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Lord Astor of Hever: I thank the Minister for that reply. I am grateful to the noble Lord, Lord Goodhart, for his support. He made a valid point about the extra cost.

The Minister started by saying that the Government had sympathy with our amendment, but she then destroyed my hopes by saying that there was little common ground between us. We want to consider carefully the points that she has made. In the mean time, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 25 agreed to.

Clause 26 [Cash equivalents]:

Lord Astor of Hever moved Amendment No. 70F:

Page 30, line 22, at end insert ("(including medical evidence)")

The noble Lord said: I rise to speak to Amendment No. 70F. This is a probing amendment to establish whether underwriters will be allowed to follow normal practice which would include taking into account medical evidence.

Pension benefits have to be valued on divorce, just as other assets, such as the home, have to valued, in order for them to be appropriately shared. When the valuation of pension benefits is that of a pension in payment, the crucial aspect of a fair valuation of the benefits--fair to the beneficiaries and other scheme members--is an assessment of the health as well as the age of the beneficiaries. Medical evidence in the form of

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information from a GP or other medical practitioner may be needed to inform the assessment and a medical examination may be necessary.

How to value the pension rights will be prescribed by regulations. In broad terms, the regulations will prescribe that the valuation should be done in accordance with the guidance of the Institute and Faculty of Actuaries on calculating the CETV. However, we believe that in primary legislation it should be made clear that pension providers may receive medical evidence of the beneficiary's health in order properly to value the pension benefits.

The nature of pensions is such that there are few circumstances when the whole pension benefit has to have a value placed on it. Pension sharing is one instance. Early retirement is an already established instance. Will the Minister confirm that underwriters will be able to use all relevant information on which they rely in assessing risk, such as medical evidence when they value pension assets on divorce? I beg to move.

Baroness Hollis of Heigham: My Lords, I welcome the opportunity to debate the issues raised by Amendment No. 70F. We have made it clear throughout our extensive consultations on pension sharing that we want to ensure that all pension rights can be shared, including pensions in payment.

We have taken a power in Clause 26 to enable us to deal in regulations with the technical issue of the calculation of the cash equivalent of pension rights. We recognise that, in relation to pensions in payment, we are to some extent entering new territory, since it is not currently possible for pensioner members to transfer the cash equivalent of their pensions out of the scheme.

However, there is no real difficulty in principle in extending cash equivalent transfer values to pensions in payment cases. At the scheme level, the actuarial assumptions involved will take account of the fact that some people will live longer than average and others will live less long. However, at the individual level, the health of the individual becomes much more important. For example, if the member is in very poor health, the absence of medical evidence may result in a significant over-estimate in the valuation of the pension assets.

The Government accept that pension sharing must be based on a fair valuation of pension rights and clearly that may not be possible if pertinent medical evidence is not available to the scheme in pensions in payment cases. The use of such information is well established elsewhere, especially in areas such as insurance, where it is important for organisations to be able to assess accurately the risks they are taking on.

I understand the noble Lord's concern that there might be scope for people to abuse the system if schemes were prevented from obtaining medical evidence. That is why we have indicated throughout our consultation that we do not intend to prevent schemes from requesting medical evidence before implementing pension-sharing orders in pensions in payment cases, where schemes feel there may be a risk of abuse.

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That is why, as I mentioned earlier, we have taken a power which could be used to deal with these matters in regulations. That power might be used to enable a person responsible for implementing a pension sharing order to obtain appropriate medical evidence.

Preparatory work on the regulations is underway and my officials are actively engaged in discussions with the pensions industry on this matter. One of the main concerns that I have asked officials to address is whether requirements in respect of medical evidence would be compatible with the European Convention on Human Rights. We do, of course, need to be satisfied that any future regulations will be reasonable and sound in all respects, including the Convention angle. Meanwhile, I hope that the noble Lord will agree that this matter is one which could properly be dealt with in secondary legislation, and agree to withdraw the amendment.

Lord Astor of Hever: I thank the Minister for that full reply and indeed for acknowledging that medical evidence may need to be accepted where it is needed. I am also happy to hear that the Minister's officials are in discussion with the insurance industry. In the light of that good news, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 26 agreed to.

Clause 27 [Reduction of benefit]:

Lord Astor of Hever moved Amendment No. 71:

Page 31, line 3, at end insert--
("( ) Following an award against a scheme member of one or more pension debit orders, the scheme member shall be entitled, within permitted contribution limits, to rebuild the pension rights foregone as a result of the order or orders.")

The noble Lord said: This is a probing amendment to clarify that scheme members will be allowed to rebuild their pensions following one or more debit orders. Will the Minister confirm that current tax rules will be amended, so that this is possible? Will the Minister also confirm that this will be done under the Finance Bill if it is not dealt with in this Bill? I beg to move.

The Earl of Clanwilliam: It is only right that, if someone suffers a debit through no fault of his own, he should be allowed to reinstate that debit so that his pension accumulation does not suffer.

9.45 p.m.

Baroness Hollis of Heigham: Amendment No. 71 is a major amendment intended to enable a member of an occupational pension scheme whose pension has been shared to rebuild the pension rights transferred to the former spouse when permitted within the permitted contribution limits. However, as I am sure Members of the Committee will be aware, the Government have already gone a considerable way to meeting the concerns that have been expressed with the easement that they announced in the other place. Essentially, that easement allows moderate earners--that is, people earning up to £22,650 a year--fully to rebuild within permitted contribution limits.

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The amendment seeks to go further than the easement announced by allowing all members of occupational schemes, irrespective of their earnings, to ignore the pension share when rebuilding their pension rights up to the maximum permitted under Inland Revenue rules; in other words, everyone would be free to rebuild within the 15 per cent annual employee contribution limit.

It is important to be clear about the scale of the problem that this amendment seeks to address. First, the easement we have announced will cover the majority of occupational pension scheme members and target help on those who most need it. Of those who remain with earnings above £22,650, the statistics suggest that more than half of them will be under the age of 35 at the time of divorce, with ample time to rebuild within Inland Revenue limits or to save for their retirement in other ways. Originally, our best estimate of the proportion of scheme members who would be partly or wholly constrained by the tax limits from rebuilding their pensions was between 5 per cent and 10 per cent. But the easements announced in the other place would reduce that number by half; that is to say, to between 2.5 per cent and 5 per cent of this group.

If our estimate of around 25,000 pension sharing cases affecting occupational pensions per annum is proved right, that means that between 600 and 1,250 people only--perhaps 750 or 1,000--would be affected each year and not all of those would have the resources, or be willing, to rebuild their pensions fully, even if the tax constraints were removed. Therefore, in reality, we are concerned at most with a few hundred people.

The Government are not persuaded that it would be right to create special rules for this small group of people. We have chosen to link the rules that will enable a pension share to be ignored, for tax purposes, to the rules for people changing jobs. We are building on arrangements that have long been in place. We have avoided creating special tax rules for divorcing couples. To introduce special tax rules for a few hundred people, as argued for in the amendment, could be seen to be unfair and as positive discrimination in favour of this particular group.

I can assure Members of that Committee that, because of the numbers involved, the Government do not seek to resist the amendment on grounds of cost--

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