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Lord Hunt of Wirral: I am a little confused. I sent my speaking note, which I have just read out, to the Minister in July. I explained very carefully what I was to say on this occasion. It is a little bit of a set back to this noble Lord that the Minister has not understood
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the point that I made or has believed that I was speaking to another amendment. Perhaps she has confused the two of us, although I cannot understand how one could merge the youthful countenance of the noble Lord, Lord Lucas, with my rather aged one. I am about to attend a party to celebrate a Labour MP obtaining his freedom pass—I already have one—so I cannot understand how the Minister could confuse the two of us. It may be that her commitment to look at the matter again is so all-consuming that I should merely thank her very much indeed. We shall return to this matter on Report. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 208A:
On Question, amendment agreed to.
Clause 143, as amended, agreed to.
Lord Oakeshott of Seagrove Bay moved Amendment No. 209:
The noble Lord said: This may appear to be a somewhat esoteric amendment but I believe that it illustrates a point about the shortage of capacity in the buy-out market, which is why I seek to raise the matter and welcome what assurances the Minister can give me.
What I am seeking to do with this amendment is to put trustees who are unable to obtain a full buy-out quotation on "reasonable terms", as I put it, in the same position as if they could not obtain a full buy-out quotation at all. When I say unreasonable commercial terms, I am talking about penal or prohibitive rates of five or 10 times the normal quote.
The serious point here is that there are only two providers of full buy-out annuities for winding up schemes in this market and they are finding it harder and harder to operate. There is a shortage of capacity and they could be swamped. We could then be in a position where they are giving rather nominal quotes. That is why I am seeking to provide that it should be done only if one can achieve a quote on reasonable commercial terms. I beg to move.
Baroness Hollis of Heigham: I think that the spirit of the noble Lord's comments is already embedded in the Government's position. Although it is useful and helpful to clarify it, my understanding is the same as that of the noble Lord. The UK insurance market presently does not appear to have sufficient capacity to absorb large-scale pension liabilities of, say, £500 million-plus on a buy-out basis that would be sufficiently competitive. The test is that such a buy-out would be competitive. If it were not, the proposition is that it would be run as a closed scheme, on the value-for-money grounds that, as the noble Lord suggested, the costs would be disproportionate.
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If that addresses the noble Lord's concerns and re-emphasises the nature of the issue, perhaps he will indicate that he is content with it. If he wishes to press me on any further issues, I would be happy to try to respond to them. We are not seeking to tie trustees into accepting a buy-out that is not competitive given the state of the market. That is why closure is the realistic alternative in this situation.
Lord Lucas: I must admit that I do not see where in the wording we have any recognition of the fact that a quote might be uncompetitive. It says, "If you cannot obtain a quote". If I offer to buy your car for a pound, that is a quote, but it is probably not a competitive quote. I think that there has to be some recognition of the fact that if there are many false sellers in this market, people will offer quotes at silly prices.
Baroness Hollis of Heigham: Perhaps the noble Lord will allow me to take legal advice on this. There is no intention in the Bill to tie the trustees into taking any quote, however uncompetitive, just because it does not say that it has to be competitive. I should have thought that the fiduciary duty of trustees would not allow them to accept an uncompetitive quote where the alternative is a closed scheme. However, if that is not the case and we need further clarification, I am very happy to come back to it.
Lord Oakeshott of Seagrove Bay: It may be technically competitive in the sense that there are two quotes and that is the best one. As my son has reached the age of 25 and I promised him that I would include him in the insurance on his mother's sports car, I am very well aware of the range of quotations that one can get from insurance companies. I am happy to accept what the Minister said as a principle, but I still think that adding wording like mine—not necessarily these exact words—would help to make the position clearer.
Baroness Hollis of Heigham: I am perfectly happy to have a look at it and take advice on this. One such situation would be where the quote, for example, was so expensive that the benefits to members would fall below the PPF level of compensation. That would be an obvious case. If I may, I shall take the draftsman's advice to see whether we need additional words to ensure that trustees do not feel themselves bound to accept an inappropriate course for their scheme members.
Lord Higgins: Perhaps I may ask one question. As I understand it, there are effectively only two providers. So no quote will be competitive in the normal sense; it is a duopoly, and that is the situation. Given that, are the trustees bound to take a quote from the UK, or can they go overseas?
Baroness Hollis of Heigham: The advice that I have been given is that they can go anywhere.
Lord Oakeshott of Seagrove Bay: In the light of those assurances, I am happy to beg leave to withdraw the amendment.
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Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 209A:
On Question, amendment agreed to.
On Question, Whether Clause 144, as amended, shall stand part of the Bill?
Lord Higgins: I wish to make one or two points. I am not absolutely clear that I understand the terminology correctly so far as concerns closed schemes. Of course, in the context of pensions one frequently talks of a final salary scheme which is closed to new members. Is that the definition that we are using in the present context of Clause 144?
Secondly, the clause constantly refers to "trustees or managers of the scheme". I am not at all clear what the managers have to do with this. I should have thought that only the trustees would be involved. But are we to assume that they must try to obtain a buy-out before they apply for the scheme to be closed or, within the context of this clause, can they say straight away, "We would like to become a closed scheme"? Perhaps the noble Baroness would clarify that point.
I want to make only one other point. Clauses 146 and 147 are concerned with the treatment of closed schemes. I am not sure why Clause 145 comes where it does. I should have thought that it would come after Clause 150 but perhaps we can consider that point later.
Baroness Hollis of Heigham: In response to the noble Lord's direct question, the trustees and managers of a scheme may apply to the board for the authority to continue as a closed scheme only if they have been unable to obtain a full buy-out quotation. If the board is satisfied that the trustees or managers have taken all reasonable steps—and taking into account all that the noble Lords, Lord Higgins and Lord Oakeshott, said about duopolies—but have been unsuccessful, the board must authorise the scheme to continue as a closed scheme.
Any application to the board to continue as a closed scheme must be accompanied by evidence that the trustees or managers have taken all reasonable steps to obtain a full buy-out quotation. The form of the evidence will be prescribed in regulations. If the PPF board is satisfied with that evidence, it must issue a determination notice to the trustees and managers and to the regulator. The determination notice will set out the decision of the board as to whether a scheme may continue as a closed scheme. That is the procedural point that the noble Lord raised. Does he have any other concerns?
Lord Higgins: Is it a closed scheme in the sense that it is closed to new members?
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