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Mr. Deputy Speaker (Mr. Michael Lord): With this, it will be convenient to discuss the following: Government new clause 12--Excessive pension contributions made by persons who have become insolvent: Scotland.
Government amendments Nos. 29, 53 to 62 and66 to 77.
Mr. Timms:
One of the main themes of our programme for welfare reform is that people should be encouraged to save for retirement if they can. However, when a person is made bankrupt, any pension arrangements that he has may be jeopardised. In some cases, pension rights can be seized by a trustee in bankruptcy and all the pension savings lost.
The existing clause 11 will ensure that in future, if a person becomes bankrupt, any rights that he has in approved pension arrangements will be protected. The protection will apply to occupational pensions, personal pensions and in due course to stakeholder pensions. I acknowledge the support that Opposition Members gave to that principle in Committee. However, we cannot give absolute protection to pension savings. There needs to be some safeguard to prevent people who are falling into bankruptcy--[Interruption.]
Mr. Deputy Speaker:
Order. Conversations are breaking out throughout the Chamber. The House ought to listen to the Minister who is addressing the House.
Mr. Timms:
Thank you, Mr. Deputy Speaker.
There must be safeguards to prevent people who are falling into bankruptcy from deliberately seeking to put assets into their pension in order to avoid their legitimate
obligations to creditors. We need to strike a balance between safeguarding pension savings and the rights of creditors. New clauses 11 and 12 provide that safeguard. Their purpose is to prevent people from using an approved pension arrangement deliberately to put money beyond the reach of creditors.
Under the provisions in the new clauses, if a trustee in bankruptcy believes that excessive contributions have been made to a pension, he will be able to apply to a court for an order to recover the amount of those excessive contributions.
Mr. Nick Hawkins (Surrey Heath):
Will the Minister explain why "excessive" is not defined?
Mr. Timms:
What is or is not excessive will be for a court to determine. I shall set out in a moment the issues that the court will have to address.
If the application is successful, the pension scheme will be required to pay a sum to the trustee in bankruptcy. That sum will then form part of the bankrupt's estate so that it can be used for the benefit of creditors.
The question that the court will have to address in considering whether there have been any excessive contributions is whether the making of any of those contributions has unfairly prejudiced the creditors. In coming to a view on that question, the court will be directed by the clauses to consider two matters in particular: first, whether any of the contributions were made for the purpose of putting assets beyond the reach of creditors; and secondly, whether the total amount of contributions was excessive in view of the individual's circumstances when they were made.
As the House will know, we have consulted on these proposals. A number of the responses were concerned about how a court would decide on excessive contributions, and it might be useful if I deal with some of those points. One particular concern was whether ordinary, standard contributions to a pension required by the rules of the scheme could ever be regarded as excessive. In the vast majority of cases, we would not expect a court to rule that they were excessive.
I can assure the House that the measure is designed as a deterrent, and is aimed at that small group of people who might try to defeat their creditors. We would expect only a handful of cases each year to be taken to court.
In addition to the new clauses, there are various related amendments. The most important is amendment No. 68, which is a further amendment to the Insolvency Act 1986. As I said, new clauses 11 and 12 allow for excessive contributions to a pension to be recovered for the benefit of creditors. However, the legislation also needs to deal with the situation when the pension is shared, under other provisions contained in the Bill.
If a couple divorce, they will be able to share the pension as a result of the pension-sharing measures in the Bill. Following the pension share, the pension scheme member may become bankrupt. Under the new clauses, a court could find that the bankrupt's pension is to some extent made up of excessive contributions, moneys that properly ought to have been available for creditors. Normally the court would make an order to recover the full amount of the excessive contributions from the pension rights of the bankrupt, but that may not be
possible because of the pension-sharing arrangement, and insufficient resources remain in the bankrupt's fund for that purpose.
Where a bankrupt's pension has been shared between the divorcing spouses, amendment No. 68 sets out how the provisions on the recovery of excessive contributions from the former spouse's pension share of the bankrupt's pension will apply.
Let me make a few general remarks. First, like the new clauses, the amendment is intended as a deterrent. Without it, some couples who are going through a divorce may be tempted to manipulate the system. Some link between the measures in the Bill on pension sharing and the protection of pensions on bankruptcy is therefore necessary. Secondly, however, we anticipate that the number of cases falling under the amendment will be pretty small.
Mr. Webb:
The Minister has just described how the pension-sharing rules and the rules on pensions in bankruptcy will interact. I understand from the Secretary of State's private office that the notes on the new clauses are being prepared by the Department and will be available for their lordships' consideration, but not for this House. As someone who knows little of these matters, I think that it would have been helpful if those notes had been available before today's debate.
Mr. Timms:
I entirely accept the hon. Gentleman's point. I hope the explanation that I am giving, which is fairly detailed, will be helpful to the House and will clarify the position.
Thirdly, current bankruptcy law contains a long- standing provision to allow a divorce settlement to be overturned when there is evidence that the settlement deprives creditors of assets to which they should be entitled. I understand that those matters are referred to in insolvency law as transactions at undervalue or preferences.
The amendment follows that approach by providing that excessive contributions can be recovered from the pension share of the former spouse, but only when there is evidence that the pension-sharing order or agreement was at undervalue or amounted to a preference, unfairly depriving creditors of assets. It builds on existing provisions in insolvency law allowing divorce settlements to be reviewed.
I shall set out how the amendment will work. Let us assume that a couple divorce and, as part of the settlement, share the pension. A year later, the pension scheme member becomes bankrupt. The trustee in bankruptcy will use the provisions in the new clauses to ask the court to examine the contributions made to the pension of the person who has become bankrupt.
The court will come to a view about any excessive contributions and, if appropriate, will issue an order for an amount of excessive contributions to be recovered, for the benefit of the creditors. However, as a result of the pension share, there might be insufficient rights in the bankrupt's pension to recover the full amount of the excessive contributions. At that point, the provisions in the amendment come into play.
Under the amendment, the trustee in bankruptcy will be able to apply to a court for an order to make a recovery of the balance of the excessive contributions from the
former spouse's pension share. As a first step, the court will have to consider whether there is evidence that the divorce settlement generally has the effect of putting assets beyond the reach of creditors. If it finds that there is no evidence of that, the matter can go no further. First call for excessive contributions will always be on the bankrupt's share of the pension. Only if there is a balance of excessive contributions not covered by the bankrupt's share will any recovery be made from the share of the former spouse.
If a court finds that all the conditions are met and that it is appropriate that some excessive contributions should be recovered from the former spouse's pension share, it will be able to make an order under the amendment. It will make such an order as it thinks fit for restoring the position to what it would have been if the bankrupt had not transferred those excessive contributions to the former spouse's pension share. The likely outcome is that the court will order that a sum representing the excessive contributions should be paid by the former spouse's pension scheme to the trustee in bankruptcy.
Hon. Members may have noticed that the amendment extends only to England and Wales and that there is no equivalent for Scotland. The policy is that the provision should apply equally to Scotland, and we shall table an amendment to deal with that at a later date. The amendments I mentioned at the beginning of my remarks are minor changes, consequential on those I have described.
Sir Robert Smith (West Aberdeenshire and Kincardine):
Will the Minister clarify why the Government were unable to introduce the legislation for Scotland so that the House of Commons could have debated it?
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