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Baroness Hollis of Heigham: My Lords, this is exactly why the regulator will expect to be a player in reaching agreement on everything, compromised agreements, and so on. That is why we had debates on the regulator earlier about how possible cosy decisions could be unpicked. We were concerned that the trustees might decide that because their scheme was only 70 per cent funded, they might as well make it only 20 per cent funded and shift the other money to the employer so that there were more assets to meet other debts. We aired those discussions previously.
I have given two examples. If there is members' voluntary liquidation, as I understand itI am briefedemployers have to be technically solvent for that to happen. There is the case when an employer has subsequently gone insolvent after the point of wind-up but before the scheme can go into the PPF. We are seeking to address those issues.
I cannot tell the House yet where our lines will be drawn. On the one hand, we are trying to prevent an indecent situation arising in which people are caught by the accident of timetabling and end up with poor provision. On the other hand, we are trying not to so dilute the financial assistance moneys that people coming properly within the scheme have very little.
There is a final point. I hope that your Lordships understand the language that I am using on employer solvency. People desire to know who will be eligible for FAS help. It is positive help in terms of trying to manage entry into the fund if we do not make the decision too early because of the problem of moral hazard. If companies know that they cannot get into PPF, but believe through an early announcement by us that they may come into FAS, that would guarantee what we are trying to avoid. We want them to be willing to pick up their own liabilities. So, given that, I can take the noble Lord only so far in our thinking on this matter. We are considering those issues, for exactly the reasons expressed by the noble Lord, Lord Oakeshott, and my noble friend. We are, however, seeking to prevent FAS from being over-diluted, and to prevent the issue of moral hazard. It
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may not be until the new year, but as soon as we can come with a clear line, we shall do so. If I can do that earlier, I shall be happy to do so.
I have here a full briefing on the Nikko Bank, but at this late hour I would prefer to write to the noble Lord, Lord Higgins, with all that material, rather than take another 10 minutes of the House's time to explore the ramifications. I shall make sure that other noble Lords receive it, if that is acceptable.
Lord Higgins: My Lords, that was a very helpful reply. I see that the Minister is still contemplating carefully to what extent, with regard to FAS, the position of those who have a solvent employer but one that has reneged on his promises is appropriate. It seems rather odd that the taxpayer should pick up that tagbut, as the Minister and the noble Lord, Lord Oakeshott, said, a comparatively small number of people and cases may be involved. However, she has not quite taken the point that I made in my intervention.
There may be a situation in which a company goes into voluntary liquidation, and it may well be a subsidiary of a larger group. Both the larger group and the company going into voluntary liquidation may be solvent, but are they still regarded as solvent if the pension fund is in deficit? Should not the estimate of solvency include the position of the pension fund as well as the position of the company? That matter is not directly related to the Bill but, in the context of pension provision, it raises very important issues with regard to the general state of the law.
The case that comes to mind, although I hope that it will never happen, is when things are disproportionate, as with British Airways. In such a case, the company is solventbut the stock exchange would certainly take into account the pension liabilities. I shall not belabour the point any longer at this time of night, but I believe that I have spelt it out reasonably clearly and that it is worth consideration.
Baroness Hollis of Heigham: My Lords, I am happy to have another go at explaining the issue. The difficulty arises because the definition of the solvency of a pension scheme will have changed depending on whether it is under the minimum funding requirement or scheme-specific funding.
An employer that enters an NVL must meet all debts of creditors in full. However, the debt owed to the pension scheme is currently at MFR, rather than full buy-out. That is why there is a problem as to whether one considers a pension scheme solvent, as it could meet MFR but still not be in a position for full buy-out. That will change with the changes to the buy-out regulations introduced from April 2005, which is why there is no unambiguous answer to the noble Lord's question. It may be in a situation to meet full buy-out, but more probably it will not if it is funding at MFR level.
Lord Higgins: My Lords, I am most grateful for the Minister's response. Whether in the case of Nikko Bank
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it was even able to meet the MFR I rather doubt. Be that as it may, I am grateful to the Minister and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Hollis of Heigham moved Amendment No. 277:
( ) prescribed details of which have been notified to such person as may be prescribed by a person of a prescribed description
(i) in the prescribed form and manner, and
(ii) before the prescribed date;"
On Question, amendment agreed to.
[Amendments Nos. 278 and 279 not moved.]
Lord Higgins moved Amendment No. 280:
Page 236, line 15, after "person" insert "with qualifications equivalent to those of the members of the Board of the Pension Protection Fund"
The noble Lord said: My Lords, this is a nice simple amendment which we can all understandwhich is not true of myself, and possibly of other noble Lords, with regard to some of the previous debates.
One suddenly realises that we spent an enormous length of time discussing the board of the Pension Protection Fund in all its aspects but we really know remarkably little about the structure of the financial assistance scheme and, indeed, whether the qualifications of the people who will manage it will be the same or not the same as those managing the Pension Protection Fund. I noted with interest two adverts in the paper last week stating that so-called six figure salaries are to be offered to those on the board of the Pension Protection Fund. Will the same be true of the financial assistance scheme, or will that scheme simply be an offshoot of the Pension Protection Fund structure? At the moment the structure is extremely obscure. Perhaps the noble Baroness can enlighten us. I beg to move.
Baroness Hollis of Heigham: My Lords, the noble Lord asked whether the same structure would apply to the financial assistance scheme or whether it would be an offshoot of the PPF. At the moment we envisage that these will be two separate bodies. I can quite conceive in a number of years' time the PPF taking over the residual responsibility of the FAS as those obligations are discharged. I refer to a finite number of schemes going through. Once the basic information has been established and it becomes primarily an administrative function, I can conceiveI am not saying that it will happenthat it would make good sense for them to become the same organisation. As I say, it will not be known for a number of years whether that makes good sense.
The problem with this amendment is the wording. As drafted, this amendment would require that, where the scheme manager of the FAS is a person other than the Secretary of State or a body established for that purpose, that person has qualifications equivalent to those which the people appointed to the board of the PPF have.
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As noble Lords know all too well, I am afraid, final decisions on the FAS have yet to be taken and we are still consulting. However, this summer when we discussed the qualifications needed for appointees to the board of the PPF we all agreed that it was to be expected that such people would have the appropriate skills and experience for the task in hand. Obviously, we would expect the FAS scheme manager to have the appropriate skills.
However, the amendment could have a further effect in that such a scheme manager could be required to have equivalent qualifications to those of the people on the board of the PPF. People on the board of the PPF would have appropriate qualifications regarding investment, fund management, calculating and imposing a levy and so on. However, it is not clear at present that such qualifications would be a relevant requirement of the scheme manager of the FAS. For instance, the FAS will not impose a levy and other details of the scheme's operation remain under consultation. For example, it may not involve pooling and investing scheme assets. It could, for example, simply involve buying annuities and that is it. I am not saying that it will but it could. In addition, there may be areas where we want the FAS scheme manager to have experience and skills which would not be relevant for the board of the PPF.
This is a useful probing amendment. However, the nature of the fund and the construction of its operations will be sufficiently distinct in the early years and a straight read across, as the noble Lord suggested, would not make good sense. I am sure that we shall seek to appoint the most appropriate people for this task. I hope that the noble Lord will withdraw his amendment.
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