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The Earl of Buckinghamshire: Before the noble Baroness decides what to do with the amendment, I ask the Minister to think again. If he would like detailed arguments from ten past ten until midnight I should be pleased to give them. However, I do not believe that that would be helpful to the Committee.

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It is an important issue. I do not believe that authorising a custodian should be a difficulty. If one has authorised investment managers in this country one should be able to pick authorised custodians without difficulty. I hope that my noble friend will take note of what has been said from the Benches opposite and on this side of the Chamber. I wish to return to the issue at a later stage.

Lord Mackay of Ardbrecknish: Perhaps I may answer my noble friend. I sought to major on the point, essentially in shorthand at this time of night, about who the custodians would be.

Perhaps I may say this to the noble Baroness. She made a nice point; that I am not backward in coming forward in other parts of the Bill about regulations. I fully accept her point. Why should I be a shrinking violet in this case? I have not been able to devise such regulations as may be required in this situation to judge whether they are sensible and whether one could encapsulate all the people who should be custodians. That is what I invited her to do rather than to expand her already rather large amendment.

Baroness Dean of Thornton-le-Fylde: I accept that invitation to come back with proposals with regard to the prescribed areas. I take it on board. At this stage, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Monkswell moved Amendment No. 134:

Before Clause 33, insert the following new clause:

("Payments to members of scheme

. At the end of paragraph 3(3) of Schedule 22 of the Income and Corporation Taxes Act 1988 there shall be inserted—
"( ) making payments to members of the scheme".").

The noble Lord said: In moving Amendment No. 134 I speak also to Amendment No. 135.

I had intended to say only a few words of introduction and then to ask the Minister to respond. However, given the Minister's response to Amendment No. 126, I have to elaborate a little more than I had intended.

Perhaps I may remind the Committee that Amendment No. 126, moved by my noble friend Lord Haskel, provides for the trustees to have a policy regarding the exercise of voting rights. The Minister responded on the basis that it was a requirement that the trustees should exercise their voting rights on shares held. It is important that we address the amendments and the intention underlying them. In that respect, I feel that I have to explain a little more fully than I had intended both what the amendments seek to provide and the reasons why I have put them down.

Amendment No. 134 amends the Income and Corporation Taxes Act 1988 effectively to enable the making of payments to members of the scheme from pension scheme surpluses. It does not state that pension scheme surpluses have to be paid to members but that they can be paid to members.

Perhaps I may elaborate a little because I am sure that not too many Members of the Committee will have read the Income and Corporation Taxes Act 1988. It is two inches thick and is not the kind of legislation that one

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carries around in one's briefcase. Schedule 22 effectively states that pension scheme surpluses can be reduced or eliminated by:

    "(a) making payments to an employer;

    (b) suspending ... an employer's contribution;

    (c) suspending ... employees' contributions;

    (d) improving existing benefits provided under the scheme;

    (e) providing new benefits under the scheme".

Then there is a catch-all phrase,

    "(f) such other ways as may be prescribed".

There is an imbalance in that there is no mechanism for enabling payments of scheme surpluses to be made to members of the scheme. That is the intention of my amendment.

Amendment No. 134 to Clause 33 effectively seeks to do the same. Clause 33 enables the making of payments to employers and the fund where there is a surplus. My Amendment No. 135 would enable payments to be made to scheme members.

Having explained the amendments, I thought it might be useful to advise the Committee why I have brought them forward. I must go back in history to my experience which I am sure is shared by many other people working in British industry over the past 15 years. Employers found their pension schemes in surplus at the same time as companies had problems, and employers made employees redundant. Usually they themselves took a pension contribution holiday while requiring employees to continue paying into the scheme. Then, if the surplus was sufficiently large, they took extra money straight into the company. That money has usually been used in two ways: first, to pay redundancy payments, effectively paying their employees off and making them redundant and, secondly, by straight disbursement to shareholders.

If the surpluses had been used for direct investment into the company, buying new plant and machinery, enabling the workers to be more productive and therefore retaining their jobs, there would be far less criticism. But the fact that the surpluses were used directly to benefit shareholders and quite largely to disbenefit the employees has caused anxiety and a real sense of unfairness. Much of the discussion we have had this evening has been between experts in the pension field. But at the end of the day members of the pension schemes are ordinary working people and the pensioners of the schemes are also ordinary people.

One of the problems with the pension industry is the sense of unfairness. The Maxwell case was high profile with horrendous wrong being done. But a whole climate of unfairness pervades our industry and commerce, with employers having a one-sided advantage, where there are surpluses, being able to use them for their own benefit.

My amendment seeks to bring a sense of fairness and equity to the situation. I remind the Committee that the amendments do not require the pension fund surpluses to be distributed to the members of the scheme. I could have argued that strongly, with much support throughout the country. But I felt it was only reasonable

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to put forward amendments to the Committee that provide for the ability for pension fund surpluses to be disbursed to members. I beg to move.

Lord Mackay of Ardbrecknish: I hope to be able to persuade the noble Lord that his amendments are unnecessary. Paragraph 3 of Schedule 22 to the Income and Corporation Taxes Act 1988 sets out the ways in which a statutory surplus may be reduced or eliminated. Among the range of options is to use the surplus to improve members' existing benefits and provide new ones. Such benefit improvements may include lump sum payments to scheme members on retirement or death. It is, however, a condition of tax approval that the benefits payable to scheme members should be subject to upper limits. These are normally up to two-thirds of final salary for the pension and two-and-a-quarter times the pension for lump sums on retirement.

The purpose of these limits is to control the cost of tax reliefs given to approved pension schemes. In its effect the proposed amendment would appear to do no more than duplicate an existing provision of the Income and Corporation Taxes Act 1988 to make approved payments to members. It would also allow payments outside the approved arrangements to be made to members. That would be contrary to the pensions purpose on which the tax reliefs are founded and could add significantly to Exchequer costs. This is a tax matter, and the Committee may consider that it is best left to another place.

Members of the scheme already have the opportunity, subject to trustee approval, to have their benefits enhanced. Amendment No. 135 would not provide members with any more benefits than are potentially available under the existing arrangements. The Income and Corporation Taxes Act 1988 provides the trustees with a range of options to reduce or eliminate a surplus: for example, enhancement of existing benefits or providing new ones, which can include payments to scheme members. Of the options that are available, only a payment to the employer has additional conditions imposed upon it, originally by the Social Security Act 1990.

The effect of the noble Lord's amendment would be to make payment to scheme members subject to those conditions. One of the conditions which have to be met before a payment is made to an employer is that all pensions and payment must be increased annually in line with inflation up to the maximum of 5 per cent. for both past and future service. That may have been the noble Lord's intention, but what it achieves is in fact to curb the freedom of trustees to make benefit improvements for certain members.

The impact of the amendment would be to put at risk the ability to make discretionary payments to members by automatically requiring all pensions in payment to be annually increased in line with inflation first. I am sure that it is best to leave trustees to decide what scheme best fits their particular circumstance, but with the

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safeguards contained in the Bill to cover the payment to employers. I hope, having listened to my explanation, that the noble Lord can withdraw his amendment.

Lord Monkswell: I thank the Minister for his response. I must admit that his reply surprised me a little. I had not expected the use of a tax argument—if I can put it that way—to come to the fore. I thought that the Minister would rely on the argument that employers have the responsibility to top up the fund, being the major contributors to the fund, and are therefore the major beneficiaries. But the Minister did not use that argument.

I feel that the tax argument falls down in the sense that, whatever the tax regime for the employer receiving the surplus from the pension fund—I do not know what the tax regime would be and I think that it is probably not good for this Chamber to consider that—there will be certain tax regulations that apply to that; and as an exceptional item of income to the company no doubt there is some form of taxation on it. But surely the same argument would arise with employees receiving a windfall form of remuneration. They would be liable to income tax in the normal way. So that argument does not hold water.

I hope that the Government will think again on this matter. I shall not press the amendment tonight. It was a probing amendment. Tomorrow I shall read with interest what the Minister said. I hope that he will also read what I have said. Maybe we can return to the subject at a later stage. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 135 not moved.]

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