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Lord Oakeshott of Seagrove Bay: I want to ask about the difference between the two types of closed schemes. If I understand aright, we have one form of scheme that is closed to new entrants, as the noble Baroness, Lady Turner, said. Is the essence of the other form that it is closed to contributions? Have I got that right? Perhaps a bottle of House of Lords' spring water is all I shall win on that, but that is basically right, is it not?
Baroness Hollis of Heigham: Yes—it is essentially frozen without being able to be frozen.
Lord Higgins: I think that we are clear that we need to change the terminology, and "frozen" is the obvious expression to use, I suppose. Those behind the Minister seem a little doubtful about that but, at all events, we need to think about whether something can be done. The amendments to change the drafting would not take very long on Report.
I regret to say that I am still a little confused. We agree that the scheme does not receive new contributions. It may be that, although it is a closed scheme, the situation deteriorates and it becomes part of the PPF. I am not clear on the second definition of the word "closed"—perhaps it is the primary definition—and whether the scheme cannot in any way take on new members. The other matter on which I am now doubtful is whether a frozen scheme—
Baroness Hollis of Heigham: A big scheme closure.
Lord Higgins: Is a frozen scheme bound to be closed in the traditional sense? I am unclear about whether it can become unfrozen or thawed. What happens if the stock market goes up? Does the scheme then float itself happily away from all concern with the PPF?
Baroness Hollis of Heigham: A scheme is frozen and is not able to take on new members because, by
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definition, the employer has become insolvent. Therefore, the company is not trading. That is very clear and it was my original answer on why it cannot take on new members. The company is not solvent.
I do not see what the problem is if the stock market goes up. If it does, the issue is not whether the scheme comes into the PPF but whether the trustees can discharge their responsibilities by buying insurance contracts. If the stock market has gone up, it is not clear to me that they can necessarily thereby discharge their responsibilities by buying insurance contracts. If they cannot, they will still therefore need to operate as closed schemes; there will simply be more assets to cover liabilities than might otherwise have been the case.
Lord Oakeshott of Seagrove Bay: I suggest, from my personal experience, that what is probably needed is for the stock market to go up so that there is more money to buy the annuities and for the gilt market to go down so that annuities are cheaper. One could be lucky, but that is what one is hoping for.
Baroness Hollis of Heigham: I think that it is the first time in history in which both the gilt and stock markets have gone down simultaneously.
Lord Higgins: Optimism pervades the Committee. At this stage, that may be rather remarkable. I think that we are a little clearer than we were half an hour ago.
I have one final question. Is such a scheme technically wound up?
Baroness Hollis of Heigham: Yes.
Lord Higgins: Fine—I am clear about that. I am grateful for the Minister's explanation.
Clause 144, as amended, agreed to.
Clause 145 [Requirement to wind up schemes with sufficient assets to meet protected liabilities]:
Baroness Hollis of Heigham moved Amendments Nos. 209B to 209E:
Page 103, line 9, after "section 126," insert "but subject to any order made under subsection (7A),"
"(7A) The Regulator may by order direct any person specified in the order—
(a) to take such steps as are so specified as it considers are necessary as a result of—
(i) the winding up of the scheme beginning, by virtue of subsection (6), immediately before the assessment period, or
(ii) the winding up of the scheme being continued under subsection (1)(b), and
(b) to take those steps within a period specified in the order.
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(7B) If the trustees or managers of a scheme fail to comply with a direction to them under subsection (7), or contained in an order under subsection (7A), section 10 of the Pensions Act 1995 (c. 26) (civil penalties) applies to any trustee or manager who has failed to take all reasonable steps to secure compliance.
(7C) That section also applies to any other person who, without reasonable excuse, fails to comply with a direction to him contained in an order under subsection (7A)."
Page 103, line 21, at end insert—
"(9A) Where an assessment period in relation to an eligible scheme comes to an end by virtue of the conditions in subsection (2) or (5) being satisfied, subsections (1) to (1C) of section 141 apply as they apply where an assessment period comes to an end by virtue of the Board ceasing to be involved with the scheme, except that in subsection (1A) of that section the reference to section 210 is to be read as a reference to subsection (6) of this section."
On Question, amendments agreed to.
[Amendment No. 210 had been withdrawn from the Marshalled List.]
Clause 145, as amended, agreed to.
Clause 146 [Treatment of closed schemes]:
Lord Skelmersdale had given notice of his intention to move Amendment No. 211:
The noble Lord said: I tabled this amendment in order to tease out exactly what was meant by "closed scheme". However, after the debate on Clause 144, I think that I am a little clearer, although I shall have to read it. Therefore, I shall not move the amendment.
[Amendment No. 211 not moved.]
Baroness Hollis of Heigham moved Amendment No. 211A:
"( ) Regulations may require the trustees or managers of a closed scheme in relation to which the provisions mentioned in subsection (3) apply to comply with such requirements as may be prescribed when providing for the discharge of any liability to, or in respect of, a member of the scheme for pensions or other benefits."
The noble Baroness said: Amendment No. 211A amends Clause 146, which sets out the rules for the operation of closed schemes. The amendment provides a regulation-making power that will be used to place restrictions on the ability of closed schemes partially to discharge their liabilities. To some degree, we are returning to the debate that we had earlier. If the schemes were allowed to do so without restriction, they could, for example, use their assets to buy out all their liabilities to members in excess of the PPF compensation cap. Doing so might reduce their assets to such a level that either immediately or at a later stage they would have to be taken into the PPF.
However, it would not be appropriate to put on the face of the Bill a blanket ban on all discharges as there are a number of instances in which it may be necessary or acceptable for discharges of liabilities to be made. Those will, for example, include regular payments of pension to scheme members and situations in which the trustees completely discharge all their liabilities in respect of an individual. Such discharges will have to be in accordance with the winding-up requirements. I hope that the Committee will accept the amendment.
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On Question, amendment agreed to.
Baroness Hollis of Heigham moved Amendment No. 211B:
On Question, amendment agreed to.
Clause 146, as amended, agreed to.
Clause 147 [Valuations of closed schemes]:
Baroness Hollis of Heigham moved Amendments Nos. 211C to 212:
Page 104, line 19, leave out "which limits the amount of its" and insert "rules which limits the amount of the scheme's"
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