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Baroness Seear moved Amendment No. 149:

Page 37, line 12, at end insert:
( "( ) Notwithstanding the provisions of section 148 below, any order made by the appropriate authority under this section shall be subject to annulment in pursuance of a resolution of either House of Parliament.").

The noble Baroness said: Even in the absence of the noble and learned Lord, Lord Simon of Glaisdale, we return to the question of regulations. Under this clause considerable powers are given to the Secretary of State, as indeed they are throughout the Bill, to make regulations. While we accept that it is a Bill which will

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require regulations to be made, and we do not deny that that is the case, we also want to ensure that adequate parliamentary control is maintained.

In Clause 65 it is an "appropriate authority" that can make the regulations. According to the scrutiny committee on procedures, where a Secretary of State makes a regulation it is subject to parliamentary control—only through the negative procedure, but at least it is some element of control. But that is only if the Secretary of State makes regulations; if it is an "appropriate authority"—by which I take it to mean a Minister other than a Secretary of State—then not even the negative procedure applies to ensure that there is a modicum of parliamentary control. That is the reason for tabling the amendment. I beg to move.

Baroness Hollis of Heigham: I rise simply to show solidarity on this matter. We believe it to be a good amendment.

Lord Mackay of Ardbrecknish: It might be helpful if I explained a little more about what Clause 65 provides. This clause allows an "appropriate authority" to modify a public service scheme for the same, limited, purposes that the new regulatory authority is able to modify private sector schemes under Clause 62. Those purposes are: to allow such a scheme to comply with the contracting out requirements; and, to allow a payment to be made to the employer from surplus in such a scheme, but only where it is trust based.

This clause brings forward powers currently contained in Section 141 of the Pension Schemes Act 1993. We examined the purposes for which schemes may be modified under that Act and concluded that many of the modification powers are no longer needed. Consequently, this clause provides more restricted powers to modify schemes than currently exist under the Pension Schemes Act.

The powers to modify for contracting-out purposes could, in theory, be applied to all public service schemes. However, almost all public service schemes are presently contracted out of SERPS. We anticipate that those schemes will wish to remain contracted out when the new contracting-out regime comes into effect, and would expect them to have no difficulty in meeting the new requirements without amendment. Consequently, the power to modify for contracting-out purposes would only be used very rarely, if at all.

The powers to modify a scheme to allow payments from surpluses to the employer can only affect a limited number of public service schemes, because the powers can only be used to modify a trust-based scheme. The main public service schemes are not trust based and so cannot be affected by this power. There are some trust-based public service schemes, but those are mainly small schemes set up for the staff of non-departmental public bodies. In general, the intention throughout the Bill is that trust-based public service schemes should be treated in a similar way to private sector schemes. In respect of payments from surpluses to the employer they will need to meet the same requirements as private sector schemes (set out in Clauses 33 and 69).

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I recognise that powers to modify schemes, particularly in relation to surpluses, can give concern and the noble Baroness has tabled an amendment with which I have some sympathy. I have also noted that the Scrutiny Committee has drawn attention to this clause. However, this is a matter in which the departments that are responsible for public service schemes have the main interest. I would need to take their views on the best way forward. For that reason, perhaps I may ask the noble Baroness to withdraw her amendment and allow me to take it away for further consideration.

9.30 p.m.

Baroness Seear: We can never resist such blandishments as an offer from the noble Lord to take the amendment away and think about it, especially at this time of night. However, I should like to say—I seem to have said the same thing several hours ago —that the Minister's reference to the fact that only a small number of schemes are left out and that most people would be covered is not satisfactory. A great deal of law has to be passed for exactly that reason. A small number of people fall through the net and those are the people who attract abuses. I hope that we shall not hear any more of the argument that it does not really matter because nearly everyone is all right and that for the rest it is just too bad. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 65 agreed to.

Clause 66 [Preferential liabilities on winding up]:

Baroness Turner of Camden moved Amendment No. 150:

Page 37, line 40, at end insert ("including any liability, calculated and verified in the prescribed manner, for increases to pensions").

The noble Baroness said: In moving this amendment, I should like to speak also to Amendment No. 151. It has been grouped with Amendment No. 150A but that deals with a different point. My two amendments are concerned essentially with the rights of pensioners. Clause 66 relates to priority liabilities on wind up. It sets out the order in which the various claims are to be dealt with should a scheme be wound up. What bothers me about the present order is that it is to some extent reversing the order which currently exists in a number of schemes and, since it is legislative, it will override whatever is in those rules.

My amendment relates to increases in pensions paid in line with whatever is the prescribed arrangement. As the Bill is drafted, existing pensioners come at the bottom of the league, yet I believe that they do have a claim to be considered higher up the rank, so to speak. The reason is very simple. Once a pensioner, for most people that is all there is. He or she can look to no more improvement, because working life is at an end, except by way of increases to the pension in payment, which are usually paid in accordance with a formula contained within the scheme. However, an active member who is still in employment has the opportunity to improve his or her position either through promotion or by job change or simply by securing increased earnings or paying more into the scheme by way of additional voluntary contributions or whatever. It has been pointed

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out to me that if the Bill is not amended the position of existing pensioners in the event of wind up could have been worsened.

In the briefing I have received from trade unions they acknowledge that this is the case but their remedy for overcoming it is by ensuring that there are pensioners among the trustees and that they should be there by statutory requirement. However, as we know, the Committee rejected the proposition which we made that there should be pensioner members among the trustees as a matter of law, so we are left with what could be a worsening position with no right of representation. I therefore hope that the Minister will agree with me that something ought to be done in these circumstances. I beg to move.

The Earl of Clanwilliam: I support the noble Baroness very sincerely in her amendment. Pensioner trustees should be represented at some stage, especially where there are more pensioners than there are active members.

Baroness Seear: We also strongly support this amendment from these Benches.

The Earl of Lindsey and Abingdon: It is my intention to speak only to Amendment No. 150A. The purpose of the amendment, which refers to preferential liabilities on winding up, is to try to obtain a more balanced equation between those who are just below or just over retirement age. As worded at present, in Clause 66 there is a distinct advantage for those referred to in subsection (3) (b) over those in subsection (3) (c). In other words, I am looking for a more level playing field. Bearing that in mind, I should like to give an example of, say, a 56 year-old person having paid into a scheme an aggregate contribution identical to that of an older member. That person should not get significantly worse returns on his own investment after a period of 20 years' service.

Lord Mackay of Ardbrecknish: This is an important issue. I shall take a few minutes to explain what exactly we intend by this clause, and why, and also to answer the points made by the noble Baroness and my noble friends.

This clause would ensure that the liabilities covered by the minimum solvency requirement are, so far as possible, secured; and that the purpose of the minimum solvency requirement is not frustrated by scheme priority rules which would apply scheme assets on wind up on a different basis. Thus, the requirement on schemes to cover the "preferential liabilities" in the clause will ensure that a scheme which is 100 per cent. solvent on the statutory minimum solvency requirement basis will in fact, on wind up, attribute to each member the actuarial value of their accrued rights, including their rights to indexation.

However, this clause also contemplates the situation that schemes may wind up less than 100 per cent. solvent on the statutory minimum solvency basis, or otherwise be unable to meet their liabilities in full. Obviously, we hope that schemes will not wind up in a position where they are unable to secure the benefits promised. We believe that the minimum solvency

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requirement and the wide range of other measures for enhancing scheme security which we have discussed will minimise the chances of schemes winding up in this position. But we live in the real world. Things could go badly wrong and we must address the question of how we should deal with that situation.

Where a scheme does not meet the statutory minimum solvency requirement it is inevitable that some of the preferential liabilities will not be met. The proposed priority order will ensure that there is an equitable distribution of assets. It is only right that pensioners should receive some priority over active members and that they should, if possible, suffer no reduction in their income. That is reflected in the priority order.

Additionally, the position of pensioners will be further protected as a consequence of the actuarial valuation basis to be used for the purpose of calculating liabilities under the clause. This will need to be consistent with the valuation basis used for calculating a scheme's minimum solvency requirement. As such, pensioner liabilities will need to be valued by reference to the returns on gilts. This means—in simple terms—that, on wind up, the scheme will need to attribute more cash to them than would be the case if the assets were simply distributed pro rata to all members (pensioner and non-pensioner) in proportion to their accrued rights. This will be the case even where, on a scheme basis, the minimum solvency requirement calculation would allow a proportion of the pensioner liabilities of a very large scheme to be valued by reference to equities.

We have given long and careful thought as to whether pensioners should be given any further protection under the preferential liabilities and whether indexation should be given the same priority as the pension in payment to existing pensioners. However, indexation can be very costly and will mean that more of the available assets will be used to fund escalating payments to existing pensioners.

As I have already said, this should not cause problems in a scheme which meets the minimum solvency requirement. If more of the assets are used to provide for the future increases of existing pensions there will be fewer assets available to secure the accrued rights of the other members. Some members—and my noble friend Lord Lindsey made this very point—who may be close to pensionable status may be left with insufficient funds to deliver their accrued pension rights and without the ability to repair damage to any large extent. In these circumstances, someone has to lose out. We believe that it is more equitable, so far as possible, to protect the basic pension entitlement of all scheme members and share out whatever residual assets may be available to provide pension increases. This seems better than offering total protection to one class of member and prejudicing the rights of other members who may well be in a no better position than a pensioner to make the loss good.

Those arguments are applicable to Amendment No. 150A. I appreciate that the purpose of this amendment is to protect the position of an older, but not yet retired, scheme member. It would tend to ameliorate the present

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situation in which pensioners' rights can be fully secured while the rights of someone just short of retirement can be significantly reduced.

I think my noble friend's heart is in the right place. The clause as drafted achieves a similar effect in a different way. It gives a reasonable degree of priority to the basic accrued rights of all scheme members. I hope that my noble friend will therefore agree that his amendment is unnecessary. With that explanation of what is a complicated, but could in certain rare circumstances be an extremely important, issue, I hope that the noble Baroness will feel able to withdraw her amendment.

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