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Baroness Turner of Camden: I have some sympathy with the amendment moved by the noble Lord, Lord Marsh, because I am aware of certain closed funds to which the arguments could apply. The only problem that I have with the amendment is that nothing causes greater anxiety and agitation among scheme members—even scheme members who are not affected—than the belief that repayments can be made or surpluses can be returned to employers. There is often a great deal of agitation in relation to suggestions that that should be done.

I should be happy about the amendment if it included a reference to agreement by the regulatory authority for a repayment to be made. If that were the case, I should give the amendment wholehearted support because one could say that the members of the schemes would have some guarantee that the whole scheme would be exercised with their security in mind.

Lord Mackay of Ardbrecknish: The noble Lord, Lord Marsh, argued strongly in support of his amendment. It covers the same area as the amendments which we dealt with before the dinner break. I wish to begin by reiterating an important point: the minimum solvency requirement is purely that. It is a floor below which scheme funding should not fall. It may be helpful if I introduce a point that perhaps did not emerge before the dinner break. Under the valuation basis that we now propose for a minimum solvency requirement, the liabilities represented by non-pensioner members would be valued largely by reference to equity returns.

Under the modifications announced last December, up to 25 per cent. of the pensioner liabilities of large schemes may be valued by reference to equity returns. The Committee will therefore be reassured to know that this means that the value of the liabilities will move to a certain extent in harness with the value of scheme assets. As such, the risk of schemes being tipped by short-term market movements into making large and unnecessary cash payments will be much lower than some Members of the Committee fear.

Earlier we discussed ways that might be devised to help an employer who had had to put a great deal of money into the fund. I am advised that there are ways of ring-fencing assets with a legal underpin, which answers the question asked by the noble Lord, Lord Eatwell. I tried to explain that bank guarantees or some similar arrangement could be used to get an employer

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over the difficulty of the scheme being less than 90 per cent. with contributions continuing on a slightly lower plane over the next four years, going to 100 per cent. Of course, if one were to carry on with the assumption behind those concerns, if the markets picked up there could be another valuation showing that the fund had a clean bill of health and that the payments could stop.

I return to the Amendment No. 145YR. It suggests that in that event the money already paid could be paid back to the employer. That is exactly what the amendment deals with. It would be damaging to the whole concept of trust-based schemes if we enabled funds to pass freely from the scheme to the employer. The importance of the trust fund is that it provides a means of ensuring that, if the employer becomes insolvent, the pension scheme assets are separate from him and are not accessible to his creditors.

Payments from surplus are allowed to be made to an employer but only when certain conditions and criteria are met. Among them is an Inland Revenue criterion that the fund is funded at a level of 105 per cent. of the scheme's liabilities. I do not pray that in aid as a particular comfort because there are a number of hoops in relation to an individual scheme, as well as Inland Revenue criteria, through which an employer would have to go before he could recover some of the surplus. In the circumstances envisaged, he would have a reduced contribution after that kind of calculation. That is an important point because, in those circumstances, there could be an agreed change to the schedule of contributions reflecting the new circumstances.

As I have explained already, I recognise that there has been much nervousness about the potential impact of our minimum solvency proposals on some schemes and their sponsoring employers. As I tried to explain at the beginning of this series of amendments, the changes which we announced to the minimum solvency calculations will provide a more stable measure for assessing the adequacy of scheme funding. Fears that there will be widely fluctuating contribution rates are unfounded. The extended time limits will certainly allow for market recovery if a scheme drops below the minimum simply because of unusual short-term movements in prices. Therefore, it would be wrong to take the fairly dramatic step of making it possible for a scheme to repay money, so to speak, to the employer in the circumstances envisaged.

While I have a great deal of sympathy with the scenario presented by the noble Lord, Lord Marsh, the changes that we have made and some of the explanations that I have given about the ability to use bank guarantees will at least demonstrate that we are going some way towards addressing the problem, although I appreciate that we are probably not going as far as the noble Lord wishes to.

8.30 p.m.

Lord Marsh: Inevitably these amendments have produced a somewhat complex and occasionally confusing debate. I believe that we have all found it

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extremely difficult to follow the debate as it moved at an ever-increasing speed and became ever more complex on the way.

All Members of the Committee interested in this area will wish to read carefully this evening's debate. I suspect that, having read it, there may be those who will wish to discuss matters with Ministers and officials to try to achieve greater understanding. The issues are important and many of us will wish to return to this area on Report. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 54 [Sections 49 to 53: supplementary]:

The Earl of Buckinghamshire moved Amendment No. 145ZYS:

Page 31, line 4, at end insert:
("(2) The Secretary of State shall take account of employers' views in establishing and modifying—
(a) the prescribed periods referred to in section 51(7), section 53(3a) and section 53(3b); and
(b) the prescribed manner referred to in section 49(3).
(3) Where the Secretary of State determines that the prescribed periods or the prescribed manner referred to in subsection (2), or both, should be modified, he shall prepare and lay before each House of Parliament—
(a) the draft of an order giving effect to his decision; and
(b) a report containing a statement of his reasons for that determination.").

The noble Earl said: This amendment requires the Secretary of State to take account of employers' views in modifying the MSR and requires him to consider the effect on employers and prescribes both the time period and the method of calculation and, when he has done that, requires him to seek the agreement of both Houses of Parliament.

We have had a long debate today on the merits or demerits of the MSR and the various alternatives put forward. I do not wish to go into that debate again. Most companies will not wish to be under-funded either on an ongoing basis or on minimum solvency. But there are anxieties that, if the assumptions are drawn too tight, employers will be extremely anxious because they may have to pay more money into the scheme than would otherwise be the case.

Whether or not we like it, there are anxieties about how the operation of the MSR will work. I suggest that legislation should require consultation to take place with employing companies in certain prescribed periods for returning to solvency and also there should be a prescribed manner for calculating assets and liabilities.

I appreciate that the Committee has expressed considerable disquiet about moving from primary into secondary legislation by using regulations. I suggest in this case that we use regulations for that situation. If those provisions were made in primary legislation, the machinery for making changes in the MSR and the time periods would prove quite difficult. We have seen a good example of that this afternoon in view of the time it has taken us to debate the MSR issue.

I suggest that there should be consultation with the employer companies and that, when the consultations take place and the Secretary of State makes his

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decisions, he should place those before the House and give his reasons for the decisions that he has reached on that issue. I beg to move.

Lord Mackay of Ardbrecknish: I have listened with care to my noble friend. I invite him to look a lot further down the Marshalled List to Amendment No. 171. That is intended to introduce a new clause after Clause 109 which will place a statutory duty on the Secretary of State to consult those he considers appropriate before making regulations under any of the provisions in this part of the Bill.

We fully accept that it is proper for the Secretary of State to consult on the content of regulations—but not only on the minimum solvency requirement and certainly not only employers and employer organisations. We therefore propose this much wider duty to consult in the new clause. I am certain that, in producing regulations on so central a matter as the minimum solvency requirement, the duty to consult such people as the Secretary of State considers "appropriate" will always be interpreted as including employers.

In the past the Government have always consulted widely on pensions legislation. In that way we have been greatly assisted by the knowledge and experience of employers, pensions professionals, practitioners, members and their representatives. We feel it is right to continue to seek views across a broad spectrum of opinion. Having drawn my noble friend's attention to Amendment No. 171, I hope that he will rest assured that we shall be doing a great deal of consulting on the regulations.

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