Pensions Bill

HL Deb 15 November 2004 vol 666 cc1195-224

3.8 p.m.

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

My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Pensions Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Read a third time.

Clause 4 [Regulator's functions]:

Baroness Noakes moved Amendment No. 1:

Page 2, line 30, leave out from "in" to end of line 31 and insert "subsection (3) of section 9 must, by virtue of subsection (2) of that section, be discharged by the committee established under that section,"

The noble Baroness said: My Lords, in moving Amendment No. 1, I shall speak also to the other 35 amendments in the group. It gives me particular pleasure to bring forward these amendments because, as noble Lords will see from the Marshalled List, the noble Baroness, Lady Hollis, has added her name to the amendments and therefore I have every reason to believe that they will be accepted by your Lordships' House.

I should like to place on the record my thanks to the Minister not only for listening to our debates on the issues lying behind the amendments, but also for ensuring that her officials assisted in the translation of those issues into the amendments before noble Lords today. I am well aware that with a Bill as complex as this, and to which it has been necessary to introduce so many government amendments, the last thing officials wanted in the final week of our consideration was to be told by a Minister to be helpful to an Opposition Peer. But the Minister's officials were both helpful and efficient and I should like to record my thanks to them for that.

I shall not labour the amendments. We discussed the Government's arrangements for the bodies created by the Bill both in Committee and on Report, prompted by amendments tabled by my noble friend Lord Lucas. I was particularly concerned that the proposals in the Bill to create a non-executive committee undermined the unitary nature of the boards that were being created.

Amendments Nos. 1 to 12 and 74 to 79 deal with the Government's arrangements for the regulator. Instead of a non-executive committee under Clauses 8 and 9 with a long list of functions, the effect of the amendments is to require a committee of the regulator's non-executive members to deal only with internal control and remuneration matters. This is fully in line with modern corporate governance practice in both public and private sectors.

In addition, the reporting requirements of Clause 12 have now been adjusted to ensure that the regulator's board as a whole reports on matters such as strategy, performance, targets and objectives, including how it will be monitored by the regulator. The remaining amendments in the group deal with the pension protection fund in a very similar manner.

In my view, the bottom line of the amendments is that the governance arrangements in the Bill are strengthened rather than weakened. I hope that the amendments will find favour with the House. I beg to move.

Baroness Hollis of Heigham

My Lords, the Clerks had to consider whether it was legitimate for the Government to support and add their name to the amendments of a Peer who, for this purpose, was appearing as a Back-Bencher. However, we decided in the greater interest of the public that it was the wise way to go. I am therefore pleased to share the moving of these amendments in regard to the non-executive functions of the pensions regulator and the PPF with the noble Baroness, Lady Noakes.

I thank the noble Baroness for her contribution in this matter and for her warm words of appreciation for the work of the officials. As she said, there is nothing more irritating than having to draft 35 consequential amendments at the last moment, as well as redrafting the original, in order to meet the express views of the House.

The noble Baroness has described very well the purpose of the amendments. They serve two main functions. Basically, they ensure that some key functions of both the pensions regulator and the board of the PPF are to be designated as non-executive functions, and for a committee to discharge them—for example, remuneration, review of internal finance and control functions. But the list of non-executive functions is now much shorter, which gives the regulator and board greater flexibility. So it moves away from a non-executive director board.

I confess that I am agnostic about these additional functions and the way that we have moved. However, if the noble Baroness is right that there should not be this kind of divided board, the practices and procedures of both the fund and the regulator will be stronger for it. If, however, she is wrong, the board under these amendments will retain full discretion to introduce such an arrangement. It seems to me that it is a win/win situation in which we delegate the decisions downward from government to the board and the fund on the ground. It is a very wise way forward.

I am delighted to support the noble Baroness. I thank her and, like her, I commend the amendments to the House. I should be rather taken aback if there were any opposition to them.

Lord Higgins

My Lords, those of us who have had practical experience of such boards recognised in the earlier discussions that if you were to set up an organisation within the board itself it might not be as unified as it otherwise would be and therefore less effective.

The way in which the Government have reacted is typical of how we have sought to improve the Bill. An enormous list of changes has been made as a result of debate, quite apart from those which the Government have introduced and those upon which we have had to vote. These amendments are in addition to that very large list. I join with my noble friend in expressing our appreciation to the Government for the way in which they have acted in this respect and to the officials who have carried out the drafting.

Lord Oakeshott of Seagrove Bay

My Lords, we on these Benches support the amendments. We are pleased that they have emerged in this way. We supported them in Grand Committee and we are happy to support them now.

3.15 p.m.

Baroness Noakes

My Lords, I am in the pleasant position of having agreement on all sides of the House. If this is what happens when the noble Baroness, Lady Hollis, is agnostic, I look forward to future occasions when she is a true believer.

On Question, amendment agreed to.

Clause 8 [The Non-Executive Committee]:

Baroness Noakes moved Amendment No. 2:

Leave out Clause 8.

On Question, amendment agreed to.

Clause 9 [Functions exercisable by the Non-Executive Committee]:

Baroness Noakes moved Amendments Nos. 3 to 9:

Page 4, line 25, leave out subsection (2) and insert—

"(2) The Regulator must establish a committee to discharge the non-executive functions on its behalf.

(2A) Only non-executive members of the Regulator may be members of the committee."

Page 4, line 29, leave out paragraphs (a) to (d).

Page 5, line 3, leave out "Non-Executive Committee" and insert "committee established under this section"

Page 5, line 6, leave out "Non-Executive Committee's" and insert "committee's"

Page 5, line 7, at end insert—

"( ) The committee may establish sub-committees, and the members of any such sub-committee—

1. (a) may include persons who are not members of the committee or of the Regulator, but
2. (b) must not include persons who are executive members or other staff of the Regulator."

Page 5, line 8, leave out "Non-Executive Committee" and insert "committee"

Page 5, line 12, leave out "Non-Executive Committee" and insert "committee"

On Question, amendments agreed to.

Clause 12 [Annual reports to Secretary of State]:

Baroness Noakes moved Amendments Nos. 10 to 12:

Page 7, line 18, after "prepared," insert "including the matters mentioned in subsection (2A),"

Page 7, line 19, leave out from "prepared" to end of line 20 and insert "under subsection (4) of section 9 by the committee established under that section."

Page 7, line 20, at end insert—

"(2A) The matters referred to in subsection (2)(a) are—

1. (a) the strategic direction of the Regulator and the manner in which it has been kept under review;
2. (b) the steps taken to scrutinise the performance of the Chief Executive in securing that the Regulator's functions are exercised efficiently and effectively;
3. (c) the Regulator's objectives and targets (including its main objectives as set out in section 5 or in any corresponding provision in force in Northern Ireland) and the steps taken to monitor the extent to which they are being met."

On Question, amendments agreed to.

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

Baroness Hollis of Heigham moved Amendment No. 13:

Page 28, line 31, leave out "11th June 2003" and insert "27th April 2004".

The noble Baroness said: My Lords, in moving Amendment No. 13, I shall speak also to Amendment No. 27, with which it is grouped.

I agreed to bring forward these amendments during the debate at Report stage. They relate to retrospection. Your Lordships were concerned that the power to issue a contribution notice in relation to acts occurring after 11 June 2003 was not sufficiently clear in the Secretary of State's announcement and that, as such, this retrospection could be challenged in the courts.

I said at the time that the Government believe that the limited retrospection proposed was proportionate as a matter of law; that we had taken advice and we thought that we were entirely secure. However, we accept that some might seek to challenge this, resulting in the regulator being tied up in court for a number of years and unable to act to protect members of the PPF. This would benefit only lawyers. It is for this reason that I have tabled these amendments which seek to limit the retrospective effect of both contribution notices and restoration orders to acts, or deliberate failures to act, in transactions at an undervalue which took place on or after 27 April 2004—the date suggested by the noble Lord, Lord Oakeshott.

When the clauses were debated in Committee in the other place and at the time we were discussing it, this seemed to be the way forward. I believe everyone feels that there is now a fair and reasonable playing field. Given that the Government have moved in the way I hoped we would be able to, I am confident that your Lordships will accept the amendment. I beg to move.

Lord Higgins

My Lords, the Government have again showed a flexible attitude in this difficult part of the Bill concerned with moral hazard and so on. It is entirely appropriate that the noble Baroness should bring forward these amendments, which we welcome.

Lord Oakeshott of Seagrove Bay

My Lords, having suggested the date in a previous debate, I am very happy to support the middle way as presently proposed.

On Question, amendment agreed to.

Lord Higgins moved Amendment No. 14:

Page 28, line 41, leave out "include those persons who" and insert "shall not include those persons who do not"

The noble Lord said: My Lords, from the wording of the amendment it is clear that this is a technical point. However, it is not unimportant. I shall deal with it as rapidly as possible but it is important that I make clear what is involved.

The clause we are seeking to amend is concerned with the tests that should be applied in relation to the issuing of a contribution notice where there is avoidance of employer's debt. We suggested at an earlier stage that the "knowingly assists" tests should be put in the negative—that is to say, the parties to an act or failure to act should not include those who do not knowingly assist.

The Government had some difficulty in understanding the point. It may be that I did not explain it as precisely as I might have done. We realise that the cause of the misunderstanding between the Government and ourselves is on the meaning of "party" in Clause 39(3)(a). If "party" means, broadly speaking, someone who actually signs documents or gives instruction on the act or failure to act, or otherwise actively participates in such an act or failure, the Government's approach is understandable. The Government will aim to catch those who sign up to an order or act or failure, and those who knowingly assist. In these circumstances the amendment I am proposing would be unnecessary. However, the Government have not defined "party"; there is therefore a danger that the party could be construed to mean anyone deemed to be connected with an act or failure to act, however remote. Hence, we are trying to limit that extremely wide range of people only to those who knowingly assist, which is why we have put the test in the negative. If we can misunderstand what the Government are driving at, then it is possible that the courts may do so and there will be subsequent disputes.

There are two ways around the dilemma. The Government can indicate that by "party" they mean almost anyone remotely connected with an act or failure and accept our amendment to limit that wide set of people to those who knowingly assist. Alternatively, they can indicate that by "party" they mean only those who, generally speaking, actually execute documents associated with the act or failure. In that case, we could reasonably withdraw our amendment. Presumably the well known Pepper v Hart situation would apply, in that what the Minister says in relation to this technical, but not unimportant, point would be taken into account by the courts.

So I hope that the Minister will either accept the amendment or clarify the situation in the way in which I have described. I beg to move.

Baroness Hollis of Heigham

My Lords, I am grateful for the way in which the noble Lord has introduced his amendment. I hope that I may be able to elucidate the matter in such a way that there is no ambiguity about it.

Our worry about accepting the amendment, which was the noble Lord's first option, is that it would create a dangerous loophole within the moral hazard provisions, which could allow those who are parties to the act of avoiding pension liabilities to avoid responsibility and prevent the regulator recovering any sum from them in relation to that avoidance.

Clause 39(6)(a) provides that the parties to an act or a deliberate failure to act include those persons who knowingly assist in that act or deliberate failure. The purpose of Clause 39(6)(a) is to ensure that a person cannot avoid a contribution notice by arguing that they were not a party to the act or deliberate failure, even though they had been the person who had made the act or deliberate failure to act happen.

The amendment would limit the people who can be a party to an act or deliberate failure to act to those people who knowingly assisted in that act or deliberate failure to act. It is possible that a person could be a party to an act or deliberate failure without having knowingly assisted in that act or deliberate failure. For example, if X enters into a contract with Y, then X is a party to the contract. However, it could be argued that X is not a person who has knowingly assisted with entering into that contract because X did the act—entering into the contract—rather than assisting with it. The amendment could prevent the regulator being able to issue X with a contribution notice, which runs entirely contrary to the policy.

It is unlikely that a person could be a party to an act or deliberate failure without that person realising that they are such a party. However, we cannot limit the imposition of contribution notices to people who were knowingly parties to acts or deliberate failures. This could leave the door open to people engineering a situation in which they made sure they did not have the requisite knowledge, or, at least, it was impossible to prove knowledge, something which we do not wish to encourage.

The regulator has to consider it reasonable to impose liability on a person. One of the factors that must be considered is the degree of involvement the person has had with the act. If, for example, a person had no conscious involvement in the act or deliberate failure, the regulator would take account of that in considering whether it was reasonable to issue a contribution notice.

Let me go over again the circumstances in which a contribution notice could be issued. It can be imposed only if a person was a party to an act or deliberate failure to act; and one of the main purposes of the act or deliberate failure was to prevent the recovery of the whole or any part of the debt that may be due; or, otherwise than in good faith, to prevent such a debt becoming due, perhaps through compromising the debt and so on; and the person is the employer or a person who is connected or associated with the employer. The fourth insurance net, so to speak, is that the regulator considers it reasonable to impose liability on the person to pay the amount specified in the notice.

When determining whether it is reasonable or not, the regulator must consider: the degree of involvement of the person in the act or failure to act; the relationship which the person has or has had with the employer, including, where the employer is a company, whether the person has or has had control of the employer; any connection or involvement which the person has or has had with the pension scheme; and if the act or failure to act was a notifiable event (under Clause 63), any failure by the person to comply with any obligation imposed on him to notify the regulator; 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—we are coming to that in a later amendment—and the financial circumstances of the person.

During the summer consultation, the issue of who could be served with a contribution notice was discussed. There was support for the Government's position that a person who was a party to an act or deliberate failure to act or who knowingly assisted in that act or deliberate failure should be potentially liable. It was agreed that there was sufficient protection for the innocent person who knowingly assists with the act, such as the secretary who types the contract, as that person would have to satisfy the other conditions for the imposition of a contribution notice. On the grounds that I have specified, they would not.

I have spoken at some length because of the noble Lord's reference to Pepper v Hart. I see that the question of where liability might fall could be of concern to some people. I hope that, with that rather full explanation, given all the safeguards in place and the need to engage the person who required the act to happen as well as those who assisted in it, which was one of the limitations of the proposal, the noble Lord will feel able to withdraw the amendment.

Lord Higgins

My Lords, I am most grateful to the noble Baroness. I understand why she does not feel able to accept the amendment, and I shall be withdrawing it. It is not always easy on these occasions to grasp precisely what is being said. I may be proved wrong when I read Hansard tomorrow, but my understanding is that the noble Baroness has met the points which we have sought to establish. If that is so, I am grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 43 [Section 39 contribution notices: clearance statements]:

Lord Lucas moved Amendment No. 15:

Page 33, line 23, at end insert— (2A) A clearance statement may contain terms that impose such obligations on the applicant, and such restrictions on the actions of the Regulator, as may be prescribed.

The noble Lord said: My Lords, in moving Amendment No. 15, I should also like to speak to the other amendments in the group.

In Committee, the Minister challenged me to go out and find some people in industry who would support the views I was putting forward on the implications of these clauses. I accepted her challenge, and I have been totally defeated—absolutely crushed. I went out into the market place, blew my bugle, and nobody came. Even my e-mails to certain senior persons in certain senior organisations were not returned. No, that is not entirely true. The Society of Turnaround Professionals—the STP—was there, but I suspect that, in honour of this occasion, its initials should stand for Sancho T. Panza.

The Minister's officials have been, throughout this episode, entirely courteous and helpful. In the correspondence that has taken place since Report, the Government's position has probably moved a little, so that we are closer to the spirit of Amendment No. 16 than that which would automatically be gathered from what the noble Baroness said on Report—that we are looking, as far as Clause 39 is concerned, at the conditions at the time. If somebody has not been clear enough or has not made it clear enough what the position is, the clearance statement can be revisited, not just because markets change some years down the road.

In Clause 39 and later provisions, I find it difficult to see how the new interpretations can be fitted within the wording. However, if the noble Baroness is happy—well, she has the troops and I do not. I shall certainly not think of pressing my amendments, but I beg to move.

Lord Oakeshott of Seagrove Bay

My Lords, that honest and straightforward contribution from the noble Lord, Lord Lucas, is entirely in character. It is useful that he explored the position; it has reinforced our views that the Government have the balance about right.

Lord Higgins

My Lords, the Government initially made various concessions on introducing a clearance procedure. My noble friend Lord Lucas has been assiduous in seeking to clarify exactly what that means. It may not be very easy to make sure that a clearance procedure operates so that it covers everyone in every conceivable circumstance. I believe that the Government probably have the matter right, and we look forward to hearing what the noble Baroness has to say.

3.30 p.m.

Baroness Hollis of Heigham

My Lords, I thought for one glorious moment that the noble Lord, Lord Lucas, was going to withdraw his amendments rather than seek a response from me. I was trying to think of the most helpful thing that I could do. Given that his concern was to see under what situations the insurance policy of the clearance statement might or might not hold, it would be worth spending a moment or two reading into the record two examples—one when it would hold and one when it clearly would not. However, as the noble Lord said, it would not stop any company revisiting the issue if it so wished.

I will start with the example of a contribution notice. If applied to, the regulator may issue a clearance statement binding itself from issuing a contribution notice in the circumstances described in the application. This statement can be given both before and after the act or failure to act has taken place. Clearance may be applied for on a number of grounds—for example: that the applicant is not a party to an act or a deliberate failure to act one of the main purposes of which was to prevent the recovery of the debt or to prevent such a debt becoming due and so forth, and it would not be reasonable to impose any liability on the applicant.

Let me explain my examples. Take an underfunded pension scheme that is attached to a company within a group of companies. The group as a whole is struggling. When seeking to renew their borrowing facilities, the lenders make it clear to the group that, although the pension scheme has outstanding liabilities, no further borrowing will be possible and indeed, existing facilities may be withdrawn. The group seeks alternative methods of funding, but is unable to find any. Without increasing its borrowing the group is facing insolvency and the loss of all jobs—1,000 or more.

The group considers alternative methods of reducing the cost of the pension scheme, from reducing future accruals, putting in place a recovery plan and increasing employee contributions, but the lenders are not satisfied with those proposals and continue to threaten the withdrawal of borrowing facilities. The group's only option is to make the company with the pension scheme insolvent. The Section 75 debt will then be due in full, but the scheme will rank alongside the other creditors of that company. The members of the scheme may receive compensation for the loss of their pension from the Pension Protection Fund.

The group has a number of reasons for its actions, the main ones being: to allow it to extend its borrowing facilities, to enable it to continue trading, to prevent the loss of its jobs and prevent the recovery of the Section 75 debt. An application is therefore made by a company in the group to the regulator for a clearance statement providing that it would not be reasonable to impose any liability on that company. The application will provide evidence to show the lenders' position, that alternatives have been considered and the reasons for the decision reached.

The regulator will consider the evidence and issue a clearance statement to the effect that it would not be reasonable in the circumstances to impose any liability under a contribution notice to that company. In deciding to make this statement, the regulator would have considered all the purposes of the act, including, for example, the implications for the jobs. If one month later those 1,000 jobs are lost the purpose of the act has not changed so the clearance statement will still be binding. However, the regulator then, by investigating, may find out that the circumstances were not as described in the application—for example, that evidence from the lending bank shows that it had not threatened to withdraw its lending facilities or minutes of a directors' meeting show that the group had decided to restructure and make redundancies prior to applying for clearance, or a statement is received from a director claiming that the purpose of the act in avoiding the pension liability was to increase profitability.

The regulator may consider that the circumstances in which it was considering issuing a contribution notice were not those described in the application and that there was a material difference. It therefore may consider itself not bound by the clearance statement. As I have already explained, it is therefore the case that Clause 43 clearance would bind the regulator to not issue a contribution notice unless the circumstances in the application for clearance for the act or failure are not the actual circumstances of the act or failure and that the difference is material. There is no disagreement between us on that.

Amendment No. 16 would make the clearance binding unless the regulator was materially and deliberately misled. I believe I have described that.

The amendments also apply to financial support directions (FSDs). I will give noble Lords another example because it is an area that has concerned the House. A company may wish to invest in another struggling company, which has an underfunded pension scheme, provided that it does not at the same time as investing in the struggling company have to guarantee the pensions liabilities. Doing that would make the investment an unattractive investment. The company therefore applies to the regulator for a clearance statement, sets out the recovery plan and details the expected return. The regulator issues a clearance statement, which is all fine.

Five years later, the investor company has turned the struggling company around. However, it has kept to the recovery plan and is making the return on investment that it detailed in the application. Therefore, the circumstances as originally outlined still exist and the regulator continues to be bound by the clearance until there is a material change in the circumstances.

However, were a material difference in circumstances to arise, or were there subsequently to be profitability, we would expect that pension scheme to be refloated. Again, there is no disagreement on that around the House.

With that detailed explanation of two examples, I hope that, although it was useful to raise the issue again, the noble Lord will none the less feel that he can withdraw his amendments.

Lord Lucas

My Lords, I am extremely grateful to the noble Baroness for that explanation, which has clarified a good deal some of the worries that were generated by our discussion at Report. I suspect that we will be able to let this Bill go and see how it works in practice. Given the general good will of the department, I am sure that it will choose a superb regulator and things will go well enough. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 16 to 18 not moved.]

Clause 45 [Meaning of "service company" and "insufficiently resourced"]:

Baroness Hollis of Heigham moved Amendment No. 19:

Page 35, line 24, leave out from "the" to first "the" in line 25 and insert "value of the resources of the employer is less than"

The noble Baroness said: My Lords, I listened carefully to comments made by noble Lords opposite in relation to the calculation of net assets. I tabled these amendments following the suggestion made by the noble Baroness, Lady Noakes, of replacing net assets with resources. The test now means that an employer is insufficiently resourced if at a particular time the value of its resources is insufficient to meet the prescribed percentage of the estimated Section 75 debt and there is a person—who falls within subsection 6(b) or (c) of Clause44—the value of whose resources is not less than the difference between the value of the employers' resources and the prescribed percentage.

Regulations will determine the meaning of resources. That may include matters which would not have been "net assets"—the point made very persuasively by noble Lords opposite. In considering how resources should be defined we will of course take into account those other matters which were drawn to our attention in the debate.

We are continuing to work and consult on the regulations dealing with how resources are to be defined. Of course these regulations will have to ensure that it is clear to all how the regulator will calculate, determine and verify the value of resources. Further help on this has been offered, which we appreciate, by the Institute of Chartered Accountants and we expect others who joined in our summer consultation also to take part.

In the light of that explanation, I reiterate that when we believed that noble Lords on both Benches opposite had a strong argument that resonated with the industry outside, we tried to accommodate that in conjunction with consultation on the regulations. I suspect that noble Lords will be happy to accept these amendments. I beg to move.

Baroness Noakes

My Lords, I briefly thank the Minister for taking away the amendments that we discussed at previous stages of the Bill and producing a very much better version. I am grateful that she listened and am sure that the Bill has been improved as a result of these amendments. Of course, as she herself mentioned, much of the hard work now starts to turn this into practicable regulations. I look forward to seeing those in due course.

Lord Oakeshott of Seagrove Bay

Amen, my Lords,

Lord Higgins

My Lords, one of the delightful things over the past 40 years has been the way in which the views of economists with regard to valuation and so forth have gradually been accepted by accountants. In the earlier debates I was delighted to see that my noble friend, a distinguished member of the accountancy profession, put forward the basic concepts that I used to teach at Yale a long time ago. I am even more pleased that there is general consensus on both sides of the House that the appropriate measure in these circumstances is that the term "resources" should be used, rather than "net assets". I am glad that the Minister has also been persuaded of that. We are very happy that we are making further progress in improving the Bill.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 20 to 22:

Page 35, line 28, leave out "who has sufficient net assets to meet" and insert "the value at that time of that person's resources is not less than"

Page 35, line 30, leave out "amount of the net assets" and insert "value of the resources"

Page 35, line 33, leave out "a person's net assets are" and insert "—

1. (a) what constitutes the resources of a person is to be determined in accordance with regulations, and
2. (b) the value of a person's resources is"

On Question, amendments agreed to.

Clause 47 [Financial support directions: clearance statements]:

[Amendments Nos. 23 to 26 not moved]

Clause 53 [Restoration orders where transactions at an undervalue]:

Baroness Hollis of Heigham moved Amendment No. 27:

Page 41, line 34, leave out "llth June 2003" and insert "27th April 2004".

On Question, amendment agreed to.

Clause 113 [The Non-Executive Committee]:

Baroness Noakes moved Amendments Nos. 28 to 34:

Page 83, line 23, leave out subsections (1) and (2).

Page 83, line 31, leave out subsection (4) and insert—

"(4) The Board must establish a committee to discharge the non-executive functions on its behalf.

(4A) Only non-executive members of the Board may be members of that committee."

Page 83, line 35, leave out paragraphs (a) to (d).

Page 84, line 19, leave out "Non-Executive Committee" and insert "committee established under this section"

Page 84, line 22, leave out "Non-Executive Committee's" and insert "committee's"

Page 84, line 23, at end insert—

"( ) The members of any sub-committee of the committee (established by virtue of paragraph 15(2) of Schedule 5)—

1. (a) may include persons who are not members of the committee, but
2. (b) must not include persons who are executive members or other staff of the Board."

Page 84, line 24, leave out "Non-Executive Committee" and insert "committee"

On Question, amendments agreed to.

Clause 115 [Investment principles]:

Lord Lucas moved Amendment No. 35:

Page 85, line 28, leave out subsection (3).

The noble Lord said: My Lords, the amendment was also discussed at Report stage. The Minister had the advantage of us, in that she had some draft regulations which I had hoped that I would see before Third Reading—but I have not.

Baroness Hollis of Heigham

My Lords, perhaps I may intervene to ask whether other noble Lords have received the draft regulations.

Noble Lords

No.

Baroness Hollis of Heigham

My Lords, they would not have been sent out in a blanket fashion to the whole House, but to those who participated in our previous debates.

Lord Oakeshott of Seagrove Bay

My Lords, Members on the Liberal Democrat Front Bench have not received them.

Baroness Hollis of Heigham

My Lords, I apologise.

Lord Lucas

My Lords, there is little that we can do now. I had hoped that between Report and Third Reading the Government might have considered what had been said and decided that my amendment would be a wise move. If they have not, I shall accept that. But in the hope that it might be accepted, I beg to move.

Baroness Hollis of Heigham

My Lords, I apologise profoundly, because I checked and was told that the draft regulations had certainly been sent to Members on the Front Benches and to those who had participated in our discussions. I made a particular point of checking and I was told that they had been sent on 11 November. I am therefore somewhat puzzled that they appear not to have reached your Lordships, given that today is 15 November. I am sorry, but we have now re-checked—I am assured that they were sent on 11 November. I apologise, because I had hoped that the draft regulations would have addressed noble Lords' concerns. There cannot have been an error by the department. I must assume that somehow they have been lost in the delivery system. I made a particular effort in trying to ensure that noble Lords received them by Third Reading, as I had promised. I shall try to obtain extra copies and ask the Doorkeepers to distribute them, if that is permitted, so that noble Lords can examine them before we finish today. I am distressed by this failure, which should not have happened.

Clause 115 establishes the requirement that the board must prepare, maintain and review a statement of its investment principles. This has long been a requirement for the trustees of occupational pension schemes. The amendment seeks to remove the power for regulations to set out procedures that the PPF hoard must adhere to before preparing or revising that statement. I had hoped that our previous debates on this subject had provided reassurance that the provisions in this clause were not designed to give the Government unfettered control over the board's investment principles. In our previous debates I offered to circulate a draft copy of the regulations which I had hoped that noble Lords would have had the opportunity to consider. As I say, I am distressed by the failure and will ensure that noble Lords reveive photocopies today.

During our most recent discussion of this clause, I was asked whether the intentions of subsection (3) could be met by the provisions in subsection (4). Regulations under subsection (4) will be concerned with the form and contents of the statement of investment principles and could not be used to require that the board considers relevant expert advice. That is why we wish to retain subsection (3) to provide for this important regulatory check.

I believe that it is reasonable for the board to be required to follow certain procedures in producing its statement of investment principles. This paragraph is about procedures rather than principles. We have provided the board with appropriate powers covering investment and statements of investment principles. I hope that we have demonstrated that we intend to use the provisions of this subsection in an entirely reasonable manner. Given that this matter relates only to procedures, not to policy control, I hope that the noble Lord, Lord Lucas, will withdraw the amendment.

Lord Lucas

My Lords, occasionally I fail to persuade the Government of the correctness of my views. This is such an occasion. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

3.45 p.m.

Clause 120 [Annual reports to Secretary of State]:

Baroness Noakes moved Amendments Nos. 36 to 38:

Page 87, line 11, after "prepared," insert "including the matters mentioned in subsection (2A),"

Page 87, line 12, leave out from "prepared" to end of line 13 and insert "under subsection (6) of section 113 by the committee established under that section"

Page 87, line 13, at end insert—

"(2A) The matters referred to in subsection (2)(a) are—

1. (a) the strategic direction of the Board and the manner in which it has been kept under review;
2. (b) the steps taken to scrutinise the performance of the Chief Executive in securing that the Board's functions are exercised efficiently and effectively;
3. (c) the Board's objectives and targets and the steps taken to monitor the extent to which they are being met."

On Question, amendments agreed to.

Clause 122 [Insolvency event, insolvency date and insolvency practitioner]:

Lord Higgins moved Amendment No. 39:

Page 89, line 2, at end insert—

"( ) a liquidator is appointed provisionally by the court under section 135 of that Act."

The noble Lord said: My Lords, we debated this matter in Grand Committee, but we were not generally happy with the answer. We believe that the amendment is in line with what the Government wish to do and we have retabled it.

As we said at that earlier stage, the purpose of Chapter 2 of Part 2 of the Bill is to require insolvency practitioners to report to the regulator if insolvency events occurred to the employer and the definition of "insolvency event", in Clause 119, is used elsewhere. As currently drafted, Clause 119 does not include the appointment of a provisional liquidator. Therefore, it would be possible for most of the requirements of the Bill relating to an employer in liquidation not to apply for the period of a provisional liquidation.

That would seem to be contrary to the intention of the Bill. Provisional liquidations tend to occur only as a short emergency measure pending a full liquidation. Nevertheless, there are cases when they become protracted. In addition, if the Government accept that the regulator should not have power to issue notices for any act or deliberate failure to act during the period that the legal effects of an insolvency event remain in force—generally while an IP is in place—the provision should also apply during the period of provisional liquidation.

The Government responded to that, but did not fully cover the point. The purpose of Chapter 2 of Part 2 is to put a duty on an insolvency practitioner to notify the PPF board, the regulator and the trustees of a scheme when an employer in relation to that scheme is in such financial difficulties that insolvency procedures apply. The nature of the insolvency event is not significant itself—it merely provides a convenient reference date for the notification procedures. The underlying financial difficulty of the employer is significant.

In other words, the Government have not addressed the underlying point that when an employer is in such financial difficulties that a provisional liquidator is appointed, that should be of concern to the PPF board. Apparently, such situations may continue for two or three years. In an ideal world we would hope that the trustees would be aware that an employer was in such a dire situation, but that is not necessarily the case and it would not be safe for the Government to rely on the trustees to know what was going on. There appears therefore to be a gap in the procedure of ensuring that the PPF board is properly notified in the event of a provisional liquidation.

I hope that that sums up the situation. This amendment would improve the Bill and, no doubt, the Minister will comment. I beg to move.

Baroness Hollis of Heigham

My Lords, I am grateful for the amendment, which gives me the chance to explain our approach to this matter. Regarding the noble Lord's particular query about how long a provisional liquidator would be in place—our expectation is that it would normally be six to eight weeks.

The amendment relates to the appointment of a provisional liquidator as a "first insolvency event". The court can appoint a provisional liquidator on or after the presentation of a petition for winding up. This is usually because it is satisfied that the assets of the company may be in jeopardy and that a provisional liquidator should be appointed to seek to secure its assets pending the hearing of the petition.

Those appointments—I think that this is the point the noble Lord proposed—have not been included as an "insolvency event" because they are interim measures pending the hearing of a winding-up petition. At that hearing the court may make a winding-up order—which we have already included as an insolvency event; indeed, the winding-up order is the pivotal insolvency event—but it may also decide not to make a winding-up order.

I have checked the statistics on the number of petitions presented and then withdrawn or dismissed. They may be of interest to your Lordships. In the approximately three months from October/November 2003 to December 2003/January 2004, the number of petitions presented was 5,915, both companies and bankruptcies. Of those, 2,700 were dismissed and 715 were withdrawn. So well over half failed to proceed to the next stage. That was the reason for doing this as we have.

Therefore, had we made the appointment of a liquidator an insolvency event as defined by the noble Lord but a winding-up order was not subsequently given at the hearing—as tended not to happen in half the circumstances I outlined—we would have created an artificial interim assessment period before the assessment period, with all the consequential implications for trustees and the PPF as well as the costs on the levy and the subsequent costs to the payers.

Therefore, with those statistics in mind, we believe that it is right to wait until the court decides to make a winding up order before the assessment period begins. However, I should like to assure the noble Lord, Lord Higgins, that if we were later to be persuaded by industry that we should shift our ground on this and that it would be appropriate to include this event as a qualifying insolvency event—though, given the information we have, we do not believe that it is appropriate—we already have the power to do so by regulation under Clause 122(5).

With those assurances, I hope that the noble Lord, Lord Higgins, will be able to withdraw the amendment.

Lord Higgins

My Lords, I am grateful for that explanation. Obviously, if the delay is only a matter of a few weeks, then, except in extremely dire circumstances, it would not be particularly important. On the other hand, if the matter drags on for two or three years, then it is. However, the noble Baroness has been clear that if it subsequently turns out that this part of the Bill needs changes, then it will be possible to do so by order. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 128 [Duty to assume responsibility for schemes following insolvency event]:

Baroness Hollis of Heigham moved Amendment No. 40:

Page 94, line 20, at end insert "and"

The noble Baroness said: My Lords, this group of amendments relates to the Written Statement from my right honourable friend Mr Malcolm Wicks made in another place on Monday. I understand that that Statement has caused considerable interest in the media and in your Lordships' House. I am also aware that there has been some confusion about the Statement, and an idea, which is untrue—I am perfectly happy to enlarge on this if your Lordships wish—that the Statement made the PPF "retrospective". I should like to reassure the House that that is not the case. Moreover, it would be unfair if it were the case.

The Statement made on Monday simply confirmed how existing provisions in the Bill would apply. It has come to our attention from a number of people within the pensions industry that some pension scheme trustees were unaware of how the Bill's provisions would operate. We thought it essential to confirm the position in order to help trustees to make more informed decisions about the future of their pension schemes.

The Pensions Bill states that in order for a PPF assessment period to start, first, an eligible pension scheme must not commence wind-up prior to the introduction of the PPF; and, secondly, for schemes which are subject to UK insolvency law as defined in Clause 122 of the Bill, the sponsoring employer of the scheme must also have a qualifying insolvency event after the introduction of the PPF. So there must not yet be a wind-up, but there must be a qualifying insolvency event. Those are the two key triggers.

The position has not changed and the Statement merely elucidated that. As both the commencement of scheme wind-up and the qualifying insolvency event occur after the PPF has been introduced, the PPF has not, and cannot, become "retrospective". We merely wished to make it clear that if the sponsoring employer had experienced any insolvency events before the introduction of the PPF, those previous events would not in themselves disqualify schemes from entering the PPF. What matters is not that there was an insolvency event but that there was a qualifying insolvency event and, beyond that, wind-up.

Over the past few months we have been looking at whether we should use the power in Clause 128(3)(c). This power would have enabled us to prescribe the circumstances which would disallow an otherwise qualifying insolvency event in relation to a sponsoring employer. The Statement issued on Monday made it clear that we do not intend to use that power. We are therefore now seeking in our amendment to remove this power from the Bill.

In order to maintain consistency in our approach to the PPF entry rules and the fraud compensation application process, we are also proposing to remove an identical reference from Clause 183(8). Removal of this reference may mean that a few more qualifying insolvency events occur in relation to schemes that may be able to apply for fraud compensation.

I think that I am right in saying that the noble Lords, Lord Higgins and Lord Skelmersdale, tabled amendments which have the same effect as ours, to remove this power from the Bill. Parliamentary counsel have drafted the government amendments and are confident that this drafting will achieve what the noble Lords would like it to do. For that reason, I hope that the noble Lord, Lord Higgins, is able to accept the government amendment and to withdraw his own. I beg to move.

Lord Higgins

My Lords, as the noble Baroness rightly pointed out, the genesis of this amendment arises from the Written Statement that was made to the House last Monday but that, generally speaking, did not become available to the public or ourselves until the Tuesday morning. It was a matter of some astonishment when we discovered that. The noble Baroness did, of course, repeat the Statement made by her right honourable friend in another place. The final section of it read: The Pensions Bill provides a power that could be used to exclude schemes that have an insolvency event before the PPF is launched. We wish to make clear that we have no plans to use this power".—[Official Report, 8/11/04; col. WS17.] Both the noble Baroness's amendment and ours therefore knock out the clause that the Government do not wish to use. That seems appropriate, although I understand that we have had representations today saying, quite the contrary, that we ought to leave it in in case it is needed. But at all events, the Government do not propose to use it. It seems sensible, therefore, to knock it out.

What gave us great cause for concern, however, was that this information was not available to us during our debates last Monday. Moreover, the other place did not have it ahead of oral Parliamentary Questions. I think that it would have been helpful if it had been available.

Another apparent point of substance which gave us cause for concern was that the Government seemed to be moving the boundaries. We come in a later group of amendments to the question of whether there is a gap between the FAS coming in and the PPF coming in—or whether, indeed, instead of a gap there is an overlap. In those amendments, we are seeking to have one of them in place precisely at the moment when the other begins. However, the Written Statement seemed to move the dividing line—assuming that it was neither an overlap nor a gap—to a later date than we had originally expected. The consequence of that would be to shift the responsibility for, for want of a better expression, "bailing out" the pension scheme from the FAS, financed by the Treasury. There is a division of opinion on this; there are nods and shakes of heads on the other side of the House, no doubt recorded faithfully on television, which show a degree of confusion.

The impression was that the dividing line had been moved later in time—for example, in the particular case of, I think, Turner & Newell, and so on. The effect would be to remove the burden and strain on what is undoubtedly a totally inadequate sum for the FAS—£400 million spread over 20 years—and to place that strain on to the PPF. Indeed, all the way through, ever since the Chancellor was pushed into giving the £400 million figure, with no basis for calculating such a figure, the impression has been that he is trying to get out of as much of that as possible.

When we saw the Written Statement, belatedly as I say, our impression was that the Minister was effectively shifting the cost of bailing out such schemes from the taxpayer to the levy payers, who are already suffering severely. That was rather borne out by reports—for example, one in the Times of 12 November which stated: The NAPF were infuriated earlier this week when the Minister appeared to break his promise to the industry that the PPF would not be open to companies that became insolvent before April 2005". If the noble Baroness says all of this is a complete misunderstanding and that there is no such shift, we shall be reassured that the fears expressed by the NAPF, and others, are groundless. However, it is still my impression that what is happening as a result of this Statement is what we supposed; namely, the dividing line did not apply to the date that we thought it did, but was moved to a later date with the consequent adjustment of costs from the FAS to the PPF.

4 p.m.

If the noble Baroness assures me that the NAPF and others have misunderstood the situation, we shall need to consider very carefully the way in which she explains that misunderstanding. The Written Statement, which is an unsatisfactory form of announcement in any case in my view, appears to have created considerable confusion and concern. Be that as it may, certainly the case for knocking out the clause that will not be used, and which we and the Government want to knock out, constitutes a good amendment. We are happy to go along with the Government's version of it.

Lord Oakeshott of Seagrove Bay

My Lords, I wish to put one matter on the record as a matter of clarification and simplification, of which we are a little short. I have now been handed a copy of the Minister's letter of 11 November to the noble Lord, Lord Higgins, copied to me and others, which I have received. I am bound to say that it includes a draft regulation so to that extent clearly there has been a misunderstanding. The letter concerned various matters. I am happy to confirm that I have received it.

I have listened carefully to the Minister's comments on this amendment and the Written Statement. No doubt she will tell me that it is all there somewhere, but, given the confusion and the concern that have arisen in industry, if she could tell us in words of one or very few syllables what the qualifications are for an employer's qualifying insolvency event, as she described it, I think we would all be clearer.

Baroness Hollis of Heigham

My Lords, I am grateful to the noble Lord, Lord Oakeshott, for acknowledging that the regulations were tucked away behind a covering letter, if I can put it that way. As I say, they tend to go out in bundles of stuff due to the assiduity of noble Lords' requests for information and comment. Therefore, we package them up. I hope that other noble Lords have also had the opportunity to study that information although I can quite conceive that they may not have noticed the regulations as they are very short and were tucked at the back of the letter. As I say, I am grateful to the noble Lord, Lord Oakeshott, for acknowledging that he at least has received them.

I accept that much concern and confusion has arisen. I hope it will help if I spend a little time trying to track how all of this fits together. We have made reasonably fast progress and, therefore, I do not think that anyone can accuse us of exhausting the patience of the House.

An insolvency event is described in Clause 122. It qualifies if it takes place after a particular day—which is 6 April 2005—and it occurs in respect of an eligible scheme. An eligible scheme is defined in Clause 127, with its consequent regulations, which states that an eligible scheme would not include a money purchase scheme, a single member scheme, a scheme not recognised by the Inland Revenue or schemes such as public sector schemes guaranteed by Crown guarantee. An eligible scheme would not have started wind-up prior to 6 April 2005. Therefore, an insolvency event applies to those schemes that qualify after a particular day in respect of an eligible scheme. That defines "eligible scheme".

Ambiguity arose—that is why we considered that we needed the Statement—as there was a power under Clause 128 which would have allowed us to prevent an insolvency event becoming a qualifying insolvency event. That power would have been used where we feared that trustees had colluded in delaying insolvency. We were trying to avoid a situation of manipulation. That is why the power was originally included in the Bill. However, we have taken advice from insolvency practitioners and the Insolvency Service. They advised us that it would prove almost impossible to distinguish between a matter that was simply taking a long time due to the complicated nature of the scheme involved and something that involved a possible manipulation of the evidence. We were advised that it would not be possible to make those distinctions very easily. Given that we could not clarify the distinction on which the purpose of the power in the regulation hinged, and therefore we would not use that power, we thought it wise to seek to withdraw that power. I believe that the noble Lord accepted that.

Therefore, if an employer goes into insolvency, he can come into the PPF, as was always the case—that has not changed since the Written Statement was issued—if he has a qualifying insolvency event after April 2005. For example, an employer could be in administration now or could have entered a voluntary arrangement—both of those could constitute part of a business rescue—but if after 2005 those moves fail and that company moves into liquidation, it would then be entitled to enter the PPF provided all the other eligible criteria were met.

The insolvency definition is cast broadly compared with the 1995 Act, which dealt only with the final insolvency event. However, what is key is the date of wind-up. There is absolutely no ambiguity about that. It has not changed at any stage. There could be a long chain of preceding events that might take two or three years or those events might take place very quickly in a few months. What matters is the wind-up. The implications for FAS remain unaltered. Schemes that start wind-up before 5 April 2005 could be eligible for FAS assistance depending on the start day of FAS and other considerations, which have yet to be bottomed out. However, if a scheme started wind-up before 2005 and it was solvent and then became insolvent, we would obviously need to consider whether there could be full buy-out.

I understand that NAPF did not want us to delete the power because it considered that it was a useful moral hazard deterrent. Given the general problems of trying to define what is simply an elongated period of administration as opposed to manipulation, we believe that effective protection is offered by Clause 127(5). We brought forward an amendment on Report to prevent compromises below the PPF level of benefit. In those very rare circumstances where it is clear that manipulation has occurred—for which this power was originally designed—we can address that problem through another part of the Bill.

I hope that I have done what noble Lords sought: that is, to define what counts as an insolvency event which has to qualify after a particular day and in respect of an eligible scheme. I hope that I have defined what counts as an eligible scheme. I think that is fairly obvious. I also hope that I have explained that, crucially, an eligible scheme with an insolvent employer has to have started wind-up after 6 April 2005. That was the situation before the Written Statement was issued and remains the situation. It has not changed. However, it is worth clarifying. I hope that that additional information has been useful to your Lordships.

Lord Higgins

My Lords, before the noble Baroness sits down, I think that we are agreed on knocking out this clause. However, on the wider issue that we are discussing, the noble Baroness seemed to say that there was a danger that schemes delayed proceedings in order to enter the PPF instead of the FAS because the terms of the former were more advantageous. It seems to us that the Written Statement achieved precisely that. It enabled some schemes to delay proceedings in order to enter the PPF rather than the FAS. We came to that view in part due to the Written Statement, which said that, eligible schemes, whose sponsoring employer has already entered into insolvency proceedings may still be able to receive PPF compensation".—[Official Report, Commons, 8/11/04: col. WS 17.] It looked as though the crucial date was the beginning of insolvency proceedings. The noble Baroness is now saying that we have all misunderstood that, and that it is actually the wind-up. If so, why are we dealing with the insolvency proceedings at the beginning at all? It certainly has not been clear, in Committee or at Report, that the crucial date is the wind-up. It will then be easier for companies to delay that procedure in order to get the PPF, and the Government seem to be encouraging that.

Baroness Hollis of Heigham

My Lords, a scheme can perfectly well wind up without being insolvent, so one cannot hinge the matter on the wind-up. Three interlocking factors have to be read across. The first is what counts as an insolvency event; the second is what counts as an eligible scheme; the third is the timetable of wind-up. One cannot pull individual provisions out and start changing the words around, but if noble Lords read Clauses 122 and 127 in conjunction, they should get there. The delay for insolvency requires consent of all creditors involved, which could make it difficult for trustees to control insolvency proceedings.

We are not shifting the line to send more on to the PPF in order to protect the FAS, which I think was the worry for noble Lords. Our position has not changed; this is a clarification. We have always been clear about the importance of wind-up, but we cannot only use wind-up, because it could refer to something wound up outside the insolvency, perhaps before a DB scheme is replaced for new members by a DC scheme. We have an interlocking insolvency event triggered after a particular day and in respect of an eligible scheme under Clause 122. We have a definition of an eligible scheme that should not have started wind-up prior to April 2005. We then have the definition of wind-up. Put them together and the line has not shifted.

The FAS and the PPF have the distinct territories that they have always occupied. The noble Lord's concerns were obviously shared by trustees, so we sought to clarify them. I hope that this additional debate will further clarify the situation for trustees.

Lord Oakeshott of Seagrove Bay

My Lords, exactly where have we got to on my question about what a qualifying insolvency event is for the employer? Perhaps the noble Baroness will confirm something that I think I heard her say. So far as this part of the interlocking requirements is concerned, did she say that an employer in administration before April 2005 that went into liquidation after April 2005 could be subject to the other interlocking requirements and be eligible for the PPF? I would like that to be clearly stated. Could receivership also be included? Given that a company in that situation in administration is clearly in pretty extreme financial difficulties, if what we are talking about has not happened by 2006, what sort of risk-based levy does she think that such a fund will pay to the PPF?

Baroness Hollis of Heigham

My Lords, on the second point, I thought that the noble Lord was going to ask how the PPF could afford to pay, in which case I would have said that the liabilities for members would have fallen in over time, rather than with the big bang that people will suggest. In terms of the proportion of risk-based levy falling on companies in such a situation, inevitably any such company would wish to remain with a flat-rate levy as long as possible. A risk-related levy would obviously be relatively burdensome to that company, and one would not wish to see the payment of the levy itself tip the company over into the very thing that the levy sought to avoid. That is right.

In terms of the insolvency event, I am not sure about receivership; I want to check on that. Basically, for any company going into administration, what counts as a qualifying insolvency event is that an eligible scheme goes into wind-up after April 2005. I want to hold on to that. I need clear legal advice on receivership and do not have it at the moment; I shall write to the noble Lord.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 41:

Page 94, line 26, leave out from "event" to end of line 27.

On Question, amendment agreed to.

[Amendment No. 42 not moved.]

4.15 p.m.

Clause 176 [Pension protection levies]:

Baroness Hollis of Heigham moved Amendment No. 43:

Page 135, line 27, after "liabilities, insert— ( ) the likelihood of an insolvency event occurring in relation to the employer in relation to a scheme,

The noble Baroness said: My Lords, this group includes both government and opposition amendments. The amendments tabled by the noble Lords, Lord Higgins and Lord Skelmersdale, would make two changes to the Bill. They would require the board to take account of, first, insolvency risk when setting the risk-based pension protection levy, and, secondly, a scheme's liabilities when setting the scheme-based pension protection levy.

We believe that the risk of insolvency and the level of a scheme's liabilities are important factors that the board should take into account. We are all in full agreement on that. Where I think that we have a difference of opinion is in our assessment of the difficulties that the board would face in taking those factors into account. At present, there is no consistent measure for determining the risk of an insolvency event. One proxy that has been suggested is to use credit ratings. However, they do not apply to all employers, such as those with two member DB schemes, of which there are around 1,600. That could be considered unfair.

We must also consider the information-gathering requirement that the amendments would place on the board. They would mean that the board might have to collect information on insolvency and liabilities for each and every eligible scheme. Furthermore, the level of a scheme's liabilities could he considered a crude measure of the level of risk posed to the PPF, so the amendments would require the board to duplicate, to some extent, the role of the risk-based pension protection levy. It would be better to give the board the flexibility to take such factors into account as it sees fit.

All that said, the House is clearly of the view that those factors are so important that they should be included in the Bill. Therefore, in the spirit that we have tried to show so far, we are willing to move on the opposition amendments. The noble Lord, Lord Higgins, has kindly allowed me to group with them a set of government amendments. They do exactly the same as the amendments tabled by him, but, as drafted by parliamentary counsel, are consistent in style with the existing clause. They also include the necessary consequential amendments, such as ensuring that all the numbering is correct.

I am not sure that we need the amendments but it seemed that they would do no harm, and might avoid some harm. Noble Lords were very clear in earlier discussions that they felt it important that we move towards them on the matter. We have tabled the amendments in lieu of those of the noble Lord, Lord Higgins, so I urge him not to press his and to accept ours. I beg to move.

Lord Higgins

My Lords, we have already made it clear that we are against retrospection in many respects. None the less, I want to say a word or two about the missing statutory instruments. The noble Baroness has been extremely helpful—not only on this Bill, but on earlier pension Bills—in letting us have regulations at the earliest possible moment. If there seems to be some mechanical breakdown at this stage, we understand that she would not have wished it. They may have been attached to some other correspondence and consequently, given the pressure under which we are all working at present, one looked at the first page, thought it not relevant to this afternoon and put it on one side, but the important bits were at the back. That may explain what has happened; I am not sure.

Another point—it is completely out of order—is that the amendments are a result of representations that we received from Allied Domecq and others. Many of our amendments are a reflection of representations that we have received from outside. Again, one does not generally have the resources to thank everyone in reply. We must rely on our fans to read Hansard or consult the web to realise that their points have been taken into account. That does not mean that we do not appreciate the advice given, irrespective of whether we take it.

However, the principle of the amendment is that it should be compulsory rather than optional to take into account the likelihood of an insolvency event occurring in relation to an employer when assessing the risk-based nature of a scheme. It is argued that there is no point in looking at the likelihood of an insolvency event in relation to a small firm, but we think that the same principle of risk assessment should apply to all firms—not only large and small ones—which pay a levy for the PPF.

This matter relates to some of our earlier debates. We want to consider the extent to which problems will occur in distinguishing between the situation for large and small firms. But we should take into account whether an insolvency event is likely to take place, and that should not be optional.

My understanding is that effectively the Government accept that position—the noble Baroness nods her head. In that case, we are grateful to her for taking the matter into account, and no doubt those outside who made representations will be equally grateful. I thank the noble Baroness and shall not move my amendments in this group.

Lord Oakeshott of Seagrove Bay

My Lords, as noble Lords will recall, we also welcomed these amendments in Grand Committee. Indeed, at Second Reading we strongly expressed the view that the risk-based levy should be based effectively on the joint risk of employer insolvency and the underfunding in the pension scheme. We are very pleased that it is moving in that direction.

The noble Baroness referred to the difficulty of assessing a risk-based levy for very small pension schemes, and—rather late, I fear—we have received from the National Association of Pension Funds suggested amendments to reflect that point. The association suggests that a risk-based levy should not be calculated for the very smallest schemes. In view of the fact that those amendments were not received in time for us to table them for Third Reading, it is only fair to warn the Government that my honourable friend Steve Webb will be seeking to raise this issue in the Commons tomorrow. I think that a genuine point has been raised with regard to very small schemes, but that should not deflect from the importance for most funds of this approach, which we welcome.

Lord Lucas

My Lords, perhaps I may also apologise for suggesting that the regulations were not circulated. I recognise the front page, and I recognise having put it in the pile because I thought that it related to the amendments of my noble friend Lord Higgins and not the point that I had raised. Given that insolvency will be incorporated in this way, can the noble Baroness say whether the judgments reached on the risk posed by insolvency and debt will be a matter of public record? Will they be the kind of thing to which people turn in assessing a public company or will they be "commercial in—confidence" and never released?

Baroness Hollis of Heigham

My Lords, I do not know the answer to that question. I suspect that it is "possibly not", but I shall follow that up in writing. I am amused that the noble Lord, Lord Lucas, thinks that comments from this Bench to the noble Lord, Lord Higgins, have "nothing to do with him, guv", but I suspect that that says more about the situation on the Benches opposite.

Noble Lords

Oh!

Baroness Hollis of Heigham

Cheap it was indeed, I accept.

The noble Lord, Lord Oakeshott, said that, as a result of the NAPF amendments, his honourable friend may move amendments in the other place. I am concerned about that because I tried to make that case extensively in Grand Committee and on Report but the Benches opposite would not accept my arguments. I do not want to provoke a row about this, but I think it is a little unfortunate that they would not accept the Government's concerns that we may need to keep the flat-rate levy for very small schemes.

When I tried to make that key point on behalf of the Government, it was not acceptable. However, when, beyond the appropriate time, NAPF takes exactly the same line as the Government, we hear that amendments may be moved in the Commons. If I may say so, I do not think that that is the right way to proceed. If people are not persuaded by the Government, I cannot see that they will be persuaded by NAPF running the same argument. It seems to me that if the arguments are valid, they are valid whoever raises them. I do not want to carp but I do not feel that this is the right way to proceed. I try to take on board arguments wherever their merits fall.

Lord Oakeshott of Seagrove Bay

My Lords, I am grateful to the noble Baroness. Clearly, what she said warrants a response. I was merely trying to be courteous by warning her about what may happen in the Commons tomorrow. As I understood the matter, and as we heard at length in Grand Committee, the noble Baroness did not accept the arguments that we put forward for a risk-based scheme. She argued that we could not move rapidly to a risk-based scheme, but that was a very different approach and a very different context. We have now reached this point and we are clearly seeking effectively to close off one loophole. But it seems to me that the approaches are different. If the noble Baroness had accepted what we were saying in Grand Committee, the matter would have been sorted out.

Baroness Hollis of Heigham

My Lords, on the contrary, what has not changed is the situation on transitional arrangements. Therefore, this provision applies to when the transitional arrangements have ended, by which time we shall indeed be in that situation. However, that is now in the past.

Perhaps I may respond to the point raised by the noble Lord, Lord Lucas. Precisely because the information on insolvency, whether it is to he made public or otherwise, will probably be regarded as commercially sensitive for firms, I suspect that the answer to his question will be "no". However, I shall take full advice on the matter and come back to him. I think that the noble Lord will understand that perfectly well. I hope that the Opposition will accept the Government's amendment and that, as a result, the Government will be able to encourage noble Lords not to press the opposition amendments.

On Question, amendment agreed to.

[Amendments Nos. 44 and 45 not moved.]

Baroness Hollis of Heigham moved Amendment No. 46:

Page 135, line 31, leave out from "to" to end of line and insert"—

1. (i) the amount of a scheme's liabilities to or in respect of members (other than liabilities in respect of money purchase benefits), and
2. (ii) if the Board considers it appropriate, one or more other scheme factors mentioned in subsection (4)."

On Question, amendment agreed to.

Lord Skelmersdale moved Amendment No. 47:

Page 135, line 34, leave out paragraph (a).

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

Baroness Hollis of Heigham

My Lords, there is a typo on my briefing note as both the Opposition and the Government seem to have tabled Amendment No. 47.

Lord Skelmersdale

My Lords, I took the liberty of moving it.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 48 and 49:

Page 135, line 39, after "The" insert "other"

Page 135, line 39, leave out "(2)(b)" and insert "(2)(b)(ii)"

On Question, amendments agreed to.

Lord Skelmersdale moved Amendment No. 50:

Page 136, line 1, leave out paragraph (c).

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendment No. 51:

Page 136, line 6, leave out paragraph (a).The noble Baroness said: My Lords, the Opposition tabled the amendments in this group on Report. The amendments required that the initial period would start on the appointed day and end on the following 31 March or 12 months after the appointed day and that the board must set both a risk-based pension protection levy and a scheme-based levy for each financial year falling after the initial period, subject to modifications by Clause 181.

The noble Baroness said: My Lords, the effect of the amendments—this goes back to my previous discussion with the noble Lord, Lord Oakeshott—was that the initial period could not be any longer than 12 months and that from the end of the transitional period the board would be obliged to set both a risk-based and a scheme-based pension protection levy in respect of all schemes.

That created two problems. First, the possibility that the initial period could end 12 months after it began meant that the initial period could end after the start of a financial year—for example, if the initial period began in June. Secondly, the amendment to require the board to set both levies left a number of references to a single levy in the Bill. Some further technical consequential amendments are therefore necessary.

The amendments introduce a regulation-making power to Clause 181, which concerns pension protection levies during the transitional period. This is a power to modify the clause in the event that the transitional period does not begin on 1 April. The modifications would alter references so that the provisions under Clause 181 could apply to a period which began part way through the financial year—for example, the regulations would change references to "financial year" to "financial year or part year". Such modifications could apply only for a limited period of time. They would apply to the period from the start of the transitional period to the following 31 March, and then everything would be back on track again.

The other amendments in the group delete references to a single levy throughout Clauses 176, 177 and 179. In view of what I have just said, which delivers on opposition amendments, I encourage noble Lords to accept the amendments, unless they wish to revisit the issue in its entirety. I beg to move.

4.30 p.m.

Lord Higgins

My Lords, I always worry when amendments are expressed as "just technical" and they are rushed through. If I understand the matter correctly, these amendments are consequential as a result of previous votes.

Baroness Hollis of Heigham

My Lords, that is correct.

Lord Higgins

My Lords, I am most grateful.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 52 to 55:

Page 136, line 8, leave out "levy or"

Page 136, line 11, leave out "levy or"

Page 136, line 12, leave out "levy or"

Page 136, line 26, leave out "a pension protection levy or" and insert "pension protection"

On Question, amendments agreed to.

Clause 177 [Supplementary provisions about pension protection levies]:

Baroness Hollis of Heigham moved Amendments Nos. 56 to 58:

Page 136, line 35, leave out "a levy or"

Page 136, line 38, leave out "levy or"

Page 136, line 41, leave out "any pension protection levy" and insert "the pension protection levies"

On Question, amendments agreed to.

Clause 179 [The levy ceiling]:

Baroness Hollis of Heigham moved Amendments Nos. 59 to 61:

Page 137, line 35, leave out "a levy is or"

Page 137, line 38, leave out "a levy is or"

Page 137, line 42, leave out "a levy is or"

On Question, amendments agreed to.

Clause 181 [Pension protection levies during the transitional period]:

Baroness Hollis of Heigham moved Amendment No. 62:

Page 139, line 29, at end insert—

"( ) If the transitional period begins with a date other than 1st April, regulations may provide that any provision of this section or of sections 176 to 180 applies, with such modifications as may be prescribed, in relation to—

1. (a) the period beginning at the same time as the transitional period and ending with the following 31st March, and
2. (b) the financial year which begins immediately after that period."

On Question, amendment agreed to.

Clause 183 [Cases where fraud compensation payments can be made]:

Baroness Hollis of Heigham moved Amendments Nos. 63 and 64:

Page 141, line 37, at end insert "and"

Page 141, line 45, leave out from "event" to end of line 46.

On Question, amendments agreed to.

Lord Higgins moved Amendment No. 65:

Before Clause 240, insert the following new clause—