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The Deputy Chairman of Committees : Before calling Amendment No. 196, I must inform your Lordships that if Amendment No. 196 is carried I cannot call Amendment No. 197 for reasons of pre-emption.
Lord Skelmersdale moved Amendment No. 196:
The noble Lord said: Amendment No. 197 will not be moved as we have already discussed it at some length. However, I am most certainly moving Amendment No. 196. The Minister will not like me for it because this is a drafting amendment.
"The Regulator may not make a freezing order (see section 20) in relation to the scheme during the assessment period".
We already know that because it is there in black and white in Clause 22, which we discussed a couple of months ago and to which we may return in a month's time. Why on earth is it necessary to repeat it? After all, if one is on the staff of the regulator or one is the regulator himself, one would expect to find one's powers and duties encapsulated in the provisions relating to the regulator rather than in those relating to the board. Indeed, to be perfectly fair to the draftsman,
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that is exactly what he has done under Clause 22. However, I do not understand why it is necessary to repeat it. I beg to move.
Lord Borrie: I have felt in the last short while that we have been discussing a range of amendments in this part that there is a certain difficulty about the assessment period. When the noble Lord, Lord Higgins, asked questions about it earlier, I wondered precisely what the assessment period was and how long it lasted. I raise this point in order to obtain further clarity from the Minister.
My understanding is that, during the period and before a transfer notice is given under Clause 151 transferring responsibility for the scheme to the Pension Protection Fund board, both the regulator and the board—somewhat inconveniently perhaps—have certain roles. There is an overlap of roles. For example, as we know from Clause 127(3), the regulator may make a winding-up order during the assessment period. However, I am not surprised at Clause 127(7), which we are debating now, because during the assessment period one has a similar impact as a freezing order by virtue of Clause 125(5), which states:
"No benefits may accrue under the scheme to, or in respect of, members of the scheme during the assessment period".
That is more or less exactly what is said in relation to a freezing order under Clause 20 and there are various other similarities.
The noble Lord, Lord Skelmersdale, quite correctly said that the point is made in Clause 20 that no freezing order may be made in relation to a scheme during an assessment period. If we have that in Clause 20, why also have it here? Normally, I would agree with that type of point because the Bill is long enough as it is without mentioning things twice. However, on the other hand, given that the noble Lord, Lord Higgins, and myself are unlikely to be the only people to be confused about who does what and who has what role during the assessment period, I am not worried if something is mentioned in subsection (7) that repeats something mentioned earlier if it adds to the clarity of what is and is not allowable.
Baroness Hollis of Heigham: I am grateful to the noble Lord. The short answer is that the noble Lord, Lord Skelmersdale, is correct. In a sense, this provision repeats what has already been established. In the past, your Lordships have often urged me to extend clarity to the Bill by adding other words. If Committee Members think that this provision is redundant, I shall re-examine the matter. However, it makes clear the differing functions of the regulator and the Pension Protection Fund board.
I shall take my response from Committee Members, but it may be worth describing the difference between a freezing order under the regulator and an assessment period under the board. The effect of a freezing order during this time is like pressing the pause button on the video recorder. During this time, a scheme will not be able to wind up unless the regulator itself makes a winding-up order and no further benefits will accrue in respect of members. That is the crucial element of a freezing order.
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In addition, and when the regulator deems it appropriate in the particular case, a freezing order may also determine that no transfers are allowed in or out of the scheme; no more contributions can be paid in; no other payments in may be made; no members can be admitted to the scheme; benefits are reduced to no less than the level payable if the scheme had commenced winding up; and/or the trustees or managers are compelled to obtain an actuarial valuation which will include an assessment of the assets and liabilities of the scheme.
My noble friend and the noble Lord, Lord Skelmersdale, are exactly right that the assessment period has almost the same effect on the scheme as the freezing period. The freezing period allows the regulator to ensure that any situation does not worsen and to see whether a scheme needs to go through to the PPF.
During the assessment period, a scheme will not be able to be wound up unless, as we saw in relation to the previous amendment, the regulator itself makes a winding-up order and no further benefits will accrue in respect of members. No transfers are allowed in or out of the scheme, no contributions can be paid in, no other payments can be made and no members can be admitted. Benefits are reduced to the level payable as if the PPF board had assumed responsibility for the scheme, and the auditor is compelled to obtain an actuarial valuation, which will include an assessment of the assets and liabilities of the scheme.
In essence, the assessment period is a freezing period but it is imposed by the involvement of the board with an eligible scheme on the occurrence of a qualifying insolvency event in relation to the sponsoring employer of the scheme and not by the regulator. For that reason, I do not believe it could add any benefit for the regulator to be able to issue a freezing order during an assessment period or, indeed, as the noble Lord made clear, to remove these words. I think that it is helpful to keep them in. I do not feel very strongly about the matter but it seems to me that it is probably wiser to keep the words and to make it clear that the two schemes, although parallel in their powers, will probably be distinct in terms of the times at which they are introduced and implemented—one by the regulator; the next by the board. With that, I hope that the noble Lord will not wish to press the amendment.
Lord Skelmersdale: I am not in a position to press any amendment in a Grand Committee. I would if I were and, in other circumstances, this might well be one of those cases. I very much take on board the words of the noble Lord, Lord Borrie, who, after all, has been something to which I can never aspire—namely, a regulator. That was in a totally different context but he was a regulator none the less.
However, the very fact that this clause has nothing to do with the regulator—it is to do with the powers of the board—sometimes, as we discussed and as the noble Baroness said in relation to my earlier
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amendment regarding subsection (3), gives me grounds to think that it is unhelpful rather than helpful to include subsection (7) in this clause. But I shall consider further and we shall see whether we return to the matter. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 197 not moved.]
Clause 127, as amended, agreed to.
Clause 128 [Power to validate contraventions of section 127]:
Lord Skelmersdale moved Amendment No. 198:
"( ) The Board may not validate anything not done by reason of section 11(3A) of the Pensions Act 1995 (c. 26) (powers to wind up schemes)."
The noble Lord said: Again, I am somewhat confused by the issue of validation under this clause. Therefore, in order to tease out exactly what "validation" means, I tabled this amendment, which states:
to which we have already referred,
It seems to me that that is a prerogative of the regulator and therefore the board should not become involved. I beg to move.
Baroness Hollis of Heigham: I am grateful for that introduction because I was mystified by the amendment. As the Bill currently stands, Clause 127 restricts trustees from winding up a scheme during the assessment period. That is why it is a matter for the PPF and not the regulator. Clause 128—the clause addressed by the amendment—provides for the PPF board to validate any actions of trustees in contravention of Clause 127 only in circumstances where it is satisfied that to allow the winding up of the scheme during the assessment period would be consistent with the objective of ensuring that the scheme's protected liabilities do not exceed its assets and so on.
Therefore, Clause 127 restricts the trustees. Under Clause 128, if the trustees none the less contravene Clause 127, that can be validated by the board if the board judges that it is in the best interests of the members. It is the board in this case because it is in the assessment period as opposed to a freezing period or pre-assessment period. I hope that that clarifies the situation.
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