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Lord Higgins: It is difficult to work out precisely what this group of amendments is doing, except for the Minister's very clear statement that it is to prevent anyone being treated unfairly. We can all agree to that and we must hope that the amendments achieve the objective. However, this group of amendments, if I have understood it correctly, seems to deal with a very small percentage of people. Am I right in thinking that it is only those who either join or leave in the assessment period?
Baroness Hollis of Heigham: I realise that this is very technical. It is perhaps my fault that I did not circulate the briefing on it in advance, as that may have been helpful to noble Lords.
Perhaps I can give an example of where rights arose before the assessment period. The member has worked for six months but leaves employment two weeks before the assessment period begins. The member will eventually have a Chapter 5 right to either a contribution refund or a cash transfer sum. In other words, if he has worked there for only six months, only a modest sum will be involved. It does not usually make sense to try to turn such people into a full-scale deferred pensioner.
Although the member has elected his right to a cash transfer sum, the trustees have not completed the work before the assessment period began. The trustees will be able to discharge their liability during the assessment period in respect of the member's right to a cash transfer sum through regulations to be made under Clause 127 allowing that to be protected. If the trustees are unable to complete this discharge before the board of the PPF assumes responsibility for the scheme, then regulations made under Clause 157(2C) will allow the board to pay the cash transfer sum instead.
That is the sort of situation we are talking about. I could give the Committee other examples and would be happy to do so if noble Lords wished to press me on Report. I realise that the subject is semi-technical and I am speaking to many amendments at once. I shall try to ensure in future that such information is circulated in advance. However, that is the intent of the provision. Where people do not have vested rights but the assessment period cuts across the trustees' ability to address non-vested rights, the board will have that ability. That is why the provision is entirely
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benevolent. Otherwise, those with modest sums who effectively became deferred pensioners would not gain deferred rights but lose out.
Lord Higgins: Generally speaking, the noble Baroness has been very kind in letting us see in advance the arguments that the Government may address in particular groups of government amendments. Therefore, we need discovery of the points she has covered this afternoon.
What worries me more and more about all of this is the position of the poor trustees in moving from their normal role and responsibilities to a situation where all their responsibilities are eventually taken from them. They will have to understand in the mean time the types of points that the noble Baroness made about an individual who happens to join on one side or another of a deadline. Having long been the chairman of trustees of a pension fund, I must say that the idea that they will be aware of all that, or that steps will be taken adequately to inform them during the assessment period, is worrying.
If we are going to go through all of this, it has to be very clear that the board will have to tell the trustees what their responsibilities are. It is going to be a nightmare. Some boards of trustees are extremely confident and expert, but very often there are boards of trustees where some members are not the least bit clear about what their liabilities would be if they got it wrong. I hope that that can be taken into account when the provision comes into effect.
Baroness Hollis of Heigham: I think that that is entirely right. This is only one of several instances where an almost parallel authority will run simultaneously between trustees and the board during the assessment period. The noble Lord is right that that will inevitably be complex. Guidance will be given to trustees when a scheme enters the assessment period. So we will be taking belt-and-braces action to ensure that trustees know where their responsibilities begin and end and what the PPF's proper purview is.
On the substance of the noble Lord's point, we are talking about those who usually have less than two years' service and are therefore not vested. He is absolutely right to suggest that it will be a small number. We are just anxious to ensure that, by going into the assessment period, there is no risk that those people will lose their money due to an ambiguity or a gap between the trustees' responsibility ending and the PPF taking over. As I said, the provision is entirely benevolent. Basically, we are protecting small savers.
On Question, amendment agreed to.
Baroness Hollis of Heigham moved Amendment No. 195B:
On Question, amendment agreed to.
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Baroness Hollis of Heigham moved Amendment No. 195C:
The noble Baroness said: In moving Amendment No. 195C, I shall speak also to the other amendments grouped with it. I believe that I have circulated to the Committee, in advance, an extended speaking note of what each amendment does so that your Lordships are not in the same position as regards the previous set of amendments. I shall make a shortened introduction and any Member of the Committee will be free to raise points on any of the amendments.
These amendments effectively do two things. They enable some additional liabilities to transfer to the board when it assumes responsibility for a scheme and they provide a regulation-making power to modify contracts of insurance in certain circumstances. Let me explain those in turn.
First, Clause 152 provides for all the property, rights and liabilities of the scheme to transfer to the board once the board issues a transfer notice and assumes responsibility for a scheme. The trustees or managers of the scheme are then discharged from their pension obligations and the board is required to pay compensation on an ongoing basis.
As the Bill currently stands, subsection (3) of this clause provides that the liabilities transferred to the board do not include any liability to, or in respect of, any member of the scheme, other than liabilities in respect of money purchase benefits. These amendments change the subsection to enable the liabilities in respect of a member, which can transfer to the board, to include other liabilities as may be prescribed. It is intended to use this power to ensure that those liabilities in respect of members, such as a contract of insurance (to which we shall come later) or a contributions equivalent premium—as your Lordships know, that is the repayment of NI rebates—can and will transfer to the board.
Let me now explain the second part of these amendments—the power to modify certain insurance contracts. Trustees may take out insurance contracts to discharge their liabilities in respect of a particular scheme member's entitlements to a pension or other benefit. In some cases, trustees may have done that without discharging their liabilities. For example, the insurance company pays them a set sum and they then pass that on to the member, as opposed to the sum coming directly from the insurance company to the member. The amendments ensure that such contracts will transfer to the board.
However, there could be an additional problem if the contracts contain provisions which impose a duty on the trustee—now the board—to pay a particular amount to a particular member. Although in most cases we expect that the specified amount will be less than the amount the member will receive under PPF compensation, that may not always be the case. We are concerned that the board may be required to pay an individual more than his or her compensation entitlement. To prevent that occurring, the
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amendments provide for regulations to modify such contracts of insurance. However, that will be only in very limited circumstances where the contracts cannot be surrendered or where the surrender value is lower than the liabilities protected and the "specified amount" is greater than the PPF level of compensation to which the member may be entitled. That is to ensure equity within the PPF.
I believe it is extremely important that we enable the transfer of liabilities to occur as smoothly as possible when the board assumes responsibility for a scheme. For that reason, I urge the Committee to accept these government amendments.
I believe that we have provided information on the background of each of these individual amendments. If I can help further, I shall be happy to do so. I hope that, with the information provided in advance, the Committee will be content to accept the amendments. I beg to move.
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