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Baroness Turner of Camden: I thank the Minister for that detailed explanation. Of course some of it was dealt with during the course of the debate on the amendment moved by my noble friend Lord Eatwell. I put the amendment down originally because strong representations were made to me, mainly from unions, that in their view the minimum solvency standard proposed by the Government was not much of a security; in fact it was even suggested to me that they would be better off without it because the impression given to members would be that there was a great deal more security available to members than there actually was. To that extent, they were supported by a number of members of the actuarial profession, who, as I have already said, proposed that it should not be called a solvency standard but a minimum funding requirement; that would reflect more truly what it is.

There is still a great deal of concern, despite the Minister's explanation, that the minimum solvency standard that the Government have in mind will not be adequate to provide the necessary security for members—or is it a genuine solvency standard? But, as I said earlier, we have had a long debate on the whole issue of minimum solvency standards, mainly around the amendment moved by my noble friend Lord Eatwell. There is not much point in going into this issue further at this time. I therefore beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 145NB and 145P not moved.]

Baroness Turner of Camden moved Amendment No. 145PA:

Page 27, line 18, at end insert:
("( ) For the purposes of this section and sections 50 to 54, the value of the assets of the scheme does not (except in prescribed circumstances) include the value of any assets which are employer-related investments for the purposes of section 34.").

The noble Baroness said: This clause establishes that every occupational pension scheme to which the clause applies is subject to the minimum solvency requirement that the value of the assets of the scheme is not less than the scheme's liabilities. The intention of the amendment is to prevent the value of employer-related investments

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being included in the total value of assets of a pension scheme for the purpose of calculating the minimum solvency requirement.

As we know—we have had some discussion about it, and the Committee knows that we do not feel happy about it—the intention of the MSR is to provide a guarantee that a pension fund has enough assets to meet the demand upon it to pay members' pensions. If a scheme which included employer-related investment was forced to wind up due to the sponsoring company going out of business, that proportion of the fund assets which was employer-related investments would not be available to meet pension requirement demands upon the scheme. We believe that it is not in the interests of the employees of a company, or the members of a pension scheme, to have a situation in which employer-related investments can be counted among the assets of a scheme for the purposes of solvency. The issue is clear and I beg to move.

Lord Mackay of Ardbrecknish: I have a certain sympathy with the arguments made by the noble Baroness about the potential risk of allowing employer-related assets to count in the valuation of assets for the minimum solvency calculation. However, the Government believe that excluding all employer-related investment would not be practical.

We understand that it is the practice for a number of investment managers to track the market and invest in a range of securities which may include the sponsoring employer or those associated with it. It could be difficult in a situation where the investment manager holds a pooled fund to disentangle the specific investments in the sponsoring company.

The Committee may recall that the PLRC recognised these practical problems and consequently recommended that employer-related investments up to the permitted level should count towards the minimum solvency requirement. The PLRC report argued that a 5 per cent. limit on employer-related investment would provide an adequate limitation on any risk. We have also accepted the recommendation that all loans or other financial assistance to an employer or associate companies should be prohibited. This will further limit the potential risk involved in financial dealings between a pension scheme and its sponsoring employer.

Finally, I remind the Committee that trustees have a duty to ensure that when making decisions about investments (as in all their duties) they must act in the best interests of scheme members. They are therefore expected to consider risk as well as return when deciding on investment policy.

In view of the practical difficulties of excluding employer-related investments, and the fact that we recognise the dangers and have put on a ceiling of 5 per cent., I hope the noble Baroness is satisfied that the issue has been properly and adequately dealt with.

Baroness Turner of Camden: I thank the Minister for that detailed response. We were anxious that there would be a risk to the security of employees if employer-related investments were counted in this way. I well remember that when I was a member of the

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Occupational Pensions Board we had anxieties about self investment, to which this matter is somewhat related.

However, in view of what the Minister said I do not intend to press the amendment to a Division. I was anxious to know why the Government had proceeded in this way, having realised what the Goode Committee had said. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 145Q to 145S not moved.]

Lord Lucas moved Amendment No. 145SA:

Page 27, line 28, after ("prepared") insert ("and signed").

The noble Lord said: The amendment is necessary to ensure that the operation for the minimum solvency requirement is properly workable. It amends the definition of an actuarial valuation, as introduced under Clause 49(5) (c), by providing that such a valuation is one that has been prepared and signed by the scheme actuary. This is necessary to ensure that clear and effective time limits can be established within which the schedule of contributions must be prepared and within which solvency below 90 per cent. must be restored. These time limits all start from the signing of the valuation. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 145T and 145TA not moved.]

Clause 49, as amended, agreed to.

Clause 50 [Valuation and certification of assets and liabilities]:

The Deputy Chairman of Committees (Lord Broadbridge): I must inform the Committee that if Amendment No. 145U is agreed to I cannot call Amendments Nos. 145UA and 145UB.

[Amendment No. 145U not moved.]

Lord Lucas moved Amendment No. 145UA:

Page 27, line 40, leave out ("to secure") and insert ("for the purpose of securing").

The noble Lord said: I shall speak also to Amendments Nos. 145UB, 145UD, 145UE, 145VA, 145ZYA and 145ZYE. These amendments address concerns raised by some actuaries that the test to be applied when providing actuarial statements and certificates requires a level of certainty that it is not possible to provide.

Because the certification looks forward over a period we accept that no actuary will be able to state with absolute certainty what will be the position two, three or four years hence and that any judgment must be based on assumptions about the scheme liabilities and economic outturn. We accept that some adjustment of the way the test is described in the Bill is desirable and that these amendments will make the test less absolute by clarifying that any assessment of solvency will be based on actuarial opinion and cannot be a definitive statement.

Amendment No. 145ZYA, which introduces new Section 51(6A), also has the effect of removing the requirement that any increase in contributions, required to restore a scheme to 100 per cent. solvency, should be at a uniform rate. This will allow schemes greater

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flexibility in taking remedial action to restore their funding position. The amendment will continue to permit schemes to pay a higher rate of contributions at the outset of any period covered by the schedule of contributions. Permitting such "front-loading" of contributions is clearly in members' interests as it would ensure that the solvency position improves more rapidly than would be the case with a uniform rate of contributions.

On the other hand, the circumstances of the sponsoring employer may make it more realistic all round for him to be committed to lower payments in the earlier part of the period and a higher amount thereafter. However, any schedule of contributions drawn up in such circumstances would, as a minimum, need to ensure that there was no deterioration in the scheme's funding position and the trustees would need to be satisfied that the schedule offered sufficient security for members.

Amendment No. 145ZYA is also required to address a practical difficulty with the wording of Clauses 51(6) and 51(7). By referring to action following a valuation, these subsections would have prevented the schedule from being revised and recertified where the scheme met the minimum solvency requirement at the valuation but subsequently suffered a drop in the funding level; for example, by the effect of higher than expected salary increases or benefit augmentations. The new Section 6A overcomes this difficulty and allows the schedule to be recertified following amendment irrespective of whether the amendment has been prompted by a full valuation. Amendment No. 145ZYE is consequential on the new Section 51(6A).

These amendments seek to address concerns that have been expressed about the certification process and to allow schemes greater flexibility in any remedial action to restore a scheme solvency. I beg to move.

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