Malcolm Wicks: I have said that I will send the hon. Gentleman the best estimates that I can get. As a polite response, perhaps he and his colleagues would write to me about how they propose to fund their ideas—that would be a good quid pro quo, as we say in Croydon.
Question put and agreed to.
Clause 100 ordered to stand part of the Bill.
Applications and notifications
for the purposes of section 100
Amendments made: No. 370, in
No. 371, in
No. 372, in
clause 101, page 63, line 9, at end insert—
'( ) The duty imposed by subsection (1) does not apply where the trustees or managers of an eligible scheme become aware as mentioned in that subsection by reason of a notice given to them under subsection (5).
( ) The duty imposed by subsection (4) does not apply where the Regulator becomes aware as mentioned in that subsection by reason of a copy of an application made by the trustees or managers of the eligible scheme in question given to the Regulator under subsection (2).'—[Malcolm Wicks.]
Question proposed, That the clause, as amended, stand part of the Bill.
Mr. Waterson: I feel that we have reached a milestone. We have now passed the 100-clause mark—that is, on one view, at least; we keep leaping
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about the Bill, so perhaps it is not so much of a milestone after all.
People in the industry have raised a couple of points with me about subsection (1), which imposes an obligation on trustees to apply to the board, so that it can
''assume responsibility for a scheme . . . if it appears to''
the trustees that the employer
''is unlikely to continue as a going concern''.
That is a pretty imprecise phrase, and I do not recognise it as a legal term of art. If we are imposing obligations on trustees in the clause, as we are in various parts of the Bill, we should be pretty clear about what that obligation is. It seems that trustees, who may have no real internal knowledge at all about the employer, its business or its finances, will have to make a subjective judgment. Is it fair to impose such an obligation, rather than simply giving trustees the power to make an application, so that they have the option, but not necessarily an obligation?
That unease is also reflected in the views of the National Association of Pension Funds. It suggests that trustees get guidance from the regulator on how to discharge their responsibilities. There are two ways of approaching the problem, but we definitely believe that there is a problem.
Malcolm Wicks: In the light of that line of questioning, it would be helpful if I explained that clause 101 relates to a scheme that is not subject to insolvency events, but for the great number there is an insolvency event and a clear trigger. The clause provides for the trustees or managers of an eligible scheme, the employer of which is not subject to insolvency events as defined in UK legislation, to apply to the PPF for the board to assume responsibility for the scheme. Examples include some public sector schemes without a Crown guarantee, or schemes with a foreign sponsoring employer.
Equally, the clause provides that, where the regulator becomes aware that the sponsoring employer of such a scheme is unlikely to continue as a going concern, it must notify the board. The PPF is keen to ensure consistency in the process of triggering its involvement with eligible schemes. We recognise that some employers will not be covered by the insolvency events as listed in clause 95, and we have therefore made provisions to cover those schemes. We are keen to ensure that legislation captures all eligible schemes whose employers will have been required to pay the PPF levy, and that those members are therefore protected by the PPF. I hope that that satisfies the hon. Gentleman as to the type of schemes—they are in the minority—that could be subject to the PPF and that do not have the formal trigger of the so-called insolvency event.
Question put and agreed to.
Clause 101, as amended, ordered to stand part of the Bill.
Clause 102 ordered to stand part of the Bill.
Column Number: 457
Amendment made: No. 373, in
clause 103, page 64, line 9, after 'which', insert 'the time immediately after'.—[Malcolm Wicks.]
Clause 103, as amended, ordered to stand part of the Bill.
Mr. Pond: I beg to move amendment No. 441, in
The Chairman: With this it will be convenient to discuss the following:
Government amendments Nos. 443, 445 and 446, 453 and 454, 460 to 469, 471, and 473 to 475.
Government new clause 10—Schemes required to wind up but unable to buy out liabilities.
Government new clause 11—Treatment of closed schemes required to wind up.
Government new clause 12—Valuations of closed schemes.
Government new clause 13—Applications and notifications where closed schemes have insufficient assets.
Government new clause 14—Duty to assume responsibility for closed schemes.
Government new clause 15—Closed schemes: further assessment periods.
Mr. Pond: This is a large group of amendments and new clauses, which adds a significant and crucial extra limb to the process that determines whether a scheme can enter the PPF. I apologise to the Committee that we were unable to table these amendments and new clauses earlier. I hope that the notes on them that we have circulated to Members are helpful in explaining their purposes. I will try briefly to explain their background, purpose and provisions in some detail.
As drafted, the Bill provides that, following a valuation under clause 112, if a scheme with an insolvent employer, and no hope of scheme rescue, is found to have sufficient assets to buy out benefits at above the level of the protected liabilities, it will not enter the PPF and the trustees of the scheme will be required, under clause 119, to wind up the scheme and secure members' benefits in accordance with the priority rules. Schemes would secure members' benefits by purchasing annuities for pensioner members and deferred annuities from insurance companies for actives and deferred members.
However, the Bill as drafted does not cater for the situation where scheme trustees cannot obtain a protected benefits quotation. That could occur in relation to very large pension schemes, where the insurance market at present appears to have insufficient capacity to absorb the pension liabilities
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of a large scheme on a buy-out basis. The bulk annuity buy-out market expands and contracts depending on both the availability of gilt-edged stock needed to underwrite the contracts and the willingness of the few life offices currently in the market to take on business. The market is such that currently we estimate that pension funds worth anything over £500 million could find that they are unable to obtain a buy-out quotation as required by clause 119.
However, it is important to recognise throughout our consideration of these amendments that such a situation depends on both the sponsoring employer of a large scheme becoming insolvent and a PPF valuation showing that the scheme's assets are sufficient for it to buy out benefits above the level of the protected liabilities. It is also important to recognise that in the UK no scheme of this size has ever suffered the double whammy of underfunding and insolvency of the sponsoring employer.
Mr. Waterson: Does the Under-Secretary have any idea how many funds are worth over £500 million?
Mr. Pond: There are very few, and that is one reason why this is a bit of a belt and braces approach. We want to ensure that we cover all eventualities; it is prudent to do so in order to protect the PPF from these unusual circumstances if they were ever to arise. Perhaps I can give a detailed response to the hon. Gentleman's question in writing.
The events that these detailed Government amendments and new clauses address are unlikely to occur. Were they to do so without the protection provided by the amendments and new clauses, there is a danger that they could impose a heavy burden or place a considerable risk on the PPF.
Mr. Waterson: I thank the Under-Secretary, and through him his officials, for producing the notes. I only hope that they keep pace with the torrent of new Government amendments, as that would save us time.
I have a couple of questions that arise out of what the Under-Secretary said and what is in one helpful note. It is a shame that we have not adopted the American system in which the notes become part of the record, but the Under-Secretary must make his points, and we must make ours.
I think the Under-Secretary is saying that, on current depressed values, we are talking about a rare combination of circumstances that will affect only a tiny number of schemes, and I accept that. Despite the apparent complexity of the long list of amendments and new clauses, that seems to be the right approach to the closed-scheme problem.
I have two other points to make. As the notes say, the schemes
''represent a significant potential moral hazard risk to the PPF'',
but the moral hazard argument goes beyond those particular, rare circumstances. A great debate has been going on for years, and is still going on in America, about whether such a scheme produces the perverse incentives to which the Under-Secretary referred. Industry is concerned that there will be a substantial moral hazard problem. As long as everybody knows
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that there is a safety net, people may not be so careful about how they run their schemes. We shall return to that issue to consider it in more detail.
There is one other point in the notes that was not clear to me. They say:
''In order to protect the PPF against moral hazard, such schemes will be subject to increased supervisory requirements and will only be able to pay out benefits in line with the statutory priority order (to be introduced when new clauses are considered after Easter).''
I was under the impression that that was a matter for a separate statutory instrument, which is hanging around waiting to be considered in Committee. Is it being suggested that a different priority order applies to these schemes, or will that be dealt with as part of the Bill?