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Lord Higgins: We have already debated most of this matter in considerable detail. However, the debate on Schedule 7 enables me to raise the point that I was prevented from raising on an earlier amendment, which may give the Minister a clue about the answer. As I understand it, the PPF pensions payment will be indexed in line with the retail price index capped at

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2.5 per cent, but only in respect to rights built up since April 1987, which is when the statutory obligation to index occupational pensions was introduced. Deferred PPF pension rights will be revalued in line with the RPI capped at 5 per cent. That will be an unsatisfactory position for many pensioners who will lose a significant proportion of revenue based on that calculation.

The Occupational Pensioners' Alliance has made strong representations on this point. The alliance also complains that the schedule has been substantially redrafted since the Committee stage in the Commons and it now finds the provisions extremely opaque—it may not be alone in that view as far as many of the provisions of the Bill are concerned. Will the Minister confirm that pensioners retiring prior to 6 April 1997 will still be eligible for indexed payments under the PPF?

Baroness Hollis of Heigham: No, my Lords. This is part of the initial discussion when I said that there was not a cliff edge between the 100 per cent and the 90 per cent, as first appeared. This is compensation for a scheme without which, if the PPF did not exist, pensioners might very well receive not 100 per cent—it may not be index linked or RPI linked—not 80 per cent, but may receive only 50 per cent or 40 per cent.

If noble Lords agree and the Bill goes through Parliament, those pensioners will have the security of knowing that through the Pension Protection Fund, which does not exist at the moment—we hope and expect that it will come into existence from April 2005—they will have compensation for the loss of a pension that they otherwise would not receive or of which they may receive only a fragment.

It is certainly true that in order to make the books balance, and to keep the levy at £300 million and at an acceptable figure to the industry, we cannot reinstate for all members of all schemes all the benefits that they currently enjoy as though the insolvency of the company and the under-funding of the pension scheme had never happened. That is not possible. Therefore, we are offering compensation in which we are protecting pensioners at 100 per cent of their pension at the point at which the transfer takes place; service accrued after 1997 will continue to be RPI-ed at 2.5 per cent; but as the Pensions Act of 1995 laid down, there will be no requirement, even on existing schemes that stay outside the PPF—it is not going to happen under the PPF—that there will be compensation which index links service before 1997.

I regret that, but the alternative is either to produce, as I was trying to suggest earlier—the Committee may be more willing to agree with me when they see all the figures laid out—very substantial increases in employers' levy—up to double—or to bring in money from the taxpayers. That would mean that people without any pension scheme at all would be asked to cross-subsidise the better off who have them. On average people with DB schemes have salaries and incomes that are 50 per cent higher. The alternative is

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to do what we are doing, or perhaps to cut the compensation levels by about 15 per cent—I now have the more accurate figures. Those are hard choices.

We believe that what we have is in line with the expectations laid down in 1995. Therefore, the noble Lord is quite correct, that pensioners with a substantial part of their service accrued before 1997, will not see that index linked when they come to receive compensation should their scheme go into the PPF. I remind the Committee that if your Lordships do not agree to the PPF, the alternative is that they may receive only 20 per cent or 30 per cent or 40 per cent from their schemes.

A pension scheme comes into the PPF only precisely because it was unable to meet the level of benefits that pensioners had hoped to receive under their old scheme. We are trying to get the balance right. Everyone talks about words such as "balance", but we have tried to get right the balance between the employers' responsibilities and levies and contributions and what pensioners can reasonably expect. I believe we have the best we can possibly do.

Lord Higgins: We can certainly agree that, as we said earlier, the whole thing is a matter of balance between the costs and the benefits. The noble Baroness has reverted to the £300 million figure. I shall suggest under later amendments that I have considerable doubt about whether that is an adequate estimate. But, as I recall, that figure was related to the overall issue of indexation. What is the cost in this case?

4.45 p.m.

Baroness Hollis of Heigham: If indexation was applied to all service to the 2.5 per cent figure, that would add £200 million to the £300 million levy.

Lord Higgins: But I do not think that that is what the schedule states. Am I wrong in thinking that? I am trying to find out the cost of protecting the pre-1997 index arrangement.

Baroness Hollis of Heigham: It depends whether or not a cap to inflation is being built in—that is, indexation at 2.5 per cent. If you built in a cap at 2.5 per cent but applied that 2.5 per cent to pre-1997 service, that would be £200 million in addition to the £300 million that the levy will have to raise. If, however, the 2.5 per cent were removed, it would be £300 million.

Baroness Turner of Camden: In effect, is my noble friend saying that, in order to pay for this scheme, all members of all occupational schemes must give up any right that they may have under their schemes for indexation above the 2.5 per cent level? Is that the price that all pensioners pay in order to have the scheme? Is that what my noble friend is saying?

Baroness Hollis of Heigham: Yes. No pensioner whose scheme goes into the PPF—whether an active member or a deferred member—will, once they become a pensioner, enjoy more than a 2.5 per cent indexation on the years of service accruing after 1997.

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However, active members who now become deferred members because their companies are insolvent will none the less have a revaluation of their pension during their years with another company or employer at 5 per cent.

Schedule 7, as amended, agreed to.

Clause 154 [Adjustments to be made where the Board assumes responsibility for a scheme]:

Baroness Hollis of Heigham moved Amendments Nos. 234V to 234AE:

    Page 108, line 13, after "scheme" insert "rules"

    Page 108, line 14, leave out "assessment period" and insert "period beginning with the assessment date and ending with the receipt by the trustees or managers of the transfer notice"

    Page 108, line 15, leave out "transfer notice is given," and insert "trustees or managers receive the transfer notice,"

    Page 108, line 18, at end insert—

"( ) Regulations may provide that, in prescribed circumstances, where—
(a) a member of the scheme died before the commencement of the assessment period, and
(b) during the period mentioned in subsection (2)(a), a person became entitled under the scheme rules to a benefit of a prescribed description in respect of the member,
the benefit, or any part of it, is, for the purposes of subsection (2), to be treated as having become payable before the assessment date."
Page 108, line 20, leave out "assessment period" and insert "period mentioned in subsection (2)(a)"
Page 108, line 39, after "include" insert "—
(a) " Page 108, line 40, at end insert ", or
(b) any other amount of a prescribed description." Page 108, line 41, after "Board" insert—
"(a) to recover any amount from a person in such circumstances as may be prescribed, or
(b) " Page 108, line 42, at end insert—
"( ) In this section "assessment date" is to be construed in accordance with Schedule 7."

On Question, amendments agreed to.

Clause 154, as amended, agreed to.

Clause 155 agreed to.

Clause 156 [Guaranteed minimum pensions]:

On Question, Whether Clause 156 shall stand part of the Bill?

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