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Lord Boyd-Carpenter: My Lords, will my noble friend clear up one point on Amendment No. 146? This appears to give power by regulations to modify a section of the Act. I should like to know whether those regulations are themselves subject to parliamentary control.

Lord Monkswell: My Lords, I have a question on the group of amendments relating to provisions on the wind-up of a scheme and the disbursement of surplus funds. I was not quite clear as to what the Minister meant in relation to Amendment No. 138. He mentioned that the surplus might go to make up benefits to scheme members to Inland Revenue limits, go to the employer or go to the Crown. I gathered that that would happen if there were no effective mechanisms or rules to determine what should happen to the surplus on wind-up. Can we be assured that the new amendments the Minister presents will ensure that surplus money in a scheme remains the property, if I may put it that way, of scheme members. It is well established that the funds in a scheme represent deferred pay and are therefore in the ownership of the members. Parliament accepted that prior to wind-up, if there is a surplus, some of that surplus can go to the employer on the basis that if there were a deficit the employer would have to make up the difference. While that might be contested, it is now accepted by Parliament. But on the

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wind-up of a scheme that situation does not pertain. Effectively, any liability that the employer might have is wiped out. Therefore any surplus left in the scheme after all the agreed benefits have been paid should remain the property of scheme members and be distributed in some fashion to them, not go to the employers.

The Earl of Buckinghamshire: Perhaps I may make a few comments on the clutch of amendments on the priority clauses on wind-up; namely Amendments Nos. 132 to 135. I am pleased to have the Minister's response on the improved priority clause on treatment of additional voluntary contributions and for dealing with contingent liabilities. However, I remain concerned about the changing of this priority clause in so far as it affects pensions in payment and pensions increases which are attached to those particular pensions.

I spoke on this matter at some length previously in the House, and I do not wish to rehearse the whole argument. There is increasingly widespread concern about the diminution and, as it were, the weakening in part of the position of accrued rights. Bearing in mind that the Bill, at least in part, deals with the security of accrued rights, it is somewhat strange to find that pension increases and payment will not be treated as a prior liability. That is the situation as I understand it.

There are some practical difficulties with the Bill as it stands. It is not clear how pension increases which have already been bought out with insurance companies could be unravelled in the event of the wind-up of a scheme where those annuities have been bought out in the name of the trustees. I am dealing with a scheme at the moment in relation to which I am trying to assign the annuities bought out by the trustees to the members. I am having considerable difficulties with the insurance company involved, which is trying to change the terms of the contract, and even to weaken that particular contract still further. Therefore I have some concerns.

As the Bill stands at the moment, trustees who have bought out annuities in their own name for pensioners would be advised to look at assigning those policies to the individual annuities so that there is no danger, no matter how unlikely it is, that in future schemes will go into wind-up in deficit. I do not believe that this clause was fully debated in another place. I look forward to hearing the Minister's comments. I hope that he can offer some words of comfort.

Baroness Turner of Camden: My Lords, I support the remarks of the noble Earl. The Minister will no doubt recall that I raised the whole question of pensioners and their order in priorities in the event of wind-up. I was very concerned that the order seemed to have been reversed, with pensioners now appearing at the bottom of the list.

I understood the Minister to say during his presentation of these amendments that existing rules would not be overridden. It is to try to maintain rights that exist in current rules that I am most concerned. There are schemes that have a priorities rule which puts pensioners higher up the list than was proposed in the Bill. If that will still remain the situation where rules are in force, that at least would be a more satisfactory position. Perhaps the Minister would care to elucidate.

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Lord Mackay of Ardbrecknish: My Lords, perhaps I may start with the simplest of the questions I was asked; namely, that from my noble friend Lord Boyd-Carpenter. Amendment No. 146 amends Clause 71 to enable regulations to modify the application of the clause. An example of the way in which we intend to use the power is to enable an individual section of an industry-wide scheme to be treated as a scheme in its own right. The power is similar to that for the other winding-up clauses in the Bill. It will be done by regulations, using the negative procedure. That is our intention.

Lord Boyd-Carpenter: My Lords, will my noble friend repeat what he said? Did he say "using the negative procedure"? I did not hear what he said.

Lord Mackay of Ardbrecknish: Yes, my Lords, I did say that it would be done using the negative resolution procedure.

To turn to the question put by the noble Lord, Lord Monkswell, most schemes have clear and carefully balanced provisions in place setting out exactly how scheme assets should be allocated on wind-up. Only a small minority of schemes have wind-up rules that could in principle result in assets being left unallocated. As I said, this can mean that when such a scheme winds up there is a need for a court to determine whether the excess assets should be deployed to increase members' benefits to the Inland Revenue limits or paid to the employer if he can establish a claim under what I gather is called "resultant trust" or go to the Crown as bona vacantia. No doubt the noble Lord understands exactly what that means.

4 p.m.

His argument may have been based on a slightly false premise. The money in a pension fund is not deferred pay. Once members' benefits are fully secured, any excess assets should be distributed according to the scheme rules, which could include payment to the employer. That is what the PLRC said and that seems the right course to us. That is what Amendments Nos. 138 to 146 will ensure. It has been debated quite fully during the passage of the Bill, both in this Chamber and in the other place.

I hope that that explanation will reassure the noble Lord, Lord Monkswell, that in the case of wind-up, the great majority of pension funds will already have clearly defined rules on what they do with the money and anything they have left over.

I come to the point raised by my noble friend Lord Buckinghamshire and the noble Baroness, Lady Turner. I appreciate the concerns expressed by my noble friend. Indeed, we had some considerable debate on the question of protecting the interests of pensioners in those circumstances. If a scheme is funded to at least a level of the MFR, pensioners' rights, including to indexation, will of course be protected. My noble friend was concerned about what would happen if a scheme winds up under-funded. We hope that that will not happen but, if it does, I am afraid that inevitably some members will lose out.

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The clause protects pensioners by making the continuation of pensions in payment at their current level the top priority after AVCs. It also protects them through the proposed basis for valuing accrued rights under this clause, which will entail the rights of pensioners and those close to retirement being valued on a relatively conservative basis. Beyond that, the clause does indeed incorporate the outcome of some hard choices. It is possible that, as a result of this clause, some pensioners' future pension increases will be reduced. But that is fairer than the current situation in which those close to retirement can be left with a very severely reduced pension at a stage in life when they are not in a position to do anything about it. Those of your Lordships who were with me in the long hours of debate on the Pensions Bill will remember that we discussed that particular balance in some detail.

We believe that all that is consistent with the general philosophy of the Bill, which is to protect all accrued rights, whether derived from service before or after 1997. It does not represent a retrospective reduction in pensioners' rights. It merely ensures that if a scheme winds up, and is unable to secure its members' rights in full, the pain is shared on an equitable basis with a bias towards pensioners' interests.

My noble friend will also be reassured to hear that a transitional order of preferential liabilities will apply over the period until the MFR is fully in place. This will give higher protection to the rights of existing pensioners, including to indexation, and to accrued GMP rights. Therefore, it will avoid any sudden change in the position of pensioners or those with substantial contracted out rights. The extent to which rights are covered by the preferential liabilities in this clause will increase in line with the build-up of funds in schemes under the MFR.

I trust that that reassures my noble friend. I believe that we have struck the right balance in this difficult area. However, I have to say to him, at the risk of opening a Pandora's Box, that one of the advantages of regulations in difficult areas of this kind is that, if experience proves us wrong, the clause contains powers to modify the preferential liabilities to achieve what might be considered, should something happen in the future, a more satisfactory outcome.

The noble Baroness, Lady Turner, asked me whether the Bill would override existing scheme rules. The Bill will override scheme rules in establishing a new statutory priority order. It is the scheme rules on distributing excess assets on wind-up which will be left in place. The new priority order will, we believe, produce a fairer distribution of assets, if a scheme winds up under-funded with, as I said, a bias towards protecting pensioners.

I hope that I have answered the points that were made. Perhaps I may take the opportunity to say to those noble Lords who are very interested in this complicated matter that if anybody comes across anything or needs clarification I should be more than happy to correspond with him over the Summer Recess. With those remarks, I hope that the House will accept the amendments.

On Question, Motion agreed to.

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