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Lord Higgins: I am sorry to interrupt the noble Baroness. I have slight difficulty in understanding what she is saying. She has said several times that all members would get the same payout. Does she mean that members will all get the same amount, or that they would all get the same as they would have received if the previous scheme, now defunct, had gone bust? We need to define more clearly what is meant by "the same".
Baroness Hollis of Heigham: It means that when a member has joined the PPF, he will be entitled on retirement, if he is an active member, to 90 per cent of what he would have got under his old scheme. It relates to the length of service. There will also be standardised rules relating to civil partners, survivors and the like. I am trying to break any connection between the assets coming from a scheme and the payout to the members—subject to a £25,000 cap. It means, for example, that if a member would have been entitled to a £20,000 pension through his normal working life with a company, he will get 90 per cent of that in the PPF as opposed to the 100 per cent entitlement that he would have expected had he not joined the PPF.
The rules of payments to survivors, dependents and so on will be constant for all members of the scheme as broadly as possible. Whatever rules applied in the old scheme will continue. If, for example, in the old scheme there was a payment not just for a spouse but for an unmarried partner, it will continue. Given the sex equality rules, the payment would also apply to same-sex or opposite-sex partners. If a member's old scheme did not have such a payment, he would not be entitled to it under the PPF. We are not seeking to make the PPF more advantageous than the schemes that members have left. The PPF has the same rules on proportion of payout, but some of the features of the old scheme will be replicated in the new one in so far as they may differ—in particular, payments for survivors.
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I was seeking to address the implied suggestion of the noble Lord, Lord Skelmersdale, which could be read into the amendment, that one would track assets in an attempt to keep some parity between what was paid in and what was paid out. One does not need to; it becomes a conglomerated fund and payments follow on the basis of the standard rules. I hope that that helps the noble Lord. If not, perhaps he can come back to me.
Lord Higgins: I was wondering at what stage it would be most appropriate to intervene.
Baroness Hollis of Heigham: Perhaps I may finish this speech before addressing any further points.
One further reason for not accepting the amendment is that it would restrict investment decisions because the board could be encouraged to make fewer changes in investment in order to reduce costs of tracking the impact of those changes to the assets of each scheme.
Finally, the amendment could result in legal challenges where an individual is aware that the assets of "his scheme" are now higher than they were on entry to the PPF. Because of this knowledge, such an individual is more likely to try to challenge the PPF for a higher rate of compensation. It would be entirely unfair to give individuals in the same circumstances different levels of compensation according to how former assets have subsequently gone on to deliver. Entry to the PPF should be seen as a clean break—from that point onwards each individual is entitled to the same rate of compensation from the same fund. My only qualification is that the scheme should operate according to the rules of the original scheme so that members do not end up getting a better deal under the PPF, which would accentuate the moral hazard issues. That qualification and the £25,000 cap aside, I hope that I have met the purpose of the noble Lord's amendment, which is to probe how the fund would operate.
Lord Skelmersdale: I am most grateful for that. Clearly, I did not understand how the fund would work. Can the noble Baroness say more about the "rules of the scheme" and the "scheme rules"? Before the break, she made a clear distinction between what those terms meant. If I understood her correctly, she said that most of the rules of the individual schemes would be met, subject to the 100 per cent and 90 per cent caps. She also said that some generic rules would be forced on all schemes. I was not entirely sure what she meant.
Baroness Hollis of Heigham: The noble Lord's last point comes up as a set of government amendments, although I am not sure where exactly those amendments arise. The reason for clarifying the language is that the rules of the scheme are those that apply to a particular scheme. The scheme may have only survivors' pensions for spouses—in which case it
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would also apply to civil partnerships—or it may not have rules for partners, for example. Those rules would continue.
The point about the subsequent set of amendments is that the rules of the scheme may be—and, in certain circumstances, must be—overturned where they conflict with other legislation, such as the law on sexual orientation and some equality issues. The scheme rules are the broader set. They include the rules of the scheme as amended by, in the light of, or as adjusted by other appropriate government legislation. For example, regardless of the trustees' wishes they will not have the discretion to confine the scheme rules to partners of the opposite sex; in the light of the European directive, they must also apply to same-sex partners. That is where legislation would cut across the rules of the scheme.
Lord Skelmersdale: That is very helpful. As the noble Baroness has said, we shall subdivide this explanation into its constituent parts over the next few amendments. It would not therefore be helpful if I said any more. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 183:
Page 260, line 18, after "qualifications" insert "or experience, or a person approved by the Secretary of State,"
The noble Baroness said: This group of amendments relates to the definition of "actuary" throughout the Bill. The changes are to achieve consistency across the Bill by ensuring that all relevant references to an actuary include actuaries of prescribed qualifications or experience, or a person approved by the Secretary of State. The persons approved by the Secretary of State are not mates who would quite like the job of actuary but are not qualified. That is not the purpose of the amendment. Most actuaries will fall within the prescribed qualifications laid down by the Faculty and Institute of Actuaries. However, they will also include European actuaries, as the Faculty and Institute of Actuaries are signatories to the Groupe Consultatif Agreement on the Mutual Recognition of Qualifications. Under that agreement, a full member of one European actuarial association can become a fellow of another European actuarial association following set procedures.
In addition, the faculty and institute have signed mutual recognition agreements with other countries such as those based in Canada and Japan. However, where there is no mutual agreement in place, the person may instead seek approval from the Secretary of State to act as an actuary in the UK. So it is simply ensuring that reciprocal arrangements can be extended to countries other than those formally covered. I beg to move.
Lord Higgins: I am not clear why the provision was not in the Bill originally. What the noble Baroness says seems eminently reasonable, but we will need to think about it and consult outside, as actuarial bodies may have a view on the matter.
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On Question, amendment agreed to.
Lord Oakeshott of Seagrove Bay moved Amendment No. 184:
The Board shall make pension arrangements for its chairman and employees which shall be broadly comparable to those provided by companies included in the FTSE 100 Index for their employees receiving similar salaries."
The noble Lord said: I apologise for my confusion earlier. I have learnt not to be a shrinking violet: when one has grouped amendments, do not withdraw the first one.
Amendment No. 184 is a simple amendment tabled in my name and that of my noble friend Lady Barker. It arose as a result of clarification helpfully given at our first meeting with the Minister and officials before it emerged that it was intended that the chairman and staff of the PPF would have Civil Service-type benefits. We do not think that that is the right approach. Perhaps I can regard this as a "le patron mange ici" amendment. Where pension arrangements and remuneration are paid for by private sector schemes, it is right that they should know what the provisions are, and the relevant PPF staff should get benefits comparable to high-quality provision in the private sector.
It is right that members should understand the challenges and the risks faced by private-sector schemes. I know that our civil servants here in particular are overworked, underpaid and do a great deal for this Committee and the country, but I am sure that no one will misunderstand me when I say that one aspect of their remuneration is now platinum-plated. The full, taxpayer-guaranteed, unlimited indexation scheme is now as rare as a vintage Rolls Royce in the private sector. It is definitely wrong that such an arrangement should be available to the board and staff of the PPF, if that is intended. There are perfectly good precedents—the Financial Services Authority does not work that way. I beg to move.
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