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Page 42, line 38, leave out paragraph (b).

The noble Baroness said: The amendment proposes the deletion of Clause 74(1) (b). Among the list of entitlements to compensation there stands the requirement that the employer should be insolvent. If we take the Maxwell case as an example, the problem with that is that the Mirror Group was not and never has been insolvent. Had that condition existed at that time the Mirror Group pension scheme members would not have been eligible for compensation under the clause. I do not believe that that was originally the intention. I believe that that is perhaps an accidental effect of the Bill.

It may well be that the Government feel, perhaps with some justification, that if the employer has the funds available the employer should be made to refund whatever is missing or to pay the necessary compensation. However, the provision could have the effect of driving a firm into insolvency when it might not otherwise have been insolvent. That might not be to the advantage of either existing scheme members or the employees involved.

It seems to me that subsequent clauses in the Bill give the compensation board enough flexibility to take account of the employer's circumstances without having this very rigid provision that the employer must be insolvent before compensation can even be considered.

Perhaps the Minister will be good enough to respond to that point. I shall be interested to know why the Government felt that it was necessary to include this as an absolute requirement. I beg to move.

10.15 p.m.

Lord Mackay of Ardbrecknish: The overall effect of the qualifying conditions in Clause 74 is to restrict the scope of the compensation scheme. We believe that this is an important feature of the scheme. As the Pension Law Review Committee recognised, a wide compensation scheme, covering all risks, could encourage reckless behaviour in the knowledge that all losses would be covered in the event of scheme failure.

The compensation scheme applies only to trust based schemes where the employer is insolvent. There must also be reasonable grounds for believing that assets have been dishonestly removed and the compensation board must be satisfied that it is reasonable that compensation should be paid. In addition, where the scheme is salary related, it must have fallen below the minimum solvency requirement.

We believe that limiting compensation in this way concentrates the resources of the compensation scheme on those risks which are most likely to cause loss and least likely to be reduced by other measures to improve scheme security introduced in this Bill. The compensation scheme is intended to be a scheme of last resort, standing behind a strengthened legal and regulatory framework.

Employers usually have substantial and direct influence on the security of schemes, and for that reason there is risk that they may seek to use the existence of a compensation scheme as a means of avoiding their responsibilities. The prime responsibility to fund a

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scheme lies with the employer. It is only when the employer is unable to fulfil his obligations by reason of his insolvency that the question of external funding in the form of compensation should be considered. I hope that in the light of my explanation, and indeed the Pension Law Review Committee's specific recommendations that compensation should be payable only when the employer is insolvent—

Baroness Turner of Camden: Before the noble Lord sits down, will he be good enough to respond to my comment on the Maxwell affair? Under these provisions, the Mirror Group pensioners would not have been entitled to compensation because the Mirror Group was never insolvent.

Lord Mackay of Ardbrecknish: If the noble Baroness will allow me to take the matter away, I shall write to her.

Baroness Seear: I was about to ask the same question. When the Minister replies to the noble Baroness regarding the Mirror Group, will he consider whether there could be a role for the compensation board in bridging the gap—it has been a very big gap—between moneys being recovered from the Maxwell scheme and payments to the pensioners? The board could have a secondary function in tiding over in circumstances such as those which arose with the Maxwell scheme.

Lord Mackay of Ardbrecknish: Perhaps I may say this in general terms. An employer who is still solvent is obviously liable to meet the deficit under the various provisions. We have discussed some of them today on the employer-debt provision. Indeed, where there is a takeover the debt is on the old employer and not on the new one in the circumstances that we envisage.

Noble Lords will remember that some time ago we discussed whether the compensation board could take back money that it had given in the event of a situation not being as bad as had been considered. Another situation which may arise is that the pension fund may well be able over time to restore to itself the assets which had been illegally removed. In such circumstances the compensation board might help to keep the pensioners in payment. I think that that is right. However, on the specific question regarding Maxwell, I prefer to write to the noble Baroness.

Baroness Seear: Is there any provision in the Bill as it now stands which enables the compensation board to do what the Minister has just outlined and keep the pensioners paid during an interim, painful period before the money has been recovered? Is that within the power of the compensation board?

Lord Mackay of Ardbrecknish: I believe that we have probably passed that stage—although we are moving at such a rate that I find it as much as I can do to keep ahead of the amendments.

The circumstances the noble Baroness describes are those we envisaged when we discussed the pay-back to the compensation board; namely, that the board will be prepared to step in before it is absolutely certain that all

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is lost. In the eventuality that all is not lost the board would be due some money back. Therefore I think that the answer to the question is yes.

Baroness Turner of Camden: I thank the Minister for that response, some of which was quite encouraging. Under subsection (1) (e) of Clause 74 fairly wide powers are given anyway to the compensation board to take account of all circumstances. The phrase is:

    "reasonable in all the circumstances".

So there are wide powers. Even if we took out subsection (1) (b), "the employer is insolvent", there is still the ability to take account of the employer's position under paragraph (e). That is what I said in the beginning. However, I shall await with interest the Minister's response to the query I raised over the Mirror Group pensioners. In the circumstances, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 161A not moved.]

Lord Lucas moved Amendment No. 161B:

Page 43, line 3, leave out from second ("of") to ("an") in line 4 and insert ("funds for the time being held by them,").

The noble Lord said: I have already spoken to this with Amendment No. 156A. I beg to move.

On Question, amendment agreed to.

[Amendment No. 161C not moved.]

Lord Lucas moved Amendments Nos. 161D and 161E:

Page 43, line 26, leave out paragraph (f).
Page 43, line 40, at end insert:
("(4A) Where this section applies to an application for compensation under section 75, the trustees must obtain any recoveries of value, to the extent that they may do so without disproportionate cost and within a reasonable time.
(4B) If subsection (4A) is not complied with, section 3 applies to any trustee who has failed to take all such steps as are reasonable to secure compliance.").

The noble Lord said: I have already spoken to these amendments with Amendment No. 156A. I beg to move.

On Question, amendments agreed to.

Clause 74, as amended, agreed to.

Clause 75 [Applications for payments]:

Lord Lucas moved Amendment No. 161F:

Page 43, line 47, leave out ("Payments may be made") and insert ("Compensation may be paid").

The noble Lord said: I spoke to this with Amendment No. 156A. I beg to move.

On Question, amendment agreed to.

Clause 75, as amended, agreed to.

Clause 76 [Amount of compensation]:

Lord Lucas moved Amendment No. 161G:

Page 44, line 17, after ("scheme") insert ("and the Board have determined the settlement date").

The noble Lord said: I beg to move Amendment No. 161G and speak at the same time to Amendment No. 163A. These amendments together will ensure that any payments made before the amount of compensation can

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be finally calculated are interim payments and any payments after that are compensation proper. I beg to move.

On Question, amendment agreed to.

[Amendment No. 161H not moved.]

Lord Lucas moved Amendment No. 162:

Page 44, line 33, leave out from ("if") to ("exceeds") in line 34 and insert ("the maximum amount mentioned in subsection (3) (a)").

The noble Lord said: I beg to move Amendment No. 162 and at the same time speak to Amendment No. 162AA. These amendments will ensure that the correct amount is taken into account in calculating compensation for salary-related schemes. I beg to move.

On Question, amendment agreed to.

[Amendment No. 162A not moved.]

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