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Baroness Hollis of Heigham: I will do my best. When referring to whether schemes can come in to the PPF, the question is when winding up commences—when schemes are commencing wind-up. We are trying to avoid the issue of the closing date itself. Secondly, on the financial assistance scheme, again the relevant term is "commences" and we are minded to link it to 1997. I suspect that we will not reach discussion of the financial assistance scheme before we rise for the Summer Recess. When we come to discuss it in Committee in September, I may be able to provide further information on that.
Lord Higgins: There may be an opportunity when discussing later amendments, such as Amendment No. 182, to pick up some of the points that the noble Baroness was not sure whether to cover a moment ago. I understand the point about the shopping list. One problem is that we discussed the composition of the regulator and are now discussing the composition of the pensions protection fund. Inevitably, we tend to go over the same ground and it becomes pretty boring.
The reason why we referred to Higgs is that it appears on page 8 at paragraph 28 of the Explanatory Notes. I have a lot of sympathy for the view put forward by the noble Lord, Lord Borrie. He enumerated some of those who have presided over the various corporate governance proceedings. At one stage, it seemed to me that whenever someone took on that job, the company of which he was chairman
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immediately ran into serious problems. I will not be sordid enough to cite specific examples, but there we are.
We will no doubt come in due course to the list of various subjects concerning the government amendments mentioned by the noble Baroness. The points that she made about winding up and various dates were helpful, although we may need to get the situation a little clearer than that, perhaps with reference to particular funds that have folded, about which we are receiving a number of letters.
Finally, I am sure that we are all anxious to do everything we can to get the Bill right. That is our duty, and I am sure that all Members of the Committee will do all that they can to fulfil it. However, we would have felt a lot happier about the explanation that the Minister gave if the proceedings in the Commons had not been curtailed by way of a Programme Motion. That is the problem. There may be particular circumstances affecting the Bill, but the fact is that, time and time again, Bills come to this House that have not been adequately debated because the opposition parties in the Commons have not been allowed to do so, under the name of modernisation or some such expression.
Baroness Hollis of Heigham: The noble Lord will know this as well as I do. I have read some of those Committee proceedings from the other end of the corridor. I do not mean to be patronising, but I must say that, in my view, the Opposition did not always use the time available to scrutinise in a manner that I take for granted in your Lordships' House. Without getting into the balance between the Houses, I do not think that that was necessarily a problem of government. I know that my officials were poised to answer far more detailed questions than were ever put to them. The reason those questions were not put to them was not due to lack of time.
Lord Higgins: I do not accept that. Of course, a whole chunk of Part 6 appeared only at the very last moment and the Programme Motion was not adjusted to allow for that. If one knows that one does not have enough time to do the job properly, there is little point in trying to grind through the initial clauses, knowing that the rest of them will go totally undiscussed.
However, I shall leave the matter there. The noble Baroness's remarks have been extremely helpful and the flexible approach that we have adopted under our Deputy Chairman of Committees will ensure that our subsequent proceedings go more rapidly and effectively than they would otherwise have done. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
The Deputy Chairman of Committees: The Committee now stands adjourned until half-past one o'clock.
[The Sitting was suspended from 12.54 to 1.30 p.m.]
[Amendments Nos. 178 to 180 not moved.]
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On Question, Whether Clause 102 shall stand part of the Bill?
Lord Higgins: I merely wish to share my own experience of returning rapidly to a meeting. As Treasury Minister I once appeared two minutes late at a Cabinet Committee meeting. Given that I had thought that the meeting would last about three hours, I was surprised that it had already concluded. The reason was that the spending department Ministers had agreed that all their expenditure was entirely justified when there was no Treasury Minister present. So I have never been late since.
Baroness Hollis of Heigham: And what happened to the noble Lord's future?
Lord Higgins: That explains everything.
Schedule 5 [The Board of the Pension Protection Fund]:
[Amendment No. 181 not moved.]
Lord Skelmersdale moved Amendment No. 182:
Page 260, line 8, after "Fund" insert "comprising the actuarial valuation of each scheme for which the Board has responsibility"
The noble Lord said: This amendment would insert,
It relates to a question that I asked the noble Baroness at Second Reading and which she almost answered in her great speech just before the break. It is designed to find out how the fund will operate. The shorthand that I used at Second Reading was: would there be some funds?
Clearly, the board will take control of a number of pension schemes, most probably all with differing rules, although there is likely to be some overlap. As a result, it will have two choices: either to run all the schemes together—calling it a fund suggests that that might happen—and pay the beneficiaries only according to the rules of each scheme, or to run the schemes as they are handed to the fund, but somewhat better, using the fund money as back-up.
In either event, dedicated officials and, presumably, board members would need to be involved—less in the case of the former but much more in the case of the latter. It would be helpful to know exactly how the fund will operate. I beg to move.
Lord Lucas: Returning to the question of Mr Green and Marks & Spencer, some interesting things will happen when transferring schemes into the pension protection fund. Where a scheme belongs to a company that has gone bust, the actuarial valuation will be on the basis of an extremely conservative investment policy—basically, fixed interest. The pension protection fund has strong access to cash to deal with deficits should they arise as a result of investment performance. Therefore, if a scheme which has a decent number of members who are not in payment and have a long life expectancy is transferred
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into the fund, putting a chunk of equity as another higher yielding investment in the mix, the basis for actuarial valuation will change. As a result, a scheme with an actuarial deficit may have an actuarial surplus once it has joined the fund. That will be fun to deal with.
Lord Oakeshott of Seagrove Bay: May I move Amendment No. 184, in my name?
Baroness Hollis of Heigham: It is not in this group.
Lord Oakeshott of Seagrove Bay: Perhaps, then, I may offer my support to Amendment No. 182.
Baroness Hollis of Heigham: This is an important amendment because it allows us to give some sense of what the fund is like. Perhaps I can add to my comments later if any Member of the Committee wishes to return to something.
When a scheme enters the PPF, its assets and liabilities will be transferred to the pension protection fund. The amendment would mean that assets transferred from schemes to the fund must be monitored separately, so that an actuarial valuation of the assets from each individual scheme can be carried out as part of the annual reporting requirements.
Perhaps I should explain what "being transferred to the PPF", or "entering the PPF" mean in practice, before moving on to the reasons why I must resist the amendment. Once all the criteria for entering the PPF have been met, the board must issue a transfer notice to the scheme trustees. As soon as the transfer notice has been received by the trustees, the scheme ceases to exist as a legal entity and the trustees are discharged of their pension obligations. The assets and liabilities of the scheme are immediately transferred to the pension protection fund and the board must pay compensation to the members of the former schemes—in effect, they become PPF members. The important point is that once a transfer notice has been issued, it cannot later be revoked or unpicked.
When considering how the fund should work, we quickly eliminated the idea that the board should simply top up scheme assets. That would not provide the economies of scale that the PPF is designed to give. It would result in the board having to pay large amounts of compensation at once and therefore having to pass the costs immediately on to the levy-payers, instead of allowing them to smooth the costs over time.
So we are introducing a fund which will be held for the payment of compensation. We have made no provision to track the assets from each former scheme; indeed, it would be almost impossible to do so without changing the entire nature of the PPF. The fund is intended to pay compensation at the same rate for each individual, irrespective of what proportion of the liabilities are being met by the assets that come with that scheme into the fund—100 per cent, 90 per cent and so on. The compensation is to be paid for by a combination of assets transferred from former schemes and receipts from the pension protection levies.
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Assets held in the fund will be invested in line with the statement of investment principles, which we will discuss separately.
Tracking the assets of each former scheme would give very few advantages. For example, a comparison would be to require trustees to keep assets in the scheme relating to each individual member separate and to report regularly on the level of assets for every member. However, each member would receive the same level of pension regardless of the level of assets that they brought. So there is not much point in such an approach, if there is no precise connection between what you bring into the scheme in the form of assets and what gets paid out to you in the form of pensions. Whether a member brings in assets that can meet 80 per cent of the liabilities or that meet only 40 per cent—obviously, if it were much more than 80 to 90 per cent, one would be into a wind-up situation—is irrelevant to the payout to the individual members. There is a standard payout of 100 per cent for existing pensioners and 90 per cent for active members or deferred pensions.
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