.

I am comparing the Civil Service pension scheme with comparators that, by definition, are likely to be people in different occupations from those that would be the true comparators. I am sharing with the House, in good faith, the public information that we have been able to gather.

If we were to have a separate pension scheme, the set-up costs would be extremely high—about £122,000, with running costs of £50,000 a year. That would be much higher than offering access to the Civil Service premium pension scheme, which is very inexpensive to run in administrative terms. If there were any worsening of conditions, we would have to look at the total remuneration package, an issue that the noble Baroness, Lady Noakes, and I debated. She said that I was right in theory but not in practice.

I have taken legal advice, and the approach suggested could result in legal challenge on whether any particular scheme was comparable with any others. Amendment No. 131 is not the route that we want to go. I hope that what I have said allays some of the concerns and anxieties expressed in Committee. The first six amendments apply to non-executive members of boards, for whom we do not intend to pay pensions at any rate. In that case, the noble Baroness, Lady Noakes, the noble Lord, Lord Fowler, and I are on the same side. On Amendment No. 131, I have tried to give a description of the Civil Service scheme to which new entrants will go, which is genuinely broadly comparable to the 50 of the FTSE companies on which we have information. I recognise that some of that information may be out of date, but we have done our best over the summer to get the information that I was pressed to give in Committee.

With that information, I think that we are meeting the substance of what was suggested by the noble Lord, Lord Higgins. The first six amendments will not apply as he argued, and on Amendment No. 131 we are offering a scheme that is broadly comparable with, but not tied to, individual FTSE companies. With that reply, I hope that he will feel able to withdraw his amendment.

Baroness Noakes

My Lords, I was grateful to the noble Baroness for explaining that the Government had no intention of paying pensions to non-executive directors. First, will she therefore explain why they are taking the power to do so? It seems wrong in principle to take a power that one does not intend to use. Secondly, will she confirm that that intention extends to the chairmen of the bodies concerned, who are non-executive as I understand it? Do the Government have no intention of paying pensions to the chairmen of the regulator or the PPF?

Baroness Hollis of Heigham

My Lords, there is a power because we might, for example, at some stage want to have a deputy chairman. We are expecting to provide pension contributions for the PPF chairman, and it is right that we do so. Each chairman will be expected to commit an average of two to four days each week to the organisation. Given that the chairmen of the boards are virtually full-time appointments—not quite, but very substantially—we think it right that they should attract some form of pension arrangement. The appropriate route for them is access to a Civil Service pension.

As I say, we have the reserve power because, in some future case if the workload is extremely heavy, we might need to appoint a deputy chairman—also a non-executive, but with much heavier responsibilities than other members. We might therefore want to take that power. However, as we understand it at the moment, the remaining non-executives will give about 20 days of their time a year, so we think it right that they should not attract pensions, for exactly the same reasons as those given by the noble Baroness.

Lord Higgins

My Lords, those of us who were present in the debates in Committee will be somewhat surprised by the comments of the noble Baroness. On that occasion it seemed that she was opposed to what we were saying. She is now saying, effectively, that she accepts the amendments. In the light of that and the further points which she has made, and if it is the case that the amendments were to be accepted, there would be no point in voting on them. But it is strange that we get one answer in Committee and seem to get a completely different answer at Report.

In those circumstances, we should study carefully what the noble Baroness has now said and return to these matters at Third Reading. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 3 and 4 not moved.]

Baroness Hollis of Heigham moved Amendment No.5:

Page 269, line 30, at end insert—

"() the power to issue a clearance statement under section (Section 39 contribution notices: clearance statements);"

The noble Baroness said: My Lords, the government amendments in this group address the moral hazard clauses that rightly exercised all sides of the Committee at some length in July. I hope that your Lordships have had the opportunity to read the consultation document, which we produced in the summer, on the moral hazard clauses. I should like to take this opportunity to thank those who took part constructively in that consultation. I know that they were concerned with not only meeting business needs, but ensuring that the clauses would work in practice to protect members—which we all desire.

Indeed, PricewaterhouseCoopers, one of the consultees, has welcomed the amendments and commented: We appreciate the time the Government has dedicated to ensuring that the moral hazard clauses are workable in practice with minimum impact on British business". Perhaps I may also pay tribute to the staff who have worked extremely hard over the summer with a range of bodies and individuals to produce what I hope that your Lordships will welcome as a valuable document and a genuine effort to meet the concerns raised in Committee.

These amendments are a package designed to ensure that these clauses provide protection—and work in practice while meeting the industry's concerns. The purpose of the amendments is to give the regulator powers to protect members, the PPF and those who pay its levies, from those who act to avoid their pension liabilities and to ensure that, when it is reasonable, companies cannot leave the pension scheme with a service company or weak member of the group without guaranteeing that pension promise.

I am sure that all noble Lords recognise the dilemma of moral hazard and will support the Government in their broad aims. But, as I have said, the devil is in the detail and we had a thorough discussion in Committee. I realise that the amendments, of which there are many, are a package. Not all of those who were consulted achieved everything that they wished for and some would have preferred a different outcome—for example, on the time limit issue, to which we may return to later, the views expressed ranged from two months to seven years. There was no consensus at any stage, nor even a moral majority, for a particular time limit. Not surprisingly, some of those who found themselves in the minority during the consultation exercise may, understandably, now be seeking to amend the Government's package and to revisit what we thought had been settled by consent, as far as possible, during the discussion—subject to parliamentary approval.

I hope that that is not the case and that there will not be an unpicking of matters where the majority of those with whom we consulted supported the Government's actions. I am afraid that that may open the door to further amendments at Third Reading from aggrieved parties who felt that the Government had backed their views. It is difficult.

I propose to speak more broadly to the first amendment, which is an overview of all the amendments in the Government's group, which reflects the issues raised in Committee. They are a genuine attempt to address the concerns raised by noble Lords opposite in Committee. However, the noble Lord, Lord Higgins, has perfectly properly tabled amendments to the Government's amendments, which the Opposition wish to be considered separately. In an effort to be helpful, I have pulled out of the group the relevant government amendments—for example, Amendments Nos. 25 and 29, and, if the noble Lord, Lord Hunt, wishes, I will pull out Amendment No. 35—so that the opposition amendments may be debated separately. If noble Lords wish to test the opinion of the House, of course they must feel free to do so.

The down side might be that we could revisit the same issue several times at different points this afternoon. That would be a price that we had to pay. That would be the most constructive way forward, if all noble Lords are content with that arrangement— "blue sky" debate now, with specific points of concern being separated from the government amendments. At that stage, I am sure that we would all try to he as brief as possible.

Perhaps I may first deal with Amendment No. 93 and how we intend to use the powers in it to modify and make regulations dealing with partnerships and limited liability partnerships. This has been a matter of some concern and I have been asked to make clear in Hansard where the Government are coming from. When making regulations in respect of partnerships and limited liability partnerships, and taking account in particular of the widespread use of limited liability partnerships in the private equity and venture capital industry, we intend to treat partnerships and limited liability partnerships as far as possible as if they were companies. We will be consulting on the regulations. I could enlarge on that issue if noble Lords wished me to pursue the matter.

I wish to deal with only the headline amendments and issues, and we shall return to specific pressure points later, when I shall do my best to answer questions. Leaving aside the matter of limited partnerships and although there are no opposition amendments, government amendments, in response to real concerns of which I was persuaded in Committee, were tabled regarding the regulator operating a clearance procedure so that companies would know where they stood in advance—and so that they could act in good faith without fear of penalties following their best efforts to rescue companies.

We asked during consultation whether that clearance procedure should be detailed on the face of the Bill or be headline. The answer was clear—emphatically that it should be headline. Our amendments reflect that. The clearance procedure introduced by Amendments Nos. 51 and 80 has been welcomed by an array of groups, including the CBI and the British Venture Capitalist Association. The CBI said: The introduction of a clearance procedure by the Government is welcome recognition of the need to provide business with sufficient certainty surrounding future relevant corporate activity". The BVCA said: We welcome the changes to the draft Bill following the helpful and constructive discussions that we have had with DWP. The introduction of a clearance procedure is a welcome improvement".

However, there is still concern regarding a handful of issues—the time taken by the regulator to issue a clearance statement and the resources of the regulator to deal with the applications. Regarding timing, the regulator must consider the application as soon as is reasonably practicable. That means exactly what it says and is designed to ensure that the system works for different situations and that the statement is issued as soon as possible. For example, in some situations, such as corporate takeovers, the regulator will have to consider and respond to the application within 48 hours. There may be other circumstances when a longer period is appropriate; for example, clearance of a compromise agreement. That flexibility, welcomed by industry, is being built into the planning for the clearance system.

The regulator will issue guidance on its operation of the clearance system. Your Lordships will be pleased to hear that such a good working relationship was established over the summer that many of those involved in the consultation have volunteered to continue working with officials to produce the guidance and will be able to ensure that there are timeframes to suit their needs.

As I said, another concern is the resources for the regulation. I know that there is concern that the regulator's staff will not be up to the task, but I can assure your Lordships that work is under way, involving external experts, to ensure that the regulator can operate the process effectively and has the appropriate skills and staff to do so. We are anticipating the assistance of many of those involved in the consultation exercise to achieve just that.

4 p.m.

I could go on about the clearance procedure, but I shall simply say that we are working with the industry, which is well content with what we are doing. We are continuing detailed discussions with industry to enable us to develop a guidance procedure so that everyone knows where they stand.

I want to thank all Members of the Committee for airing the issue so thoroughly—it was not a party issue, as we recognised the problems. That allowed us to take it back to the groups in industry to achieve the responses that are reflected in the document that we have today and that are embodied in the amendment the Government have tabled.

Another concern of industry was the lack of a backstop—Amendments Nos. 35 and 35A. That is a separate issue and one to which we can return in due course.

Amendments Nos. 25 and 29 remove insolvency practitioners acting in accordance with their functions from the scope of contribution notices. Again, we shall come to that in due course.

Amendment No. 42, which was not challenged, adds a factor to those that the regulator must consider when deciding whether it is reasonable to issue a contribution notice. I was pressed on this matter in Committee: what was the purpose of the act or failure, and was the act to prevent or to limit loss of employment? The noble Lord, Lord Higgins, was very clear on the dilemmas that could face a company trying to protect jobs, but at the same time trying to play fair by its pension scheme. Therefore, it is only right that the regulator should consider that; after all, without an employer, there can be no occupational pension. Employees can continue to contribute to personal pension provision, but if they lose their employment most do not have the resources to do so. Again, we have produced amendments to ensure that the regulator can take into account the intention behind the act when it affects issues like employment. That will come up through the clearance procedure.

Amendment No. 29 deals with insolvency practitioners and we are aware that other professionals are in the same situation. The fact that we are taking regulatory powers to exempt further groups may be sufficient comfort, but the noble Lord, Lord Higgins, may want to address the issue on its merits later. I believe that we have taken a power by regulation that I think, and hope, will address the concerns he expressed on their behalf.

Financial support directions, as your Lordships will recall, are designed to ensure that in the case of an underfunded scheme, attached to a weak or service company, an associated or connected party may be asked to guarantee the pension liabilities. I think it is right to say that the majority of the concerns about the moral hazard clauses have been focused on the scope of those directions.

Amendment No. 58, with new subsections (5) and (5A), provides that a financial service direction cannot be issued to individuals, save in certain circumstances. That covers all individuals, including shareholders. It may be worth my while enlarging on this point—I have been brief on some of the others. The only situation in which the regulator may consider issuing an FSD to an individual is when the employer is an individual. In those circumstances, individuals associated and connected with the employer may be liable; for example, in the case of a sole trader who has taken all the profit from a business and passed it to her husband, the regulator may issue an FSD to the husband. That is the only situation in which we envisage that applying.

We have also introduced a reasonableness test in Amendment No. 58 on the issue of financial support directions, which was urged on us in Committee, and a further factor to both reasonableness tests in relation to FSDs: that is, the value of any benefits received directly or indirectly from the employer by the person to whom the regulator is considering issuing the FSD. I think that that should catch inappropriate, bad faith, manipulative practice.

Taken as a whole, these provisions will ensure that, for example, in a case where an investor has a majority shareholding in five companies, but the companies have no other connection, it would not be reasonable to issue an FSD to the other companies. When considering in that case whether to issue an FSD to the investor, the regulator would have to consider whether he had received any benefit, such as profit or dividends, from the employer in relation to the scheme when deciding what is reasonable.

In Amendments Nos. 31 and 33 we have made it clear that the arrangements for financial support which are put in place do not have to be for the full pension liabilities, but for an amount up to the total of those liabilities, subject to the regulator's approval.

I have concentrated on the amendments on which the Opposition have not, through amendments, challenged the Government. I have tried to explain the Government's thinking on them. I have skated briefly over the amendments which I am sure will be explored in greater detail. I ask noble Lords to bear in mind that this is a package that we have worked on over the summer in consultation with the industry. It has been a very successful exercise. In so far as noble Lords helped to prod us into that activity—I suspect that, at the same time, officials were already engaged in extensive consultation—and in so far as the discussion in Committee allowed us to focus the concerns more appropriately than might otherwise have been the case, I believe that we are all the beneficiaries of that procedure.

With that slightly lengthy speech, I hope that your Lordships will feel that the Government have responded to concerns expressed in Committee and that in the document we have built a consensus around the package to address the issues of moral hazard. I beg to move.

Lord Higgins

My Lords, when considering the Bill it is important always to recall the fact that its overall impact is likely to discourage companies from continuing with final salary schemes. The levy, to which we shall turn later, will certainly have that effect. Companies can escape the consequences of many of these problems if they simply abandon their schemes.

I cannot recall for a very long time a Bill that has been quite as complicated, or one on which, in a sense, it is so difficult to focus. When I first saw the Government's groupings for Report stage, I believed it would be quite impossible to achieve any kind of sensible discussion. I am glad that the Government have at least agreed to dissociate from the group some of the amendments that they have tabled to which we have also tabled amendments. In the subsequent debates, we must try as hard as we can to isolate particular issues. I fully accept what the noble Baroness has said. We examined these issues in 11 or so sittings in Committee and she has sought to respond to the problems. However, the problems are very real and they remain so.

We can all accept that we wish to take steps to deal with the so-called moral hazard problem; that is to say, unscrupulous employers seeking to abandon their pension obligations and unload the responsibility on to the Pension Protection Fund. When I originally spoke on the devices put forward by the Government to prevent that happening, I said that the clauses as introduced would deter investment within the UK by overseas companies and curtail growth; they would deter entrepreneurs from rescuing companies in trouble; they would make investors liable in respect of companies over which they do not exercise control; they would create uncertainty about individual and commercial companies' responsibilities; they would undermine the concept of limited liability; and they would further deter companies from setting up defined benefit pension schemes.

In Committee we sought, as we must seek now, to try to avoid those real dangers. If we do not do so, it is certainly arguable that the benefits of the scheme will be outweighed by the very real dangers to which I have just referred. As a result of the Government's consultations during the summer, one would like to think that these problems are now solved.

The noble Baroness referred to some proposed changes. In particular, the clearance procedures will be an advantage, although that depends very much on how successfully we can devise such a clearance procedure. There is still very widespread concern. Perhaps I may quote from one group. The National Association of Pension Funds stated: We continue … to have major concerns as to whether the Government's changes to these clauses will go far enough. If not, then they are likely to lead to huge job losses and the winding-up of underfunded pension schemes on an unprecedented scale. This in turn would place a considerable strain on the PPE". It goes on to say that, these comments are not unduly alarmist. They are, we believe, a fair assessment of the current position and represent the generally accepted view amongst those most closely involved with UK pension provision". These are very serious misgivings about the situation we have reached, even after the Committee stage and the Government's consultation process.

Our task this afternoon and at Third Reading, against a terribly tight timetable—the gap between Third Reading and the Queen's Speech is a matter of a few days—will be extremely difficult. That is why we have tabled amendments dealing with specific issues, which I hope the noble Baroness will be prepared to accept.

It is very sad that we have reached this stage with so much still undecided and with so many dangers and problems not solved. The Bill has been through the House of Commons. It was programmed and of course it was impossible to debate it in as much detail as one would normally have hoped. On top of that, many of the provisions arrived at the very last moment before it left the Commons and arrived in our Lordships' House.

On the outstanding issues, there are problems of defining what is meant by "good faith", which is never a good concept to introduce in legislation; there is the whole issue of retrospection, on which my noble friend Lord Hunt and others have tabled amendments; there is the whole question of personal liability and insolvency practitioners—but, as I understand it, no similar arrangement is made for those engaged in the business of rescuing companies, other than those technically described as insolvency practitioners; and there is the whole issue of defining what is "reasonable" as far as concerns action by the regulator. There is a whole range of issues. I shall not go through them further; we shall reach them on subsequent amendments.

What I can say at this stage is that we on this side will do everything we can to try to ensure that the Bill is in a state where it does not do more harm than good. That will not be easy; I cannot remember a more complicated and difficult Bill. We must all work to try to achieve that. However, we are grateful for the changes the noble Baroness has already mentioned, although I think that some of them—clearance procedure and so on—we will need to come to at Third Reading.

We are still receiving representations from a number of outside bodies, some of them over the weekend, on points which previously we had not really understood or considered.

Having said that, I think that the amendments the noble Baroness proposes will go some way to help, and we must do all can to improve the Bill.

Lord Oakeshott of Seagrove Bay

My Lords, from these Benches I set out our general approach to these moral hazard amendments and the package as it now stands. Like the noble Lord, Lord Higgins, I have received a considerable volume of amendments.

I do not know whether noble Lords will remember a few years ago when speed-reading courses were advertised, but, certainly, in order to play an active part in this Bill, if one was not a speed reader before one certainly is by now.

Generally speaking, we are happy, or at least a good deal happier than we were in Committee about how the Government are striking the difficult balance between proper protection for pension funds and keeping an active and liquid market going in companies, and in parts of companies, in this country so that the market does not seize up.

4.15 p.m.

We think a six-year cut-off period is reasonable and that generally the balance is about right. Some of the criticism has been that some of the Government's proposals verge on the naïve. One needs to understand how venture capitalists work and in particular those who do big buy-out transactions. The whole nature of taking public companies private or doing these deals is to increase risk. It is to reduce equity, to gear up as far as you can and to borrow a lot of money. If you get it right you make an awful lot of money and if you get it wrong the company gets into difficulties. So it is not merely a question of dealing with unscrupulous employers, it is dealing with people who, as a perfectly legitimate and clearly stated part of their business, are in the business of increasing risk in certain circumstances.

In Committee, we spoke about situations like Marks & Spencer and WH Smith, both of which are substantial companies with a lot of equity. We tried to look at what the effect on the pension fund would be if they vanished. I supported, and still do, the view taken by their pension trustees that they would need to inject a good deal of money in the fund if the solvency of the company was quickly reduced. So we must be realists. It is, we believe, reasonable that these protections are in place. That is why we take the attitude we do.

On the concerns mentioned by the noble Lord, Lord Higgins, about the NAPF, I met the NAPF on Friday afternoon and discussed these and a lot of other clauses in the Bill. I did not get the feeling that its concerns on these clauses were now very major. It was more concerned on issues of detail in other parts of the Bill, such as the Pension Protection Fund and the financial assistance scheme, matters which no doubt we will be dealing with in the next few days. I would not have summed them up as being major concerns on this issue. With that, I broadly support the thrust of the Government's amendments but obviously we shall be looking in great detail at them as we go along and indeed at the Official Opposition's amendments.

Lord Hunt of Wirral

My Lords, I should like to respond positively to the Minister's invitation to deal with the headline issues—to participate in a blue skies debate. At the outset of my remarks I should like to pay tribute to the Minister for the constructive and non-partisan approach which she has taken during much of the marathon progress of this Bill, whose long-term importance is matched by its complexity. Throughout she has been courteous and considerate and at times she has displayed an unusual and commendable willingness to change tack significantly when the force of the argument has demanded it.

The Bill as it now stands is by no means perfect. I agree with my noble friend Lord Higgins, who has rightly diagnosed the real dangers and major concerns which remain, but I do not think that anyone would deny that substantial progress has been made in the wake of the consultation period during the summer.

That is especially so with regard to these so-called moral hazard clauses. The interested bodies who have been consulted have told me how pleased they were to have had the opportunity to air their concerns at the highest level and to have those concerns properly addressed and considered.

The amendments the Government have tabled as a result of those consultations have gone a long way towards removing, or at least substantially alleviating, concerns that have been raised with regard to the moral hazard clauses as they were originally presented. In particular, Ministers have now come at least some of the way towards addressing and assuaging the fears of insolvency practitioners and turnaround professionals who were concerned about how they might carry out their functions in the future. The Minister will recall that there was genuine concern that the clauses dealing with contribution notices could impose large and uncertain liabilities on those undertaking insolvency appointments or advising on turnaround. Therefore, firms that could be and should be saved would not be saved. That is the last thing that any of us would want.

Those concerns have been recognised and, to some extent, dealt with by this cluster of amendments. In particular, I know that R3, the representative body for licensed insolvency practitioners, is pleased to see specific reference to exemptions for insolvency practitioners and prescribed persons.

However, the amendments, commendable as they are, do not go quite far enough to satisfy the concerns of those who do not take formal appointments in insolvencies, notably turnaround professionals. They might act as directors or advise companies and, by doing so, could still be in danger of unfairly being required to pay under a contribution notice. I am sure that that is an unintended result and the amendments to the clause in the name of my noble friend Lord Lucas address the issue directly. I strongly commend those amendments to the Minister as entirely in keeping and consistent with the Government's amendments to the moral hazard clauses.

When we come to my amendment to Clause 39, the Minister will be aware that in the past few weeks, many stakeholders have expressed a view about the appropriate time limit for looking back at acts that might warrant the issue of a contribution notice. But we will come to that debate in a moment.

So my plea to the Minister is that she continue to listen to the constructive arguments and consider each of the amendments as having been tabled to improve the overall package. I say to the Minister, please do not regard the package, as she initially suggested, as inflexible and rigid. That is not the right way forward.

Lord Lucas

My Lords, I am very grateful to the Minister for what she has produced, which, as others have said, seems to go a very long way towards dealing with the problems—but, as noble Lords have also said, absolutely not all the way. Would it not have been a great deal better if we had had pre-legislative scrutiny on the Bill, when all these matters could have been dealt with on a proper timescale and in better depth? Then, at Report, we could have been polishing rather than wondering whether we have left some enormous hole in the Bill.

The potential liabilities are enormous. The difference between the deficits that FTSE 100 companies think that they have and the Section 75 deficits is about £100 billion. An awful lot in the Bill is edging companies towards having to admit, certainly early on, the Section 75 deficits as a contingent liability. Secondly, because they impact through the clearance procedures, every time you want to declare a dividend, every time you want to do something that involves putting money out of reach of the pension fund, time and again the Bill edges us towards the point where the Section 75 liabilities are the ones recognised in the balance sheet. For the FTSE 100, that represents about two and a half years of UK profits. We do not want that lot to fall in all at once. I think that it will happen over time, but we should be conscious of the fact that it is a very large shift of money from the corporate sector to pension funds. Although none of us disagrees that that should happen, we should recognise that we want it to happen in an orderly fashion.

I do not mind restricting ourselves to considering this as a package, but let us criticise it as any other package to see whether we can improve it, not from the point of view of advancing one sectional interest or another but just seeing whether it works as a package. In that regard, I should like to ask a few general questions of the Minister—as she said, we will come to the details of the amendments when we consider our amendments.

The Minister talks about the resources available to the regulator. What volume of applications does she expect, especially under Amendment No. 51? Given retrospection and the six-year limit in particular, an awful lot of people will want clearance for their dividends and other transactions, let alone where there has been some extraordinary recapitalisation or takeover by a venture capital or development capital company. Anyone within the range of financial difficulties if he admits the whole of his Section 75 deficits will worry about those clauses. I should have thought that there will be thousands and thousands of applications hitting the regulator's desk on day one. How on earth will he deal with them?

Secondly, where will investors find themselves? In the Government's opinion, after the amendments, are we still in the position where an investor who has put money into a company in difficulties, say, can find the whole of his wealth swallowed up by a pension fund of that company if that company goes wrong? The noble Baroness has at least given us comfort that the investor's other investments will not suffer. I suppose that that is something, but it is not exactly going to attract people to help out troubled companies if the whole of their wealth, not just the money that they put into the company, can disappear.

Thirdly, can the noble Baroness illustrate how the clearance procedures will work? From these and other documents that I have seen, I do not have a feeling of what a clearance statement will look like. What sort of assurance will it give to someone who receives one? How is paragraph (5) of Amendment No. 51 to operate where it says, "You have got a clearance statement, but we might change it later"? Perhaps the noble Baroness could give an example of what we are considering as a clearance statement. I do not have any problem with it not being in the Bill, but I should like to know what sort of thing is envisaged. Will it be absolutely clear, absolute and self-contained or will it be much fuzzier? What powers does the regulator have to include whatever he wants in clearance statements?

There is no great description of what those statements can contain. Are there limitations? Can he reach any agreement that he wants with the person to whom he gives the statement? Can he do any deal and issue a clearance statement on the basis of it, or is it quite a limited concept that must be operated along strict guidelines? I should be grateful for some elucidation of that.

Baroness Hollis of Heigham

My Lords, first, I am grateful for the general welcome to the Government's approach, and especially the comments of the noble Lords, Lord Oakeshott and Lord Hunt, acknowledging how far all parties involved have been able to create a consensus on many of these issues. The noble Lord, Lord Higgins, cited the National Association of Pension Funds, but the noble Lord, Lord Oakeshott, responded to that point, so I will not take its concerns further. All I would do is continue to invite NAPF to engage fully in the consultation process with government, in the way that other organisations have done. I am sure that we would all benefit from that.

The noble Lord, Lord Higgins, asked me about the words, "good faith". He is of course right, but they are used about 700 times in legislation, I am assured—the wonders of computers. Therefore, rather like "knowingly", "recklessly", and so on, those phrases have a well established understanding. He said that he was worried about personal liability and I accept that. That was one of the themes in our discussion in Committee: the degree of exposure that individuals might have. That was picked up by the noble Lord, Lord Lucas. I think that your Lordships accept that I tried to make clear that investment in other companies was not regarded as being connected for these purposes just because it was one person putting money into separate companies. In that sense, as the noble Lord, Lord Lucas, said, they do not end up being bankrupted.

However, in terms of individuals, we specifically asked during the summer consultation what views there were about individuals' liability for contribution notices and there was general agreement with the Government's approach, as can be seen on page 47 of our report. That is because, to be issued with a contribution notice—as opposed to a financial support directive—an individual must be a party to, or knowingly assist in, the act or failure, and the regulator must consider whether it is reasonable to issue a notice. When considering whether it is reasonable, the regulator will consider the individual's involvement in the act and the person's relationship with the employer and the pension scheme. That means that anyone on the periphery, such as the secretary and so on, is not caught.

4.30 p.m.

That is the context in which we discussed our approach with industry. I understand that they were more than satisfied with the Government's approach. If it would help noble Lords to have other personal liability issues dealt with on the record in Hansard, either now or at Third Reading, I would be grateful if they would write to me. I would then make an effort to put the appropriate assurances into Hansard, if that should prove a comfort.

The noble Lord, Lord Oakeshott, broadly welcomed the package, although obviously he has concerns about some of the individual elements, as does the noble Lord, Lord Hunt—we shall come back to those. The noble Lord, Lord Lucas, said that he was worried about whether we went far enough and talked about inflexibility. Our problem is that, genuinely, the document that has come before noble Lords is the result of consensus, as far as we could build it, around where most of industry cohered. In some cases, individual organisations may disagree or have a more narrowly focused concern, and we may not have been fully able to satisfy them. If there are new arguments, piec[...]s of evidence or considerations that have not so far been expressed or heard, I would be very happy to take them away and ask my officials to consider them.

The amendments that we have tabled today are not the end of the story. I was at pains to emphasise that a lot of the guidance associated with the clearance scheme will come out of discussion with the industry. The efore, I cannot describe the process as fully as I would wish, before industry has described to us how it would like to see the process work.

We do not yet know what the volume of applications will be. We have asked our consultees to consider the matter. They are working with us and will try to estimate the volume, after which we will be able to see whether we have an appropriate match of resources. It is obviously an apt question, because speed will be of the essence in some cases and inadequate resources could create delays. We have yet to identify likely volumes; we need industry's help on that.

Lord Higgins

My Lords, the level of resources is absolutely crucial to the clearance procedure. As the noble Baroness rightly points out, time may be of the essence in a deal. Is there any way of ensuring that, if there are delays beyond a certain point in reaching decisions, the resources will—I was going to add "automatically" but that is not possible—be increased? If the clearance procedure is to be anything other than mere window-dressing and if it is to be so effective as to prevent serious commercial problems arising, the resources must be there to deal with the process expeditiously.

Baroness Hollis of Heigham

My Lords, I do not dissent at all from that; the noble Lord is exactly right. That is why we are working with industry. None of us is very sure yet what the volume will be—whether there will be thousands and thousands, as the noble Lord, Lord Lucas, anticipated, or a much smaller proportion. When we obtain an estimate from industry of the likely volume, whether or not that happens before the Bill is complete, I will be very happy to write to the noble Lord, Lord Higgins, and other noble Lords on the resource implications and to seek to give him the assurance he wants. First, we must get some sense of the scale and the capacity of the regulator to build up resources over time, should he need to do so.

Staying with the three questions that the noble Lord, Lord Lucas, asked, individual investors cannot be issued a financial support directive; they can be issued only a contribution notice, the protection of which I have already described. They can get a contribution notice only if they are party to the act one of the main purposes of which is to avoid pensions liability. So there would be a high hurdle for the regulator to clear before a contribution notice could be exercised.

We will issue guidance on how the clearance system will operate. It will set out what should, if possible, be included in the application, depending on the act and type of clearance sought. I was asked to give an example. An application for a clearance statement to confirm that the applicant was not a party to an act with the main purpose of preventing the recovery of pension liabilities would require different information compared to an application that it would not be reasonable to issue a contribution notice—for example, if the action is taken to save jobs. The regulator must consider that as soon as is reasonably practicable. The application for a clearance statement will be dealt with under a standard procedure, as dealt with in Amendment Nos. 111 and 112. Refusal of a clearance statement will be referable to the Pensions Regulator tribunal, as dealt with in Amendment No. 114.

I have enlarged on my opening remarks, which may help noble Lords. Beyond that, all I can say is that there is no way that my department will pursue the matter without the full and active co-operation, information and expertise of the interested parties. As their views become clear and as I receive information that I can bring to the House, I assure noble Lords that we will do so. It may take a while but, as the noble Lord, Lord Hunt, was kind enough to say, our approach is non-partisan and constructive. We seek to tap the expertise that is out there, which, I hope, will enrich our proceedings. I would be grateful if noble Lords would accept the amendments.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No.6:

Page 269, line 32, at end insert—

"() the power to issue a clearance statement under section (Financial support directions: clearance statements);"

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No.7:

Page 269, line 32, at end insert—

"() the power to make an order under section 152(8); () the power to make an order under section 217(4);"

The noble Baroness said: My Lords, in moving this amendment, I shall speak also to Amendments Nos. 11, 13 to 24, 94, 97, 98, 113, 117 to 120 and 231. This is a fairly large group of amendments, each of which makes a minor, technical change to the Bill. Many of the amendments are consequential on amendments or new clauses introduced in Grand Committee. For example, Amendments Nos.13 to 23 update Clauses 24 and 31, which refer to the regulator's freezing powers in line with the new definition of "scheme rules" in Clause 316. Amendment Nos. 113, 117 and 11 are just the provisions relating to the regulatory decision-making procedures of the regulator to take account of powers now conferred on the regulator by Clauses 152(8), 217(4) and 290.

In the interests of the more urgent issues that we must consider this afternoon, I shall not speak to each individual amendment in this group unless noble Lords would prefer me to do so. I can assure them that they are minor, technical and largely consequential. I hope that, on the basis of that, noble Lords will accept the amendments. I beg to move.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 8:

Page 270, line 44, leave out from "for" to end of line 1 on page 271 and insert"—

1. (a) the modification of an occupational pension scheme under section 69 of the Pensions Act 1995 (c.26) or under any corresponding provision in force in Northern Ireland, or
2. (b) the issuing of a clearance statement under section (Section 39 contribution notices: clearance statements) or (Financial support directions: clearance statements) or under any corresponding provision in force in Northern Ireland."

On Question, amendment agreed to.

Clause 4 [Regulator's functions]:

Lord Skelmersdale moved Amendment No. 9:

Page 2, line 43, at end insert—

"() In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must act in a way—

1. (a) which is compatible with its objectives under section 5, and
2. (b) which is appropriate for the purpose of meeting those objectives.

() In discharging its functions the Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) must have regard to—

1. (a) the need to use its resources in the most efficient and economic way,
2. (b) the principle that a burden or restriction which is imposed should be proportionate to the benefits, considered in general terms, which are expected to result from the imposition of that burden or restriction,
3. (c) the need to minimise any adverse effects that may arise from anything done in the discharge of those functions, and
4. (d) the interests of all persons who may be affected (including members, employers and others with an interest in, or an obligation in respect of, the scheme concerned).

() The Regulator (and, where relevant, the Non-Executive Committee and the Determinations Panel) shall have regard to the need for openness regarding its activities and shall consult with interested persons and their representative bodies when developing policies, procedures and practices."

The noble Lord said: My Lords, this amendment is identical to one moved in Grand Committee by my noble friend Lord Higgins. We make no apology for tabling it again, as it found universal approval. At that time, the Minister said: The amendment seeks to make the regulator more accountable in its policies, procedures and practices. It also aims to ensure that the duties and functions of the regulator discharged to the non-executive committee and the Determinations Panel meet the regulator's objectives specified in Clause 5".—[Official Report, 6/7/04; GC 141.] That is our intention. The Minister felt, however, that the amendment was unnecessary. If, as the Minister said, the amendment is unnecessary, why did the Government feel the need to put an almost identical form of words into one of their Acts of Parliament—the Financial Services and Markets Act 2000—which, as my noble friend Lady Noakes knows better than I, created an earlier register?

The Financial Services Authority also had statutory objectives set out in that Act. Parliament, well after the Act setting up OPRA, felt it necessary not just to set statutory objectives but to specify a set of principles that the regulator must follow in doing its work. That must have been seen as part of the accountability framework. Why do not the same arguments hold good for the Pensions Regulator? I beg to move.

Baroness Hollis of Heigham

My Lords, the amendment would set a statutory framework for the way in which the regulator, including its non-executive committee and the Determinations Panel discharged its functions. It is a duplicate of an amendment that the noble Lord tabled in Grand Committee. At the time, the noble Lord said, on withdrawing the amendment, that he should table a more specific amendment on Report. I regret to say that he has not done so. I was not unsympathetic to the broad aims of the amendment, but we needed something tighter to get to grips with.

We all agree that the regulator should act in an open, efficient and economic way. The noble Lord will not misunderstand me if I tease him and say that that is sort of apple pie-ish. Obviously, that is right. The amendment, however, is unnecessary and could create legal ambiguity.

The first part of the amendment refers to the regulator's objectives set out in Clause 5. That clause already requires the regulator to act in accordance with its statutory objectives, which may be summarised as protecting the benefits of members of OP schemes; protecting the benefits of members of work-based personal pension schemes; reducing the risk of situations arising that may lead to compensation being payable from the PPF; and promoting and improving understanding of the good administration of work-based pension schemes. Given that, I cannot see what the first subsection of the noble Lord's amendment would bring in addition to what is already there.

The next part of the amendment would require the regulator to act in an efficient and proportionate manner; to minimise any adverse effects; to consider the interests of all persons affected by its activities; and to have regard to openness, including the use of consultation. Given the consultation processes that we have been through this summer, I hope that the noble Lord will not challenge us on that front. I should say that, at any rate, general administrative law principles will apply to the regulator. That means that, at all times and in everything that it does, the regulator must act fairly, reasonably and properly, which implies having due regard to efficiency and economy. These not only encompass the broad intention of the noble Lord's amendment but go even wider.

In addition, the Bill makes further provision to ensure that the regulator will be accountable for its use of resources—for example, through published accounts, audits and annual reports to the Secretary of State, which will be laid before both Houses of Parliament. The regulator will also hold a great deal of information about individuals, schemes and employers. Some of it will be sensitive, which is why we, rightly pressed by the noble Lord, Lord Higgins, in particular, have made specific and detailed provision for the regulator's use of information. It would be entirely inappropriate to require the regulator to be as open with that information, which may relate to tax records and so on, as the noble Lord's amendment would necessitate.

The regulator also already has a duty to consider the wider interests of members and anyone directly affected by its exercise of regulatory functions. That is provided by Clause 98. Again, I do not see what the noble Lord's amendment brings in addition to that clause alongside those relating to its decision-making procedures and the tribunal.

I turn to the final part of the amendment, and I understand the noble Lord's comments about consultation. I have given full commitments. I can think of no point in our 11 days in Committee at which I have not sought to respond positively to and honour a request for consultation. I have tried continually to emphasise that the regulator will consult when appropriate, for example, on codes of practice, all of which must be drafted and consulted on before they are sent out, as well as the moral hazard clearance procedures. However, my legal advice is that this part of the amendment could tie the regulator to a potentially hazardous degree.

If the regulator becomes too close to those whom it is supposed to regulate, it will, over time, become dominated by them. We are anxious that the regulator, while having full consultation with organisations, as it should, does not enter into too cosy a relationship with industry and other group representatives, rather than maintaining the appropriate authority, which will allow it to balance the interests of all affected groups. We should remember that, in some cases, such groups may be strongly opposed to each other. The regulator's position would be invidious if it were believed to be too close to a particular group. Of course, the regulator will consult when it is appropriate to do so. I hope that the noble Lord will accept that.

The noble Lord drew on the example of the FSA and asked why, if the FSA had a statutory duty to use its resources efficiently, did such a duty not apply here? Unlike the regulator, which is an NDPB, the FSA is a non-governmental body and a company limited by guarantee. That being so, the general administrative law principles to which I referred do not apply to the FSA. That is why it is appropriate for the FSA to be under a statutory duty to use its resources efficiently. I hope that the noble Lord, Lord Skelmersdale, will accept that there is a distinction between the bodies and that that is why the clause is framed as it is.

4.45 p.m.

Lord Skelmersdale

My Lords, I am grateful to the noble Baroness for that full answer. However, as I said, I make no apology for having tabled the amendment, even if the noble Baroness thinks that the first part of it was "apple pie". She will remember the first part of that quotation—"motherhood"—so it is appropriate that she should have used the expression or half of it.

I agree that the Bill has been the most consulted-on of any in my considerable time in your Lordships' House. I am grateful to the Minister for repeating the fact that consultation has not now come to a grinding halt. In some of her earlier remarks, she gave the impression—to me, anyway—that it might have. I am delighted to be disabused.

I also take the point about the difference between a company limited by guarantee and a non-departmental body. However, there is no reason why such a non-departmental body should not be bound by the principles of efficiency and openness, including the financial side.

I shall look further into the matter. As usual, I hope that I will not have to bring it back, but I am afraid that I can make no promises on that score. Having said all that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 6 [Supplementary powers]:

Lord Skelmersdale moved Amendment No. 10:

Page 3, line 27, after "anything" insert "of an administrative nature"

The noble Lord said: My Lords, the Minister said to me several times in Committee that, if outside bodies agreed with my amendments, she would think seriously about accepting them. If she can tease me on the last amendment, I can tease her back on this one.

This amendment comes from just such a body. I can give the Minister the comfort of knowing that, at this stage, it is a probing amendment. Like my noble friend Lord Higgins, I regret the fact that it should still be necessary to table probing amendments on Report, after almost four months.

Be that as it may, Clauses 4 and 5 set out the regulator's functions and objectives. Clause 6, to which the amendment relates, refers to supplementary powers. Clause 6 provides that the regulator can do anything, other than borrow money, that is, calculated to facilitate the exercise of its functions, or is incidental or conducive to their exercise". The powers are very wide-ranging, so wide-ranging that I would like to know what is envisaged. What kind of action would be regarded as being "conducive" or "incidental" to the exercise of the regulator's powers?

The examples given in the Explanatory Notes suggest that the supplementary powers referred to in the clause will be of an administrative nature. The Explanatory Notes state: This power enables the Regulator to, for example, lease office space, print stationery, etc. In other words, they are administrative.

Potentially, the powers could go very much wider than that. I am therefore trying to find out from the Minister exactly how far they go. I beg to move.

Baroness Hollis of Heigham

My Lords, I understand the noble Lord's concern. I hope that once I have given the explanation he will be content. Clause 6 allows the regulator to do anything which is calculated to facilitate the exercise of its functions or is incidental or conducive 10 their exercise, as quoted by the noble Lord. The express exception is that the regulator may not borrow money.

The provision of such supplementary powers is quite usual when a non-departmental public body (NDPB) is created; for example, under the Pensions Act 1995, OPRA has similar powers. However, I know that that argument is not sufficient.

Any NDPB may exercise only those powers and functions that are conferred on it by governing legislation. The powers provided by Clause 6 enable the regulator to undertake such supplementary powers as are necessary to exercise its statutory functions efficiently and effectively.

However, such activities are not purely administrative in nature. For example, the making of contracts is a common-law power. Clause 6, as currently drafted, enables the regulator to exercise such powers. By restricting the scope of Clause 6 only to those functions of an administrative nature, the regulator would be unable to enter into any contracts.

That means, for example, that the regulator would be unable to lease office space or enter into any supply contracts, such as with stationery suppliers or cleaning contractors. It would therefore somewhat circumscribe—I think one could say—his activity. I am sure that that is not what is intended by the noble Lord.

However, perhaps I may reassure the noble Lord that this clause does not give the regulator any unfettered or unnecessarily wide powers. The power is limited to those functions or tasks that are calculated to assist or facilitate the regulator in the exercise of its statutory functions and so on. There are no additional regulatory powers and it has no power to change any such powers beyond what the Bill already provides.

Given our previous discussion, the regulator is also subject to any overriding provisions to act fairly, efficiently, with propriety and to ensure value for money in the use of public funds, which includes its exercise of any supplementary power.

The noble Lord has already said that this is a probing amendment, and I am glad to put this on the record. If we were to limit the clause in the way that the amendment suggests, it would mean that the regulator, as I explained in one example, could not undertake any contract. That would eviscerate his activity entirely. With that explanation, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Skelmersdale

My Lords, unlike the last time, I am totally convinced by that argument. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 2 [The reserved regulatory functions]:

Baroness Hollis of Heigham moved Amendment No. 11:

Page 276, line 29, at end insert—

"The power to issue a ring-fencing notice under section 290."

On Question, amendment agreed to.

Clause 21 [Pension liberation: restraining orders]:

Baroness Hollis of Heigham moved Amendment No.12:

Page 14, line 38, at end insert "or by this section"

The noble Baroness said: My Lords, this is a technical amendment to one of the clauses introduced in Grand Committee to arm the Pensions Regulator with the necessary powers successfully to combat the illegal activities of pension liberation schemes, which I think came as a shock to quite a number of us, including me. I remember the speeches of noble friends on that very well.

Clause 21 provides the Pensions Regulator with a power to make a restraining order in relation to a bank account where it is satisfied that the account contains money that has been liberated from a pension scheme and that the account is held by or on behalf of the liberator.

The effect of a restraining order is that nothing can be put into and nothing can be withdrawn from the restrained amount during the period that the order is in place. Subsection (6) provides that a restraining order can be extended by an "extension order". Subsection (9) provides that where a restraining order has effect, the deposit taker must return to the payer any money credited to the restrained account in breach of the order.

The amendment expands the scope of Clause 21(11) to make it clear that a breach of any of the provisions in Clause 21, entitled, "Pension liberation: restraining orders", as well as a breach of an obligation imposed by a restraining order could lead to the imposition of a sanction under Section 10 of the Pensions Act 1995, entitled, "Civil penalties". I ask your Lordships to accept the amendment.

Perhaps I may make one final quick point. When we discussed restitution orders in Grand Committee on 8 July—at Hansard, col. GC 178—I said I understood that individuals could apply for restitution orders under the existing provisions of the Crown Proceedings Act, but that I wanted to check on it.

In the event, I found that that was not correct. I wrote to Members of the Committee—all of those present I hope today—accordingly on 21 July. I explained that the regulator can apply for restitution orders under Clause 20, although individuals can approach the regulator to do so on their behalf. I would not normally detain the House by repeating something that I immediately corrected in correspondence. But I have been asked to do so in order that the position is unambiguous and is available in Hansard. With that slight digression, I hope that your Lordships will accept government Amendment No. 12. I beg to move.

On Question, amendment agreed to.

Clause 24 [Freezing orders]:

Baroness Hollis of Heigham moved Amendments Nos. 13 to 20:

Page 16, line 36, after "scheme" insert "rules"

Page 17, line 8, at end insert "rules"

Page 17, line 10, after "scheme" insert "rules"

Page 17, line 16, after first "scheme" insert "rules"

Page 17, line 25, leave out "under" and insert "towards"

Page 17, line 28, leave out "under" and insert "towards"

Page 17, line 44, after "scheme" insert "rules"

Page 17, line 48, leave out subsection (8).

On Question, amendments agreed to.

Clause 31 [Power to give a direction where freezing order ceases to have effect]:

Baroness Hollis of Heigham moved Amendments Nos. 21 to 23:

Page 21, line 25, after "scheme" insert "rules"

Page 21, line 28, at end insert "rules"

Page 21, line 40, after "scheme" insert "rules"

On Question, amendments agreed to.

Clause 35 [Suspension orders]:

Baroness Hollis of Heigham moved Amendment No. 24:

Page 24, line 18, leave out ""effect"" and insert ""have effect""

On Question, amendment agreed to.

Clause 39 [Contribution notices where avoidance of employer debt]:

Baroness Hollis of Heigham moved Amendment No. 25:

Page 28, line 17, after "employer," insert—

() the Regulator is of the opinion that the person, in being a party to the act or failure, was not acting in accordance with his functions as an insolvency practitioner in relation to another person,"

The noble Baroness said: My Lords, I shall speak to government Amendment No. 25, which is aligned with opposition Amendment No. 26—an amendment to the government amendment. The government amendments that we have laid after consultation provide that the regulator may not issue a contribution notice to an insolvency practitioner if he is acting in accordance with his functions. Functions is defined by reference to Section 388 of the Insolvency Act 1986.

We have consulted closely with the Insolvency Service on this amendment, which is clear that there are occasions when an insolvency practitioner may not be acting in accordance with his functions. We therefore have to allow the regulator to decide if the act of the insolvency practitioner is in accordance with those functions; for example, an administrator has a wide range of functions—everything from continuing the business to the power to transfer to subsidiaries of the company the whole or any part of the business and property of the company.

For example, in the case of a company group, rather than seeking to keep the whole group as a going concern, the administrator could use his powers to wind up the company with the pension scheme attached but—this is an absurd example, but I shall give it—sells the remainder of the group to his brother-in-law at a much reduced price. I think that your Lordships will agree that this is unlikely to be acting in accordance with his functions as he would not be acting in the best interests of all the creditors.

When making that decision, the regulator will be taking advice—both legal and from insolvency practitioners—and the insolvency practitioner in question will be able to make representations about why he is acting in accordance with his functions and not going beyond them.

Of course, the regulator will also take into account any professional guidance to insolvency practitioners. Indeed, a further safeguard is that if the practitioner in question chose he could seek a review of the regulator's decision by the Pensions Regulator Tribunal.

As I say, we have had support from the Insolvency Service. As far as I am aware—I checked this morning—we have had no comments, criticisms or worries expressed from any quarter on this government amendment. I am not sure what the noble Lord's anxieties are; I am sure that he will explain them fully to the House. But I hope that, with the words about where the Government are coming from, the noble Lord feels that some of his concerns have been addressed in my opening remarks. I beg to move.

5 p.m.

Lord Higgins moved, as an amendment to government Amendment No. 25, Amendment No. 26:

Line 2, leave out "the Regulator is of the opinion that"

The noble Lord said: My Lords, this amendment is tabled in my name and that of my noble friend Lord Skelmersdale. I understand the reason for the government amendment, but it does not seem satisfactory. This is the first of the government amendments to which we have tabled an amendment in order to improve it.

I am slightly surprised to learn that the noble Baroness has not had any representations on this because I was under the impression that she had. However, in our amendment we seek to delete the words, the Regulator is of the opinion that", in the government amendment because in our view it seems unlikely that insolvency practitioners will derive sufficient comfort from the provision and be satisfied that they are not at risk of attack while exercising their duties. The crucial point is that insolvency practitioners are already subject to judicial supervision, but here the Government are now adding what is in effect a further regulatory layer.

In general, the only way in which an individual's opinion, in this case that of the regulator, may be challenged in court is by successfully contending that the opinion is so unreasonable that no reasonable individual would have adopted it. The regulator, in being given his opinion, is thus given an extremely wide latitude of decision by which the insolvency practitioner would be bound. If the clause is adopted in its current form, the result will be that in the future insolvency practitioners will need to look over their shoulders for fear of finding themselves the subject of a contribution notice from the regulator, who happens to be of a particular opinion. If a defined benefit scheme is at issue, this has the potential to make it unsafe for insolvency practitioners to act in the insolvency process and therefore they may be unwilling to take on such a job.

As I have pointed out, insolvency practitioners are already subject to judicial oversight and therefore it ought to be sufficient for the regulator to challenge the decisions of insolvency practitioners in court rather than be both prosecutor and judge in his own right. There is a case for removing this discretion, given that if the regulator does have an opinion on the matter he can test it in court. Otherwise it seems that a deterrent would operate for any insolvency practitioner taking on a particular job if suddenly he found that the opinion of the regulator went against him. However, he would be able to attack that opinion only on the basis of it being unreasonable which, for the reasons I have mentioned, would be unlikely to succeed.

We think that our amendment would be an improvement to the Bill. Given the normally sympathetic approach of the noble Baroness, I should have thought that she would be able to accept our amendment, in which case we shall be able to accept her government amendment. I beg to move.

Baroness Hollis of Heigham

My Lords, I do not think that there is any dispute between us, but very occasionally there are errant insolvency practitioners. I have cases in which practitioners have been involved in certain profoundly improper practices. We do not expect this to arise very often, if at all, on the grounds that the professional body will seek to regulate and that normally, in the event of insolvency, the PPF would be a creditor to the arrangements.

However, the noble Lord pressed me on why the regulator's opinion is required as opposed to simply leaving it to the court to determine whether the insolvency practitioner had acted improperly. The court would not be considering whether to issue a contribution notice because that is the regulator's job. Therefore, it is the responsibility of the regulator to determine whether, in certain very rare cases, an insolvency practitioner had gone improperly beyond his professional functions. He may have done so possibly for personal gain and advantage; indeed, I have cases in my file where that has happened. This is not a territory for the court, rather it is for the regulator to determine a contributions notice.

I have to say that the Insolvency Service, which regulates insolvency practitioners, is happy with the provision. I repeat that, as of this morning, I have received no representations from any quarter either about the Government's approach or that the responsibility devolving on to the regulator is inappropriate. If the noble Lord has evidence to that effect or wishes to bring forward individuals to discuss the matter, I shall be perfectly happy to see whether there are any concerns or worries which have not been addressed. However, I have not had them, my officials have not had them and the Insolvency Service has not had them.

The noble Lord suggested that the court could regulate, but it would not be appropriate for the court to do so for the reasons I have advanced in evidence. The regulator has to make a judgment call on whether to exercise a contribution notice. He must judge whether, on certain very rare occasions, an insolvency practitioner has trespassed beyond his proper professional functions.

In view of my explanation, coupled with an invitation to consider coming back to me if he has any evidence that we have obviously overlooked or not considered, I hope that the noble Lord will feel able to withdraw his amendment and to accept the government amendment as it stands.

Lord Oakeshott of Seagrove Bay

My Lords, I gather that I am allowed to intervene briefly. Before the noble Baroness sits down, perhaps she will allow me to say that I find her answer persuasive.

Lord Higgins

My Lords, despite that intervention, I am afraid that I do not. The problem is that if the regulator really thinks that something improper has been done, surely it is more appropriate for him to go to the courts rather than simply to issue a contribution notice. In that case, unless the person affected can demonstrate that the regulator is being totally unreasonable in the way I described earlier, he has no redress at all. That seems pretty unfair.

Baroness Hollis of Heigham

My Lords, I do not think that that is quite the case. Perhaps I was speaking too quickly, but I had hoped to establish that if the insolvency practitioner believes that the regulator is acting inappropriately in exercising his judgment, he may seek a review of the decision by making an approach to the Pensions Regulator Tribunal. However, in some cases speed can be of the essence, as noble Lords observed earlier.

Lord Higgins

My Lords, I understand the point, but I am not sure whether it is true in this case. In what sense would speed be of the essence regarding the matter now under discussion?

We have a problem in that we are at the Report stage and we did not have these representations during our deliberations in Committee. However, I repeat that I am not sure why time would be of the essence in such a case. Looking at the matter again, I am also rather puzzled by the way in which the Government have drafted their amendment. Subsection (3)(a) states that: The Regulator may issue a contribution notice to a person only if— (a) the Regulator is of the opinion that the person was a party to an act", and so forth. The expression, "the Regulator is of the opinion" turns up again in subsection (3)(b)(ii). Why does he have to have an opinion twice? I am not at all clear why that is so. This is rather unsatisfactory at Report stage because, unlike the noble Lord, Lord Oakeshott, I am not persuaded by the argument. Perhaps all we can do is come back to this at Third Reading. That may be an indication of how unsatisfactory it is when points arise this late in our deliberations.

Baroness Hollis of Heigham

My Lords, I wonder if I can help the noble Lord a little more. He is obviously concerned about this, but I have to say that I do not share his concern. The regulator cannot go to court; he can consider only whether to issue a contribution notice. We have made it clear that insolvency practitioners are exempt from any liability for contributions provided that they exercise their functions in a professional way. This comes into play only where they do not exercise their functions in a professional way by, say, defrauding the fund.

I regret to say that I have three or four cases in my files which outline how there have been bad apples among insolvency practitioners. In such cases, the regulator may wish to include them in a contribution notice. The courts cannot issue that contribution notice. The regulator cannot go to the courts for it. It may be important to get additional resources into the scheme, which is why I said that speed could be of the essence, although not invariably. A court hearing may take six months, a year or two years. What happens in the mean time: does one freeze the scheme? I find that difficult to handle.

There is a recourse—quite rightly. Any insolvency practitioner who feels that the regulator is exercising his judgment improperly can to go to the tribunal. Given all of that, I am perfectly happy to write to the noble Lord rather more fully with background papers from the Insolvency Service and see whether those allay his concerns. If they do not, he may wish to return to the matter at Third Reading.

Lord Higgins

My Lords, I am grateful for that statement. However, if I withdraw my amendment and accept the Government's amendment, I would not wish that to be regarded as ruling out returning to the matter at a later stage in any way. I beg leave to withdraw the amendment.

Amendment No. 26, as an amendment to Amendment No. 25, by leave, withdrawn.

On Question, Amendment No. 25 agreed to.

Lord Lucas moved Amendment No.27:

Page 28, line 19, at end insert ", and

() the person is not an individual, or knew or should have known that the act or failure fell within this section"

The noble Lord said: My question for the noble Baroness is this: with the Bill as amended are there people who could potentially be subject to a contribution notice who are essentially innocent bystanders? They may be people who are involved just because of the process involved but who do not have actual executive responsibility. They may have to do something to make the process happen but they are not actually the sort of people who should be asked a question. Whether a particular act looked at in retrospect actually contributes to taking money out of the hands of pensioners can be an obscure question in some circumstances.

I agree with the main scope of this clause, but in its breadth it could potentially make liable people who, through playing a part in accordance with their ordinary employment, sign or facilitate the drawing up of a document or take part in the distribution of a dividend or whatever it might be but are not actually involved in having responsibility for it. I beg to move.

5.15 p.m.

Baroness Hollis of Heigham

My Lords, the answer to the question asked by noble Lord, Lord Lucas, about whether an "innocent bystander" could be involved is no, they could not. When considering whether it is reasonable, the regulator will consider the individual's involvement in the act and the relationship the person has with the employer and the pension scheme. That means that those employees who have no control over the employer or what is done and are peripheral to the act—the noble Lord's innocent bystanders, such as a secretary typing the letter—will not be issued with a contribution notice.

Having removed individuals there is a further and second limitation of the amendment in that the person must know or should have known that the act fell within this section. We have already shown that in order to exercise his powers the regulator must show that the person was a party to the act, and that the act, for example, prevented recovery of the whole or part of the Section 75 debt, and consider it reasonable to issue the notice as I have already described.

The basic answer to the noble Lord's question of whether innocent bystanders could be caught in this clause is "no".

Lord Lucas

My Lords, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 28:

Page 28, line 19, at end insert ", and

() the person was neither a turnaround professional nor a person failing within section 39(14) at the relevant time"

The noble Lord said: In moving Amendment No. 28, I shall also speak to Amendments Nos. 40, 48 and 49.

I hope that this is an illustration of how Amendment No. 29 will be used in practice. It is obviously impractical to insert these amendments into the Bill as they are drafted. They merely serve to illustrate the complexity of what has to be done. However, I hope that they also illustrate to the noble Baroness the requirement that these things must, in some way or another, be achieved.

There is a very fine body of men and, to some extent, women who are involved in rescuing companies. We occasionally see them on television giving chief executives a hard time. We all wonder how companies can be run with such inadequacy of management and strategy. However, that happens a good deal of the time and it is very much in the interests of the employees and others involved in the business that these companies are rescued. It is a dangerous business. These people often risk their own assets. They certainly put a great deal of time and expertise into their work and the company may well be in a parlous financial position. It is desirable that these people should be able to continue to operate. I hope that the noble Baroness will take these amendments as an illustration of what I hope Amendment No. 29 will be used for and that she will be able to give me comfort that it will be the Government's intention to use that amendment in just that way. I beg to move.

Baroness Hollis of Heigham

Yes, my Lords. Again, as a direct response to the question asked by the noble Lord, Lord Lucas, the amendment, which relates to the power by regulation to exclude other bodies, may well be used in that way if the Society of Turnaround Professionals is persuasive of that activity. I have no reason to think that it may not be. The professionals have participated fully in the consultation process and their views have been extremely valuable. I hope that they will continue to work with us on the clearance procedure.

The reason that those professionals are not included in the Bill as it currently stands is that they are not, like insolvency practitioners, a statutory regulated body, professional though they are. They do not have statutory functions as insolvency practitioners do. They may be company chairmen or chief executives or have other different skills. With the amendment, we wish to leave the door open to excluding them and other groups. That is why we have taken powers to stop the regulator from issuing a contribution notice in such circumstances as may be prescribed.

The message to the society is to continue to work with us. If as a result of that we believe that it should be expressly excluded, we have the powers to do so. That is one of the reasons why, as the noble Lord, Lord Lucas, suspected, the amendment is there. I understand that the society finds that position acceptable. In the light of those assurances and our appreciation of the work done in our consultation exercise, I hope that the noble Lord will be able to withdraw his amendments.

Lord Lucas

My Lords, indeed. I would like to return the compliment by saying that the Society of Turnaround Professionals has been delighted by the helpful responses received from the DWP at every stage. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 29:

Page 28, line 19, at end insert—

() But the Regulator may not issue a contribution notice, in such circumstances as may be prescribed, to a person of a prescribed description."

The noble Baroness said: My Lords, I spoke to this amendment in the most headline terms possible when we originally discussed Amendment No. 5 and the amendments grouped with it. I will move the government amendment and then invite the noble Lord, Lord Higgins—who sought to amend the government amendment—to speak. I shall then return to the matter. I beg to move.

Lord Higgins moved, as an amendment to Amendment No. 29, Amendment No.30:

Line 2, after "notice" insert "either—

1. (a) if a court order sanctioning the act or failure has been obtained; or
2. (b) "

The noble Lord said: the effect of the amendment would be for the clause to read: But the Regulator may not issue a contribution notice either—if a court order sanctioning the act or failure has been obtained; or in such circumstances as may be prescribed, to a person of a prescribed description". Currently, it remains possible under the Bill for trustees of the pension scheme and the employer to "compromise", which is the technical expression, a contingent or actual debt on the employer arising from the operation of Section 5 of the Pensions Act 1995. In the jargon that is known as a Bradstock compromise.

Indeed, government Amendment No. 16 specifically contemplates such compromises continuing to be possible providing they are entered into in good faith, whatever that means. We discussed that matter earlier. But if that is so, the Government are happy that it continues.

In many cases, the trustees of a scheme would seek the court's sanction of a Bradstock compromise for their own protection. That may become even more common in future, given the Government's intention of excluding schemes that have entered into a Bradstock compromise from the protection of the Pension Protection Fund. None the less, the trustees may still regard a Bradstock compromise as desirable for reasons of, for example, the prospect of continued employment for the members, as a result of reaching the compromise.

As the clause currently stands, with the government amendments, it is possible for the regulator to overrule a decision of the court by imposing further liability on those involved. Although employers may clear a proposed Bradstock compromise in advance with the regulator, in effect that leaves the employer with the necessity of clearing it with one authority while the trustees may need to clear it with the court, for reasons that I have just set out. There is a double-barrelled effect here which, on balance, seems undesirable.

Although employers may clear a proposed Bradstock agreement in advance with the regulator, the trustees are in a somewhat different position. It is obviously undesirable if, in complicated financial circumstances, the employers go down one route to try to sort out the problem and try to prevent the thing going bust and people losing their jobs, while the trustees have to go through what is obviously a more lengthy process. It would seem better if, instead of going down both those routes, the situation were dealt with in a single hearing for all parties. If the regulator does not give sanction to a scheme, the most appropriate forum would seem to be the court.

Instead of having two separate routes for the employer and the trustees, it would be better to have a single arrangement. That is what we are seeking to do in the light of the Government's amendment, which is otherwise a hopeful one. Although I have talked largely of the Bradstock compromise, it would be appropriate in a wider sense, when an act or failure has the court's sanction, that the regulator should be precluded from double-banking it by issuing a notice. So, by and large, we believe that our amendment would improve the Government's amendment. Their amendment goes some way to meet the points made in Committee, but there is a case for simplifying the procedure—not least because, as the Minister said, if a court case is needed as well as another procedure, the whole process may collapse because it has run out of time. I beg to move.

Baroness Hollis of Heigham

My Lords, Amendment No. 30 would introduce a new exclusion to the scope of contribution notices, that the regulator may not issue a contribution notice to a person if the act or failure which prevented the recovery of a Section 75 debt or reduced the amount of that debt, was ratified by the court.

If an act or failure was sanctioned by the court, the regulator would have to take that into consideration when deciding if it was reasonable to issue a contribution notice. For example, in the case of compromise agreements, we would expect the regulator's guidance to provide that compromise agreements sanctioned by the court would mean that those agreements were in good faith and would therefore not fall foul of clause 39(4)(a)(ii). The employer may choose to seek clearance from the regulator—which is precisely what we would encourage him to do—to avoid such situations for the act, rather than using the expensive court route as, at the time when a compromise agreement occurs, money is in short supply. One hopes that, with a clearance procedure in place, the measure will present less of a problem than the noble Lord envisages.

In future, should an employer wish to compromise a pension debt, if an insolvency event has occurred, the board of the PPF will be a party to that compromise and ensure that scheme members and levy payers are properly represented in those negotiations. With this Bill we are strengthening the powers of the regulator to protect members of pension schemes. Taking these powers away and relying on the courts to protect members is in my view misguided. What is the point in providing the regulator with powers to protect members in situations which we know are happening but then giving those who can afford expensive lawyers the opportunity to get round these provisions?

I shall give an example, which I believe is a telling one. There is a recent case, whose name I cannot give because it has not been published—but I am sure that noble Lords will guess which case I am referring to—in which the court approved the withdrawal of 11 subsidiaries from a pension scheme with a deficit of £875 million because the subsidiaries had no liability to the trustees to fund a deficit on the buy-out basis—because until this Bill and regulations come into force employers leaving multi-employer schemes only have to fund till the MFR level and the principle of last man standing applies, even when the last man is made of straw.

The court found in the case of company "T" that, in those circumstances, there was no duty to the trustees to have regard to their interests—and therefore, of course, no duty to have regard to the scheme members. The result is that members of that scheme, following that court decision, particularly deferred members, are facing a drop to in some cases less than 25 pence in the pound of the pension they expected, because the court could not take the interests of the trustees into account. The Bradstock decision was taken at a time when there was no full buy-out debt and no PPF, and it is by no means certain that the court would make the same decision today.

I also note that if an act is done to comply with a court order, then the main purpose of that act is to comply with the court order, not to avoid pension liabilities. Through our amendments, the Government have already exempted administrators acting in accordance with their functions. These clauses are designed to protect members—and it is the regulator who is their champion. Courts have specific duties and powers and are not, for example, always required to consider the members' interests, as the regulator is by Clause 98. The "T" case, with liabilities of £875 million, is a powerful example of such a situation.

Your Lordships may consider the position of the Pensions Ombudsman, who cannot bind third parties—who tried to but could not—as having a quasi-court function. He is in the same position, because of the two-party consideration.

I hope noble Lords do not think that I am over-reliant on this fact, but the waiver that we are discussing was not asked for in the very extensive consultation that we had this summer. I would normally expect the regulator, like OPRA, to accept that referring a compromise to the court is evidence of good faith. I would hope that the clearance procedure has rendered that route unnecessary. So far, in possibly the biggest case of pension deficit surfacing in this country, the courts were unable to protect members' interests, when a regulator might have been able to do so more effectively. With that argument and explanation, and the assurances that in future there should be alternative and more satisfactory routes to deploy, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Higgins

My Lords, I am grateful for that comprehensive reply on what is obviously an extremely complicated subject. The noble Baroness went to considerable lengths in the consultations during the summer to include all the major groups, but she pointed out in her report on the consultations that it had not been possible to consult everyone whom they might have consulted. It is becoming apparent that there were some groups which were not consulted, and which have only recently realised the full implications of the Bill, having studied the Committee stage. Therefore, the danger of the double-barrelled shotgun approach to which I referred has only recently come to light.

The other point, which emerges clearly from what the Minister was saying, is that the importance of getting all this right is emphasised by the very large sums of money to which she referred, and the large number of jobs that may be affected if the arrangement goes wrong. There is obviously a problem here, as the way in which the legislation will work will result in jobs being lost because the contribution notice is called for in circumstances where the situation takes a time to resolve.

5.30 p.m.

Baroness Hollis of Heigham

My Lords, does the amendment that the Government introduced earlier, about the implications for employment being taken into account, not go some way to meeting the noble Lord's legitimate concern about the dilemma for the employer?

Lord Higgins

Yes, my Lords, what the noble Baroness is saying is right. But one of the problems throughout the Bill has been that we may find that employment is jeopardised as a result of the way in which it operates. I am sure that that is not something that she, I or either side of the House would wish to see. The amendments that have been tabled already go some way to making that explicit.

There is an important fact to be taken into account. Given that there are employers and trustees involved, we need to ensure that the purely procedural way in which the Bill operates is as right as we can get it. It may not be possible to make it watertight. In due course, if that turns out to be the case, we may find cases where we are found to have legislated wrongly. Having said that, I shall study the Minister's reply, which goes into considerable detail and gives specific cases. I shall seek to get my mind round this undoubtedly very complicated point. I beg leave to withdraw my amendment to her amendment.

Amendment No. 30, as an amendment to Amendment No. 29, by leave, withdrawn.

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 31:

Page 28, line 24, leave out "was, or might become," and insert "should reasonably have been considered to become"

The noble Lord said: My Lords, I apologise to the House that my amendment is very badly drafted but I do not want to attempt a redraft on the hoof, not least because I do not know exactly what I want to say. I know what I want to achieve. This is the crucial subsection, which potentially imposes the Section 75 liability on the people who might be served contribution notices. I would like to make sure that it is easier to justify a going concern basis in company accounts and to give the companies involved more certainty as to the quantum of the liability.

To deal with the first point first, if we are going to keep this liability in the notes, where the accountants seem to want it, and not have it on the face of the balance sheet, then the accountants must be able to say that, on the basis of a going concern, they do not think the liability will hit the company. I expect the liability will migrate to the face of the balance sheet anyway, but I would prefer that that happened over 20 years or so as it would be easier to withstand the shock. But every time a decision is made to take money out of the reach of the pension fund, either by inter-company trading, by paying a dividend or by any of the other ways in which assets are moved within a group or without, other than straightforward third-party transactions, the accountants will have to ask whether it falls within this clause and this absolute liability will be judged in hindsight. Six years down the road, the regulator, using his best hindsight, will consider whether one of the purposes of a transaction was to remove money outwith the pension fund for the benefit of other people.

That is a very harsh light to be thrown on any transaction, particularly when one is dealing with enormous potential liabilities, or in an environment where a company's profits can plunge quite quickly and six years can be a long time in the history of a company between a comfortable state of affluence and one of near penury. I would like to see something in the Bill that makes it clear that what is required of the company is that it takes a reasonable judgment that what it is doing is not likely to disadvantage the pension fund. For example, it will he exempt under this clause if there is a great deal of room between the quantum of the liabilities and the assets it has to hand and there is no reason to expect that things will turn down. In other words, hindsight is limited and the auditors and the company can take comfort from the fact that the situation is being looked on a going concern basis and will not be judged five and a half years later with a great deal of hindsight.

Secondly, I would like to achieve some certainty about the quantum of the liability. Section 75 of the Pensions Act is all very well for a buy-out basis but that essentially says that it is a figure that can fluctuate with the market. Suppose that the market becomes worse and the experience of people providing the buy-out is bad and it costs twice as much to do a buy-out than it did at the time when a transaction was undertaken. In those circumstances, it would seem that the company was in difficulties with a doubled deficit on its pension fund, whereas it was not with the deficit that actually existed. Under those circumstances, how can a company be sure what the deficit being looked at is?

I am not clear that there is any statutory basis for establishing what this deficit is, so that one can defend oneself. If one says that there is a deficit of £100 million in a fund, how does one establish that to the satisfaction of the regulator? Is there a figure that he has to believe or can he do his own calculations? In any event, even if it is thought to be £100 million and, three years down the road, it turns out to be £200 million, should one not have allowed for that possibility under this clause? Under the wording here, should one not have thought that a market might get worse and that one should be dead sure that one would not fall under this? By extension, one has to start asking for the regulator's clearance for absolutely everything.

I would like to see some certainty. I would like to see it made clear that what is being looked for here is a sensible going concern basis. Then one can look at the liability and say that it is quite out of sight that there will be any difficulty paying the amount so that the annual dividend can happily be distributed and it is not going to be called into question some years later on a completely different basis. I beg to move.

Baroness Noakes

My Lords, I do not know whether the wording of my noble friend's amendment achieves what he wants to achieve.

Lord Lucas

My Lords, it does not.

Baroness Noakes

My Lords, I shall say a few things about the problem that my noble friend is trying to put before the Minister. When he discussed this with me briefly last week, it was the first time that I had started to think about when a contingent liability would need to be recorded in the accounts—sometimes of many different companies that are associates of an employer—and when that tipped over into requiring a provision in the accounts. I have thought about it seriously since then and I do not think that there is a precedent for legislation that would have a similar effect on potentially such a large number of accounts, because of the ripple effect when the regulator decides to take some action. My noble friend is saying that this will remain a big uncertainty unless we have clearance notices for absolutely everything. That may well lead accountants—who by nature are cautious and want to be prudent—into recording a number of matters either in their notes or possibly in the accounts themselves. That, in turn, could exacerbate what may well be an underlying financial weakness. I do not have the answer to that, but I think that my noble friend has raised some very real points. I hope that the Minister will think about them.

Baroness Hollis of Heigham

My Lords, I can respond to the amendment only with the words that I have. As the noble Lord would expect, I have been wrestling with the syntax as it stands. I could make a political joke—about people being hostile to all taxes, including syntax—but think that I had better wait until after tomorrow.

Amendment No. 31 relates to the debt due. The noble Lord, Lord Lucas, says that he has tabled the amendment to make it clear that a reasonable judgment is called for. However, that is exactly what the wording in the clause allows for.

As your Lordships will know, an actuary is able to calculate at any point the deficiency in the funding position of the scheme in relation to Section 75 of the Pensions Act 1995—"the full buy-out" debt. That may be calculated for a number of reasons but is necessary in order that the full liabilities of the scheme can be ascertained. It is also intended that the position on wind-up of a scheme will be disclosed to members as part of the annual funding statement they will receive. If the Section 75 debt has not become due, there is always the possibility that it might become due should the employer become insolvent or the scheme wind up.

The test we are using is whether the purpose of the act was to prevent the recovery of any Section 75 debt that is, or might become, due. This amendment would mean that the test is whether the purpose of the act was to prevent the recovery of Section 75 debt that should reasonably have been considered to become due. That merely confuses matters without adding to the substance.

The section is not about looking at the employer, but about assessing the level of the Section 75 debt, whether it is real or contingent—whether it is yet to be crystallised. We are advised that the existence of this provision does not mean that there has to be a note in the accounts; it is too remote.

If I have not fully addressed all the noble Lord's concerns, perhaps he will write to me. Given the wording of his amendment to the Government's position, I think that that is as far as I can go today. I therefore hope that he will feel able to withdraw his amendment.

Lord Lucas

My Lords, I am grateful to the noble Baroness for that answer. However, I do not think that there is any way of squaring the fact that the Section 75 deficit will have to be disclosed in letters to pensioners with the assertion that it would not then appear in the accounts. I do not think that you can do that. If it is real enough to be put in a letter to pensioners, it will absolutely have to be in the accounts. I think that a board that tried to say otherwise would be in great difficulties. However, I think that it will be there only as a contingent liability in the notes.

The noble Baroness is saying that the Section 75 liability, as stated by the company's actuary, is to be taken as the figure in this part of the Bill. I do not see that in the Bill anywhere. I do not see any provision that the company actuary's opinion is to be taken as gospel in this. It would be interesting if it were; it would help the Equitable Life actuaries to no end if we were to say that their decisions are not challengeable. It seems to me that it will be quite hard for a company to know what this figure is or is supposed to be.

I think that it will also be quite hard to distinguish between an act that "had the effect of" depriving the pensioners of access to assets and one that "had the intention of". I think that it will be quite difficult, looking back five or six years, to say, "There was no other intention. It is just the way life has turned out, guv".

So I think that the Government are saying that this is actually quite a serious liability. If one is investing in a company, one has to be aware of that figure. Should life turn sour for the company, it means that life is going to turn sour extremely fast. It will also be the figure that is taken into account by anyone who might ever think of buying the company. As the noble Lord. Lord Oakeshott, said earlier, if they are doing it with any element of leverage, then this liability will become real extremely fast, and quite right, too—I agree with him. It is becoming a crucial figure in the calculation of a company's value.

5.45 p.m.

Lord Lea of Crondall

My Lords, perhaps the noble Lord will comment further on the very interesting point raised by the noble Baroness, Lady Noakes. Does not the accountancy profession stand side by side with legislators in bearing responsibility on this issue? If the accounts have to address it, does that have to be dealt with in the Bill in the way in which the noble Lord is trying to identify? What responsibility does the accountancy profession have to identify what the accounts must include? The noble Baroness seemed to have a different answer.

Baroness Noakes

My Lords, as a former president of the institute, perhaps I should try to speak for the accountancy profession. I think that accountants will follow the legislation. If they find legislation that has certain consequences, they will generically advise their members on how it should be treated in the accounts. I am not surprised that nothing is available at the moment. When there is a generic issue, it is normal for guidance to be given on how to treat it and the circumstances in which to treat it as a contingent liability or a liability to be recognised in the accounts. I imagine that that will be considered in due course. It is not something that I would expect to have available here and now.

Lord Lucas

My Lords, I am grateful to the noble Lord and to my noble friend for that. I agree that these things come quite slowly. They tend to have to be agreed through national procedures and, these days, I suspect, European if not international procedures. This one ought to come out as national guidance at some time. However, it can take quite a long time for these things to filter through.

The position that was reached on the Marks & Sparks pension fund and on the W H Smith pension fund is something that has long been implicit in legislation, but it has started to emerge in practice and to be generally accepted only in the past year or two. These things can take a very long time to work through, particularly in the area of pensions, until a hard case is decided the right way and it suddenly becomes obvious that that was the position all along.

I understand why the noble Baroness says that we should look at this as an absolute liability and not hedge it about. We will come later to a similar amendment. I think that I will try to press her certainly before Third Reading, and perhaps on Third Reading, on this question of how a company can establish what its Section 75 deficit is to the satisfaction of the regulator without having on every occasion to provide the regulator with its calculations. That would give the regulator an enormous amount of work to do to no good end.

As I say, we will return to the issue in a later amendment. I will raise it again then. For now, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendments Nos. 32 and 33:

Page 28, line 28, leave out from "due" to "would" and insert ", to compromise or otherwise settle such a debt, or to reduce the amount of such a debt which"

Page 28, line 29, leave out "and"

On Question, amendments agreed to.

Lord Higgins moved Amendment No.34:

Page 28, line 31, leave out " 1lth June 2003" and insert "such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)"

The noble Lord said: My Lords, I think that it will be convenient to consider Amendment No. 107 with this amendment. There is a slightly complicated interrelationship between these two amendments, which in some ways are grouped rather strangely. Perhaps I may begin at the end.

The second amendment, Amendment No. 107, is concerned with amending Clause 88, on page 65 of the Bill, which is concerned with codes of practice. We are suggesting that that section should be amended in accordance with Amendment No. 107, so that guidance will be issued on how the regulator will use the power to issue contribution notices and also financial support directions.

In view of what the noble Baroness said in Committee we are rather surprised that in relation to such extremely serious matters as contribution notices and financial support directions there is no requirement for the code of practice to be included among the other guidance which will be issued by the regulator to those who need to comply with it. There is a case for amending the code of practice in the way described in our amendment. Although the two amendments that we are discussing rather anticipate later clauses in the Bill due to the way in which they have been grouped it may be convenient for the noble Baroness to comment on that aspect of the matter at this stage.

Having said that, Amendment No. 34 is concerned with the issue of retrospection. My noble friend Lord Hunt has tabled a later amendment on retrospection. Amendment No. 34 proposes to delete the words "11th June 2003"—which is the date back to which the Government propose to go—and insert the words, such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)". The clause would then read, on or after such date as the Regulator shall first issue a code of practice pursuant to section 88(2)(1)".

Our amendment is designed to deal with the problem of retrospection and to suggest that instead of the clause being retrospective it should be implemented from the date when the code of practice is produced. We argued previously that, generally speaking, backdating the retrospective effect of the Bill to 11 June 2003 was not justified. Indeed, it is argued that if it were backdated to then, it would be appropriate for the intention of the statute to be stated at the time of the relevant announcement. It is certainly arguable in this case that at 11 June 2003 no clarity existed with regard to the Government's intentions in this Bill. In fact, that probably was not the case until 27 April 2004. I refer to an announcement made by the Minister concerned who said: We will have to introduce protection against engineering designed to circumvent the intent of our proposals".—[Official Report, Commons, 11/6/03; col. 696.] It is arguable that even that was not sufficiently clear for the retrospection not to be challenged in the courts. Indeed, it is also arguable that to make the provision as retrospective as the Government propose is contrary to the human rights legislation. In short, there seems a case for the Government to drop the retrospective effect. I realise that is a fairly radical proposal. It would be helpful if the noble Baroness spelt out precisely what the reasons are for going back to 11 June 2003, and why in the Government's view such retrospection—which I believe both your Lordships' House and another place have always regarded as something to be avoided if possible—is necessary. Unless there are overwhelming reasons why that should be the case commencing the provision when the situation is much clearer and the codes of practice have been issued would seem to be a better course. I beg to move.

Lord Oakeshott of Seagrove Bay

My Lords, I have some sympathy with the arguments of the noble Lord, Lord Higgins, on retrospection. However, I was not quite clear what he was arguing for. Indeed, I wonder whether 27 April 2004 would be a sensible compromise date. I look forward to hearing from both the noble Lord and the Minister.

Baroness Noakes

My Lords, I support my noble friend's amendments. The problem is that since the original announcement companies have been put on notice that the effect of some of the actions that they have taken would be reversed in some way. I shall be interested to hear from the noble Baroness why June 2003 is the right date. However, since that date, while companies will have been aware in a general way that certain actions may in effect be reversed, they have not been aware of anything specific. In particular, the clearance statement procedure has not been available to them since that date and will not be available to them until this Bill is passed. Therefore, there is a period during which they could not have obtained a clearance statement, and there could be considerable uncertainty in terms of what they could or should have done during that period.

My noble friend's two amendments in this group together propose one way forward, which is to have a code of practice and for the relevant date to apply when that becomes available. I understand why the Government might want an earlier date although I do not necessarily agree that there is an appropriate earlier date. Clause 39(6) refers to the matters that the regulator considers reasonable to take into account. Does the Minister consider that, if the date is to stay the same, there ought to be specific reference to the regulator considering the time at which the acts took place, in particular in this period of—I am sure the Minister will agree—considerable uncertainty for companies? I support the amendment but I wonder whether there might be another way of achieving the same effect.

Lord Lucas

My Lords, I echo entirely what my noble friend has said. There is not wide appreciation of where this Bill is going at the moment and its implications. We are trying to cover new implications of it even today. Certainly I do not think that the development capital community realised that the whole business of its doing deals with the trustees of pension funds to keep companies alive was liable to be reopened with regard to unlimited personal liability under something issued as an obiter dictum by a Minister. I understand that this is a matter which will have to be judged by the regulator but, as my noble friend said, I should very much like the regulator to be able to take into account the fact that this was an act done at a stage when the implications of a ministerial statement may not have been fully realised.

Lord Fowler

My Lords, I support my noble friend Lord Higgins and what has just been said by my other two noble friends. The point is a practical and legal one; namely, that the terms of a statute must have been clear at the time of the announcement. However, it seems to me anything but clear that that has been the case in this regard. It does not seem to me that any clarity existed before 27 April 2004 at the very earliest. I refer to the Secretary of State's announcement that: We will have to introduce protection against engineering designed to circumvent the intent of our proposals".—[Official Report, Commons, 11/6/03; col. 696.] I am not sure it can be argued that that gives sufficient indication of what is to follow. It is extremely important that the Minister tells the House exactly what it is that the Government are relying upon because at the moment it is anything but clear.

6 p.m.

Lord Lea of Crondall

My Lords, it may be that the noble Lord is not satisfied on the clarity of the position on circumventing the intentions of the Act. But he has not addressed the point that there is a prima facie question that must be dealt with, which is that if somebody acts to circumvent the intention of the act, it cannot wait until some date well into the future.

Baroness Hollis of Heigham

My Lords, my noble friend has summed up the matter accurately.

The amendments would remove any element of retrospection and indeed—and this is my problem with them—give those employers who wish to avoid pension liabilities extra time to do so. I am sure that that is something that none of us wants. The amendments would specifically stop the regulator acting before the publication of a code of practice in relation to the clause. It is not our intention to make it mandatory that the regulator issue a code of practice in relation to contribution notices.

Lord Higgins

My Lords, did the noble Baroness say that it was or was not? Will she please repeat what she said?

Baroness Hollis of Heigham

My Lords, I deliberately spoke as slowly and theatrically as I could, but I shall repeat what I said to help the noble Lord.

It is not our intention to make it mandatory that the regulator issue a code of practice in relation to contribution notices. The hinge on which the amendment hangs may not even exist.

Codes of practice are intended to provide schemes with the regulator's interpretation of pensions law, thus assisting schemes in improving compliance and encouraging best practice. The subject matter of codes, which is evident in the list of codes that the regulator is required to produce in Clause 88(2), are the functions and duties that the law requires of those with legal responsibilities to schemes, such as trustees, managers, employers and professional advisers. A code of practice is therefore not an appropriate means for the regulator to set out how it proposes to exercise one of its regulatory functions.

On Second Reading on 10 June, I gave assurances to the House that the regulator will issue guidance. Essentially, codes of practice are how the regulator expects other people to behave; guidance is how it expects the regulator to behave—broadly. I reiterated that in Grand Committee.

We now have two new clauses that require the regulator to operate a clearance procedure for both contribution notices and financial support directions. That has received wide welcome from the House today. As I said earlier, the regulator will issue guidance on how it will operate the clearance system and give examples on how the regulator will act in particular circumstances. We have commitments from the CBI, the Society of Turnaround Professionals, the British Venture Capitalists Association, and so on, to work with us on that.

However, irrespective of whether we are talking about guidance or a code of practice, the effect of the amendment would be to stop the regulator acting in relation to events after 11 June 2003 until some specified, or unspecified, date in the future. That is not appropriate, and I shall explain why not.

On 11 June 2003 the Secretary of State announced that the Pension Protection Fund would be created, as well as regulations, to impose the Section 75 debt on solvent employers at a full buy-out level in respect of schemes that commence winding-up on or after 11 June 2003, the Government's intention being to ensure that solvent employers who close a pension scheme must honour their whole pension promise and fully buy out members' benefits. They are, after all, solvent.

That announcement gave any employer who considered dumping pension liabilities on the PPF an increased incentive to do so, as was accepted by the honourable Member for Havant, Mr Willetts, who, in the debate on 11 June 2003, described this as employers who, shed their pension responsibilities to a different legal entity, like a snake shedding its skin, and emerge as a company without pensions".—[Official Report, Commons, 11/6/03; col. 685.] Unless the regulator is able to make those who act—or fail to act—to avoid their pension liabilities contribute to the scheme's funding position, there is a very real danger that employers, or connected persons, will effectively be given a period of grace in which to take action to circumvent the employer debt provisions, knowing that they can do so with impunity, despite the provisions of 11 June 2003. That could result in a serious increase in claims on the PPF in the early days of its existence, which in turn would put huge pressure on the levy payer and might undermine the sustainability of the PPF.

Sadly—and this is what a colleague calls the "killer fact"—OPRA is aware of cases when, in spite of the Secretary of State's warning, it appears that employers are currently taking action, or may have already taken action, aimed at dumping liabilities on the PPF.

I shall give an example. It is a real one, but I shall use ficticious names. The "Large" pension scheme was set up many years ago initially under an employer called Large Group plc. As the business changed over the years, Large Group plc divested itself of many of its parts, which then became separate or even competing companies. They all still participate in the scheme which currently has more than 20 participating employers, and which is now a multi-employer scheme for non-associated companies.

Large Group plc, whose liabilities represent 50 per cent of the liabilities of the scheme, placed itself into voluntary liquidation on 1 June 2004, which triggers the winding-up of the scheme and crystallises the Section 75 debt of £2 million, but which is calculated on the MFR basis because Large Group plc now counts as insolvent. It is for that reason that Large Group plc has chosen to place itself in voluntary liquidation. It knows that had the winding-up occurred before then, the debt would have been £50 million.

I surely do not have to tell anybody in your Lordships' House of the devastating effect on scheme members of such underfunding. In those circumstances, the regulator may consider imposing a contribution notice of up to that sum on Large Group plc.

OPRA is monitoring those cases and assisting the trustees where appropriate, but it is vital for the members of those schemes, and for those who pay the levy, that the Pensions Regulator has powers to deal with those schemes.

We believe, therefore, that this limited retrospection is appropriate. However, the noble Lord, Lord Oakeshott, suggested that, given the possible uncertainties of the June 2003 date, there may be a case for substituting April 2004. If it would be helpful to your Lordships, without giving a full commitment, I am willing to take the matter away in good faith to see whether we can do that, and still prevent employers manipulating the system and dumping their liabilities on the PPF without protection for levy payers. I am happy to do that in good faith. As ever, I guarantee nothing, but it seems that that degree of limited retrospection would at least cap it, whereas some forward look to a code of practice or guidance, which may never happen, is too open-ended an invitation. OPRA already has experience of that degree of manipulation.

If that would be a satisfactory way forward, perhaps the noble Lord could withdraw his amendment, and I shall see what I can do on Third Reading.

Lord Higgins

My Lords, I am grateful to the noble Baroness for that extensive reply and the cogency of the example that she gave. I accept there would be real dangers on moving the date forward. All of us are at one that we do not want solvent employers dumping their pension fund liabilities on the PPF. That has been common ground in the House from the beginning.

We should certainly look at the possibility of another date. There are two things that we might need to know. The noble Baroness says that OPRA is already aware of some such cases. It would be difficult to say that we should take those back to the dates when they happened. That would almost certainly end up in the courts. There are real problems, but nevertheless I have always had a strong feeling that retrospection is bad and should be avoided if possible. It may be that a compromise is the best way round that issue.

Perhaps the noble Baroness can raise the issue on the next amendment, which is related to this one, of how vulnerable either of the two dates that we have mentioned—2003 and 2004—are to action in the courts. As my noble friend Lord Fowler said, it is fairly well established to what extent one can make things retrospective without the risk of being overturned, or the risk of ending up in the European Court of Human Rights.

If we are going to act this way—the noble Baroness made a pretty persuasive case—we clearly need to be careful exactly where we do it. It would be silly to backdate the provision and find that we get lost in the courts, in which case other schemes that we would like to catch would feel that they could avoid the consequences. I do not know what legal advice she has received.

Baroness Hollis of Heigham

My Lords—

Lord Higgins

My Lords, perhaps it might be better to talk about it on the next amendment, rather than by way of intervention, so that the noble Baroness can give a rather fuller reply. We may wish to return to codes of practice, but I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendment No. 35:

Page 28, line 33, at end insert ", and () it is either—

1. (i) an act which occurred during the period of six years ending with the determination by the Regulator to exercise the power to issue the contribution notice in question, or
2. (ii) a failure which first occurred during, or continued for the whole or part of, that period."

The noble Baroness said: My Lords, I beg to move.

Lord Hunt of Wirral moved, as an amendment to Amendment No. 35, Amendment No. 35A:

Line 3, leave out "six" and insert "three"

The noble Lord said: My Lords, my amendment would, in government Amendment No. 35, leave out the period of six years and insert that of three years. In view of the constant reference to legal advice, I feel obliged to declare my interest—I hope that most noble Lords are aware of it—as senior partner of Beachcroft Wansbroughs, a firm of solicitors. However, I am very carefully not giving any legal advice on the question raised by my noble friend Lord Higgins, because it is too difficult to do so. There are other reasons as well. Who can predict what the courts may or may not decide about the matter?

As the Minister is aware, with respect to the amendment, many stakeholders have expressed a view over the appropriate time limit for looking back at acts that might warrant the issue of a contribution notice. She shared with us the advice that she and her colleagues in the department had received, which was that the period should range from seven months to seven years, or thereabouts. There is obviously a collection of views. Ministers appear to have decided that six years is appropriate because, it is said, it can take around four years for a pension scheme to produce audited accounts.

It may help us all if the Minister can give us some examples of where that has taken as long as four years. I have talked to a number of interested parties. R3 and the Institute of Chartered Accountants in England and Wales have raised with me that it seems clear that four years is too long. I am advised that is very rare indeed for a pension scheme to take anything like four years to produce its accounts. Therefore, I would welcome some advice from her on how she has reached a conclusion that is not borne out by any of the information that I have received.

I direct the Minister to the Occupational Pension Schemes (Investment) Regulations 1996, which require audited accounts to be produced within seven months of the scheme's year end. Perhaps that is why some body suggested seven months as the appropriate period. Failure to produce an audited account within seven months of the scheme's year end is a matter for the Occupational Pensions Regulatory Authority. The professional bodies with which I have consulted on the point keep stressing that it is quite exceptional for audited accounts to take considerably longer than seven months to be produced.

Further, from a purely practical and commercial standpoint, six years is surely an excessively long time for the potential threat of a contribution notice to hang over the heads of professionals and directors concerned. Such a long period is plainly unreasonable unless there is good reason to have it. With respect, I do not think that the Minister will be able to produce a series of good reasons to justify such a long period for looking back. I await her comments with great interest.

6.15 p.m.

That is why I tabled an amendment that proposed three years, a period longer than the advice given to me. It is a period that the professional bodies that have expressed concern over the issue would be happy to see in the Bill, rather than the six-year period. I would have thought three years comfortably long enough to cover the issue which the Government seek to address.

Going back to the previous debate, I join my noble friend Lord Higgins in asking the Minister to give us a sense of the advice that she has received on the issue of human rights and the possibility of a challenge. We do not want to see legislation pass through this House with the best of intentions, having been agreed by everyone concerned, and then find that some clever person can find a reason to challenge it successfully. It is in that context that I beg to move.

Lord Oakeshott of Seagrove Bay

My Lords, we do not support the noble Lord's amendment. I understand the point that, in normal circumstances, accounts will be produced much sooner, but we are not talking about normal circumstances. We are probably talking about situations where, prima facie, odd things are going on, and about how we can deal with more than suspicion of problems. Being rather a cynic, I remind him of the old City expression, "Bad figures take much longer to add up". Bad figures take even longer to add up when those involved do not necessarily want them to add up or want some things to happen. Six years is a reasonable cut-off. What is important is that there is a cut-off date. On that basis, we are happy to support the Government's position.

Lord Lucas

My Lords, I am happy enough with six years, but the Government have to recognise the consequences of the period. Six years is well beyond the horizon in which most people even have a hope of seeing how their businesses will go. Let us imagine the example of a successful entrepreneur who takes over a large retail group that is not doing very well. He makes a success of it and pays himself an enormous dividend because of his success. Five years later, because of the successive downturn in the economy, the success of Wal-Mart or whatever, the business is in trouble and it is clear that the money that went out five years earlier by way of dividend has reduced the amount of money available to pensioners.

Looking back, where an act has had the effect of reducing money available to pensioners, it is very hard to show that that was not part of its intention—that it was not part of the entrepreneur's intention five years ago to say, "Let's get my money out while it's good, and the pensioners can take the risks of the business running forward". Under those circumstances, everyone who does a capital reconstruction or declares a dividend will have to seek clearance for it, because they cannot see far enough ahead.

The effect of the provision will be that people have to seek clearance. Perhaps that is a good thing, but it will enormously increase the business of the regulator. Those concerned will have to get clearance every time—otherwise, five and a half years later, they are liable to be bitten very hard and personally. For the sake of troubling the regulator, that is not worth the candle; so they will trouble the regulator. The Government have to recognise that the difference between six years and three years is that in three years people could be reasonably confident about the future of their business and would be prepared to take a risk. If it was six years, they would not.

Lord Higgins

My Lords, perhaps the Minister could clarify two points. First, in relation to the point just made by my noble friend, there will be some delay regarding clearance before the scheme is operating. The noble Baroness has just this afternoon made proposals for a clearance procedure. But between now and when the clearance procedure is operative, there may well be people who have to make commercial decisions where they may feel that they are vulnerable and are not able to obtain clearance in the mean time. Can the Minister give us some idea when she anticipates that the clearance procedure will be become operative?

Secondly, I am now somewhat confused about exactly how far the Government are proposing to backdate that, because the argument regarding accounts taking that long does not seem to be the general view. If some were taking that long, then surely some action should have been taken anyway by OPRA, or whoever. Or is it the case that they would return to the date when they thought that an announcement was made that would stand up in the courts?

Baroness Hollis of Heigham

My Lords, regarding the noble Lord's first point about legal advice—I have legal advice for the previous discussion, not for this one; so I would not wish to guarantee that there was a read-across. However, the Law Officers' advice to us was that the original June 2003 date was compliant with ECHR, but we have moved on from that during today's discussions. So the degree to which we could resist a challenge, as has been suggested, is high.

Lord Higgins

My Lords, it is somewhat difficult at times to catch precisely the comments of the noble Baroness. She was saying that the 2003 date was legitimate. Do she and her lawyers think that the statements made by the Government at that time provided a sufficient basis to backdate the matter that far, without it being challenged?

Baroness Hollis of Heigham

My Lords, yes, that is the legal advice that I have received from the Law Officers regarding the previous amendment. Backdating to that limited retrospection for June 2003 was ECHR compliant.

Regarding the amendment, it has already been mentioned in a previous discussion that there was a wide range of views regarding the appropriate cut-off point. Perhaps I should remind your Lordships that when we originally started no cut-off point was proposed at all. It was as a result of the debate in Committee, as the noble Lord, Lord Oakeshott, has reminded us, that the Government have come forward with an amendment for a cut-off period. The primary reason for that proposal is that it is consistent and in line with the Inland Revenue's powers and the period for which they backdate and investigate.

Any confusion has been entirely our error and not that of the noble Lord, Lord Hunt, regarding his reference to the production of audited accounts. He is right to say that they do not take four years to produce. That is because we should not have been using the words "audited accounts", except on occasions when, as the noble Lord, Lord Oakeshott, said, there has been some elaborate arrangement of figures. We should have referred to the scheme's actuarial valuation. I apologise to the noble Lord, Lord Hunt. It was contained in the document—and the only person out of the entire constituency of industry, voluntary organisations, Peers of the Realm and Ministers to have spotted that was the eagle-eyed noble Lord. He receives the brainy prize today.

Lord Higgins

My Lords, if the noble Baroness is saying that there will be a triennial revaluation, it is a red herring. Many pension funds, although they are obliged to have a revaluation every three years, can easily carry out valuations between those times. Indeed, I have arranged for that to be done myself. Arguing for a triennial revaluation of pension funds is no good.

Baroness Hollis of Heigham

My Lords, the issue of whether that is a good argument might be helped if I was permitted to make it. Then the noble Lord could say that I have not persuaded him; and, from the sound of it, I am not going to.

I assure the noble Lord that the actuarial valuation for a scheme is required not more than every three years and the scheme actuary has up to 12 months to certify it. As I remember, when we were dealing with Part 7 of the Bill in Committee, regarding cross-boundary schemes, as far as I recall, part of the original European directive was for annual valuations. The position of one of our representatives was to argue that we desired triennial revaluations, but with the ability to produce interim accounts to match how the industry currently operates.

However, given that there are triennial valuations and the scheme actuary has up to 12 months to certify it, there can be an interval of four years between a scheme's actuarial valuations. That is one of the reasons for the problems with the pacing of the timetable for introducing a risk factor regarding the levy. We are dealing with the same body of information.

In deciding on the appropriate period for the backstop, because we took on board your Lordships' views that there should be one, we considered that alongside the representations we received and examined the precedents. If the problem is discovered in the actuarial valuation, that gives the regulator only two years to be alerted to the problem, investigate and issue a warning notice to those to whom it is considering issuing a contribution notice, receive their representation and make a determination. It is not that long, I would suggest.

A six-year backstop—which is used by the Inland Revenue and is familiar to most businesses—is not unreasonable, given that it hinges on the ability to make full actuarial valuations every three years. So I hope that your Lordships would accept that the Government have moved a long way from having unlimited retrospection to a backstop that accepts the triennial cycle, and have left a space for the scheme actuary to validate the accounts. That leaves up to two years for the regulator to investigate matters if he is uneasy. I hope your Lordships will accept that and that the noble Lord, Lord Hunt, will withdraw the amendment.

Lord Hunt of Wirral

My Lords, that was a helpful exchange and I am grateful to the Minister for explaining the background to the statement that was previously made. Given that the noble Baroness has corrected the way in which the period was explained and put that in context, I can see the arguments more clearly. I am grateful to her and will carefully consider her points. In those circumstances, I beg leave to withdraw the amendment.

Amendment No. 35A, as an amendment to Amendment No.35, by leave, withdrawn.

Lord Lucas moved, as an amendment to Amendment No.35, Amendment No.36:

Line 4, leave out "determination by the Regulator" and insert "giving of written notice by the Regulator to the employer in relation to the scheme that it is minded"

The noble Lord said: My Lords, I do not see that the words, determination by the Regulator to exercise", give rise to a verifiable date. The exercising of the power has a date attached to it. But I do not see how the "determination" of the regulator has a date assignable to it. So the purpose of the amendment is to assign such a date by making it clear that, at the moment when he carries out his determination, the regulator must somehow signify that he has done it. That is the only point that I wish to make. If we are backdating by six years, we must know when we are backdating from. I beg to move.

6.30 p.m.

Baroness Hollis of Heigham

My Lords, in Amendment No. 36 the noble Lord, Lord Lucas, seeks to clarify the base date by referring to written notice from the regulator that, it is minded to exercise the power", rather than the date it determines to exercise the power. I am baffled by this. I cannot see how this clarifies the base date; it merely exchanges one date for another. In any event, Clause 94(2)(a) provides for all directly affected parties to receive a warning notice. However, it is from the determination date that various matters flow: the decision to exercise the function and the time period to make a reference to the tribunal. Therefore, it is appropriate to use it as the end date for the relevant period. I hope that the noble Lord will withdraw his amendment.

Lord Lucas

My Lords, how is the determination date established? Where in the Bill is there a procedure for establishing that date? If it is not in the Bill, how does the noble Baroness contend that that date will be established?

Baroness Hollis of Heigham

My Lords, I have already referred the noble Lord to Clause 94(2)(a). I shall have to leaf through the Bill to find it for him and I shall write to him to that effect.

Lord Lucas

My Lords, I shall look at the Bill, but I did not see it in my quick look at the Bill when the noble Baroness was speaking. However, it is absolutely crucial that the date should be definite. Therefore, some event has to take place; determination has to be evidenced in writing with a date attached to it. That has to be a public date which is knowable by the employer and by the others subject to this clause. At the moment I do not see it. If it is somewhere in the Bill, my amendment is entirely unnecessary; if it is not in the Bill, I should be grateful if the noble Baroness would write to me to tell me how it will be established.

Baroness Hollis of Heigham

My Lords, I shall.

Lord Lucas

My Lords, I beg leave to withdraw the amendment.

Amendment No. 36, as an amendment to Amendment No.35, by leave, withdrawn.

On Question, Amendment No.35 agreed to.

Lord Lucas moved Amendment No. 37:

Page 28, line 35, leave out "deliberate"

The noble Lord said: My Lords, after 12 years in this House, I should know better than to try nerdy redrafting of government Bills. The only purpose of this amendment is that I cannot see that the insertion of the word "deliberate" is consistent with the drafting of the rest of the clause. The word "deliberate" appears only in the governing paragraph and it does not appear in the sub-paragraphs. The only point I am making is that I do not believe that that is consistent. I beg to move.

Baroness Hollis of Heigham

My Lords, I do not want to be rude, but this is the kind of matter that perhaps should have been clarified in Committee. The noble Lord says that he is puzzled by the drafting. Amendment No.37 removes the word "deliberate" before "failure". The noble Lord, Lord Lucas, says that that is because the phrase "deliberate failure" is used in subsection (3)(a), which requires that, the person was a party to an act or a deliberate failure to act". However, Clause 39(5) defines who is included as a party to an act or a deliberate failure. If we remove the word "deliberate" from line 35, Clause 39(5) would read, the parties to an act or a failure", which would leave uncertain who is a party to an act or a deliberate failure. In the light of that, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Lucas

My Lords, as expected, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Higgins moved Amendment No. 38:

Page 28, line 35, leave out "include those persons who" and insert "shall not include those persons who do not"

The noble Lord said: My Lords, like my noble friend Lord Lucas, one hesitates to seek to engage in drafting Bills for the Government. Alas, this is such a case. We believe that it is little more than a purely semantic argument. In Committee on 8 July, we discussed it in a slightly different form, under Amendment No. 99. We said then: The current clause does not appear to expand the class of people who may receive contribution notices", nor does it appear to use the word "include" to limit the class. Therefore, the only effect of the current subsection is that it appears to give the regulator certainty that a person who knowingly assists in an act or a deliberate failure to act falls within the scope of those [the regulator] may attack".—[Official Report, 8/7/04; cols. GC 218–9.]

Having said that, the proposed amendment reverses the order in which the matter is taken. The noble Baroness said that all it does is to put the test into the negative rather than the positive, but we have had representations suggesting that, if the Government do not put it the other way around, the courts may interpret it in a way in which the Government do not intend.

On reflection, I am inclined to go along with what my noble friend Lord Lucas said just now. I do not know whether the noble Baroness has received any representations on this. She shakes her head. Again, it appears that we have received representations which she has not received. The best thing is to follow her example when up against the wall, and to say that I shall write to her about this matter. She can consider it between now and Third Reading and if she finds the argument as convincing as I do—although I am not able to articulate it as precisely as I would like—she can table an amendment at Third Reading. There does seem to be a genuine feeling that the way in which the clause is drafted at the moment is unsatisfactory. I shall drop her a line. If I move the amendment, she need not reply and then I shall withdraw it. I beg to move.

Lord Skelmersdale

My Lords, I beg leave to withdraw my noble friend's amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 39:

Page 28, line 36, leave out "knowingly assist in the act or failure" and insert "assist in the act or failure who knew, or should have known, that one of its purposes fell within subsection (4)"

The noble Lord said: My Lords, Amendment No.39 tackles the same matter from a slightly different angle. Such acts may appear to many involved in them to be entirely innocuous. If one is involved in undertaking a capital reconstruction, or the payment of a dividend from a company, many people will assist in that process who are not privy to the intent that the regulator may some six years later decide lay behind it. To them it is an entirely normal process; they sign off as accountants or as lawyers on a particular process and because they do not know the inner workings of the company or its expectations of trading five years out, it may not be apparent to them at all that that is an act that carries with it any danger of breaching this clause. Under those circumstances, I cannot see that it is right to catch people who are just doing an ordinary, proper, honest job of work on what appears to them to be an honest transaction, involving the kind of personal liabilities included in this clause. I beg to move.

Baroness Hollis of Heigham

My Lords, I do not believe that there is any difference between us. I am puzzled why the noble Lord thinks that his drafting improves the drafting of the Bill compared to the word "knowingly". Thanks to computers, I am assured that there are at least 1,200 references to the use of the word in legislation, including, for example, 17 in the Companies Act 1986. I do not believe that anyone can be in any doubt as to its meaning.

Clearly, the point is that one has to know what one is doing. The word "knowingly" is used in the Financial Services and Markets Act, where it is an offence for an authorised person knowingly or recklessly to give an appointed auditor information that is false. I cannot believe that the noble Lord is not familiar with the word "knowingly"; I cannot believe that he thinks there is any ambiguity about it; I find his substituted phrase far more ambiguous as opposed to this word which has been clearly defined in law, regularly used and used by the courts on many an occasion. I do not know whether he will agree with me but, with all due respect, I do not see the point of this amendment. The word "knowingly" has a well established history and encapsulates what we are seeking to establish.

Baroness Noakes

My Lords, the noble Baroness said that the word "knowingly" is used much in legislation, which is true, but my noble friend was making the point that this refers to persons not knowingly in connection with the act. One can be connected with an act by drafting a document, by typing it or whatever, but that does not mean that one has anything to do with the purpose of it. That is what my noble friend was trying to say. If the noble Baroness looks at the many examples that her computer has spewed out, she will find that "knowingly" does not carry the same burden she is trying to make it carry in this clause.

Baroness Hollis of Heigham

My Lords, I was counting on the fact that we had already discussed this issue when we talked about secretaries typing out things. In other words, we are engaging in the same issue as the noble Lord raised on his phrase "innocent bystanders". I thought that we had dealt with the issue and that I had given the reassurances sought by the noble Lord.

Lord Skelmersdale

My Lords, before the noble Baroness finally sits down, she, as my noble friend remarked quite rightly, said that "knowingly" appears over and over again in legislation. Will she give an example of where "knowingly" includes the meaning in the second line of my noble friend's amendment; namely "should have known". I would have thought that they were two different things.

Baroness Hollis of Heigham

My Lords, I can give one example, although it is not in a related piece of legislation. For example, in the case of knowingly possessing an explosive material, the Crown would have to prove both that the accused knew he had the material and that he knew it was explosive. I think that that catches the example of the noble Lord, Lord Skelmersdale.

In the case of the noble Lord, Lord Lucas, the regulator will have to show, for example, that the person it is considering issuing the notice to knew that he was assisting in the act. We have already covered the issue in relation to professionals and we have already covered the issue in relation to innocent bystanders. So I have to say that I am not able to accept the amendment. I do not think that it adds to the thrust of the legislation and could actually lead to considerable ambiguity in the way it is drafted.

Lord Lucas

My Lords, I do not wish to defend the drafting of my own amendment. I am prepared to admit to my permanent fallibility when it comes to that, but I do wish to attack the drafting of the Bill again. In the example given by the noble Baroness of knowingly possessing explosives, "knowingly" applies to something which is—if you know what you are doing—quite evidently against the law. It is quite evidently wrong-doing. But what "knowingly" applies to here is something which may, to the understanding of an intelligent professional person, be an entirely legal act without any stain on anyone's character whatever.

For example, you have a solvent company with plenty of money about it and a recent report on the pension fund shows that there is plenty of money in the company to meet this Section 75 deficit. No obvious questions arise in the course of the transaction about whether anything is wrong. All you are doing is making sure that the legal side of the capital repayments stack up and everything is done tickety-boo. However, the directors of the company know very well that an enormous liability is materialising somewhere else and they are after getting some money out of the shareholders before that particular bombshell breaks.

In the amendment the "knowingly" is assisting in a perfectly legal transaction. What you know you are doing is something which should have no implications at all. The "knowingly" should apply to the wrongful act not to the act which is in no way wrongful. A solicitor who involves himself in drafting the legal side of a perfectly respectable capital repayment from a company should not suffer personal liability because of something which is unknowable to him.

Baroness Hollis of Heigham

My Lords, this is Report stage, it is not Committee stage. We could have explored this matter in Committee. We did not. We have now had three separate interchanges after I thought we had closed the issue. The noble Lord also knows that we had a previous amendment on this. I am just a little surprised that he is not building on the discussions we had. We start each amendment as though the previous discussions have never occurred.

On professionals—solicitors and auditors mentioned in the example—the answer is that they are not connected or associated with the employer merely by providing services to him and unless there is another connection they would not fall within the scope of the notice. We have already discussed the innocent bystanders, the professionals and the concept of "knowingly". We seem to be retreading the same ground on Report in the style that we would in Committee when we have already discussed the issues of the state of the professional.

6.45 p.m.

Lord Lucas

My Lords, in that case I shall go away and read again the Committee stage in Hansard. I apologise for not having understood what was there. It seemed that the wording was extremely clear; that if you assist in the act you are a party to it. But I shall go away and study Hansard. I did not see it there when I read it through the first time. I apologise for that. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No.40 not moved.]

Baroness Hollis of Heigham moved Amendments Nos.41 and 42:

Page 29, line 4, leave out from "company" to end of line 6 and insert "within the meaning of subsection (11) of section 435 of the Insolvency Act 1986 (c. 45), whether the person has or has had control of the employer within the meaning of subsection (10) of that section),"

Page 29, line 12, at end insert—

"() all the purposes of the act or failure to act (including whether a purpose of the act or failure was to prevent or limit loss of employment),"

On Question, amendments agreed to.

Lord Lucas moved Amendment No. 43:

Page 29, line 12, at end insert—

"() the amount of any benefit received or possessed by the person in relation to the employer or any person connected with the employer or an associate of the employer,"

The noble Lord said: My Lords, Amendment No. 43 concerns the regulator's view of the circumstances under which he should issue a notice. It seems to me that how much money a person has should not be relevant. Just because a person is rich he should not be gone after for a contribution. What should matter is the amount which an individual has benefited from the company and the amount of his culpability. The fact that he happens to be a rich man or a poor man might affect the effectiveness of the contributions notice.

I do not think that people should be gone after just because they have the money, even if they do not otherwise justify chasing up under a contribution notice. I know it is to the benefit of the pensioners; I just do not think that it is the right way to pursue an individual. I beg to move.

Baroness Noakes

My Lords, I support my noble friend's amendment. The amendment implies that it would be a good thing if you were likely to come within Clause 39 to be over-borrowed and under-saved—which of course has been the direction of government policy over the past seven years; perhaps it is therefore consistent with government policy. However, it seems to me to be extraordinary that it gives that incentive.

How is the regulator supposed to know what the financial circumstances of an individual are? That is a rather complex evaluation. I cannot see how the regulator is going to get that kind of information.

Baroness Hollis of Heigham

My Lords, I am not sure whether the amendments do what the noble Lord seeks. Amendments Nos. 43 and 44 seek to remove consideration of a person's financial circumstances from the factors the regulator must consider in deciding whether it is reasonable to impose a contribution notice of a certain amount and replace it with a consideration of the benefit a person has received from the employer or connected or associated persons. There is a tension between this amendment and the next group of amendments, Amendments Nos. 45 and 61, in the name of the noble Lord, Lord Higgins.

When considering whether it is reasonable to issue a contribution notice specifying the payment of a certain amount, we believe that in those circumstances it is appropriate that a person's financial circumstances are taken into account.

What we do not want to do is to rob Peter to pay Paul—for example, by making an associated company pay an amount into the pension scheme, if that would make that company insolvent or indeed affect the funding of that company's pension scheme.

Equally, in the case of individuals, we do not want the regulator to impose a contribution notice that would bankrupt an individual. Certainly, as it stands, this amendment would mean that the salary, company car and luncheon vouchers of anyone employed by the employer or connected or associated companies would have to be considered by the regulator. It does not even relate to any benefit from the act or failure to act.

On the specific question put to me by the noble Baroness, Lady Noakes, the individual making representations in response to the warning notice will be able to give details of financial circumstances he wants the regulator to consider. So I think that there are appropriate procedures in place. With that response, I hope the noble Lord will be able to withdraw his amendment.

Lord Lucas

I think that we are facing in different directions, but the Government win and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 44 not moved.]

Lord Higgins moved Amendment No. 45:

Page 29, line 14, at end insert— () whether the imposition of liability under this section on the person will substantially affect the funding of the scheme, and () that the purpose of imposition of liability under this section is intended to be curative of the scheme funding, and not punitive of the individual.

The noble Lord said: My Lords, with this amendment I think that it will be convenient also to consider Amendment No. 61. To some extent, we considered this issue in Committee and, generally speaking, Clause 39(6) provides a non-exclusive list of circumstances to decide whether a person falls within the scope of an attack by the regulator. The regulator then has to consider whether it is appropriate to attack—to use that word again—the person and for how much. Generally speaking, although the subsection requires the regulator to consider the person's financial circumstances, for the reasons that the noble Baroness just mentioned, there is no requirement on the regulator to consider what effect it will have on the scheme.

From what the noble Baroness said in Committee, we understand that it is not intended that the imposition of such a notice should be punitive, in some way punishing the individual who has been selected—I suppose that that would be the right word—by the regulator. On the other hand, it does not seem that the regulator is required to consider to what extent any notice that he issues to an individual will help the scheme. We are seeking to ensure that, as the noble Baroness said, the charge would not be punitive but, at the same time, in deciding how much to charge, the regulator ought to take into account to what extent it is material—I suppose that that would be the right word—in helping to cover the deficit in the scheme. Unless it is made fairly clear that he must not go round charging huge amounts that are none the less immaterial to the scheme, he may be subject to challenge in the court.

We hope that the noble Baroness will repeat the point that she made about it not being punitive, but also, we suggest, it would be appropriate for the regulator to consider what effect the charge that he makes will have and whether it is significant in relation to the scheme as a whole. I beg to move.

Baroness Hollis of Heigham

My Lords, we discussed these amendments in broad terms in Committee and I am happy to make clear again, as I was invited to by the noble Lord, that the provision is about scheme funding and is not intended to be punitive. I am happy to give that assurance.

I repeat one argument from Committee. The amendment leaves unresolved how we decide what is a substantial effect on funding. In Committee, I asked: if it means £100 per member, is that substantial? That could be 10 per cent of some members' benefits or 2.5 per cent of others. How is the regulator supposed to decide?

However, when working on the amendments over the weekend, it struck me that there is a much more serious objection to the noble Lord's amendments that I had not grasped at first. I wonder whether he is comfortable with the implications of that. Those are that, on his account, it would mean that if the deficit was sufficiently large—let us say £2 million rather than £200,000—the bigger the scheme and the bigger the deficit and the bigger the shortfall, the less the likelihood, by definition, that any contribution could be substantial or could have a substantial effect on funding.

Therefore, under the amendment, the bigger the sin, so to speak—although I am trying not to use punitive language—so the bigger the deficit and the more likely that that contribution would not have a substantial effect. Therefore, the bigger the deficit, the more likely it is that the offender, or the person failing to make good, would get off without having to make a contribution. As a result, we would catch only the smaller deficits and the smaller fry.

In other words, the effect of the amendment would be that the bigger the pension deficit, the less likely it would be that the regulator could issue a contribution notice or an FSD. It would be only when a scheme was small or not very underfunded that the contribution would be substantial and therefore that the regulator could act. As I said, it just struck me that that cannot be what the noble Lord intends, but that is the consequence of his amendment in all logic—that is where I got to on Saturday. So I invite the noble Lord to reflect on that and see that that would be the consequence of his action.

The important thing is that if it is not punitive one is looking for a proportionate response, considering what resources the individual or company may have, and what effect serving a contribution notice or an FSD might have. I have already made it clear that we are not seeking to bankrupt or be punitive, but to go down the path of the amendment would mean that the bigger the deficit, the less leverage the regulator could have. I am sure that that is not what the noble Lord intends, so I hope that he will withdraw his amendment.

Lord Higgins

My Lords, I am grateful for that reply and, in particular, for her reiteration on the Floor of the House that it is not intended that any charge made by the regulator should be punitive. I understand her perception over the weekend concerning some aspects of the amendment. There are still some things about which I feel somewhat unhappy at the back of my mind concerning the relative size of the amount that the individual may have compared to the size of the scheme, but I am happy to let the matter rest at the moment, for the reasons that the noble Baroness mentioned. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Baroness Hollis of Heigham moved Amendments Nos. 46 and 47:

Page 29, line 15, leave out subsection (7).

Page 29, line 30, at end insert—

"() For the purposes of this section "insolvency practitioner", in relation to a person, means—

1. (a) a person acting as an insolvency practitioner, in relation to that person, in accordance with section 388 of the Insolvency Act 1986 (c. 45), or
2. (b) an insolvency practitioner within the meaning of section 119(9)(b) (persons of a prescribed description)."

On Question, amendments agreed to.

[Amendments Nos. 48 and 49 not moved.]

Clause 41 [Content and effect of a section 39 contribution notice]:

Baroness Hollis of Heigham moved Amendment No. 50:

Page 31, line 18, after "P" insert", or with P and other persons,"

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 51:

After Clause 42, insert the following new clause—