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On the point made by the noble Baroness, of course a continuity obligation will be accompanied by considerable communication between the authorities and the service provider, particularly in the case that she has identified of a provision of a service that may be of a considerable duration and which is absolutely essential to the continuation of the enterprise. If a piece of investment is critical to continuing to provide the service, this would be likely to comprise part of what is “reasonable consideration”, which was the subject of the discussion that we had on the previous amendments. I must refer back to the previous clause, as further detail may be provided in the orders made under Clause 69.

I emphasise two things. First, there is bound to be considerable communication between the authorities and the service provider in the instance that the noble Baroness has identified. Secondly, that would need to be examined under the basis of reasonable consideration. I am against what the amendment would provide, which is a concept of a subsidy in circumstances where the service might be readily disposed of and obtained more cheaply elsewhere. That is the point that I was seeking to make.

Baroness Noakes: The Minister keeps using the word “subsidy”. I shall read my amendment to him:

“The continuity authority shall ensure that compensation is payable to the person on whom the obligation is imposed if that person suffers financial loss because of the nature, extent or timing of a notice given under subsection (1)”.

I cannot see anything in that about which the Minister could justifiably use the word “subsidy”. The amendment

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was designed specifically to cover only loss that was incurred by the company providing the service. I do not know whether the Minister’s speaking note was wholly predicated on subsidy; it certainly seemed to be that way and it seemed to me that the Minister did not address my points. He said that this would potentially be covered by “reasonable consideration”.

I will carefully consider what the Minister has said in the totality of his remarks and I shall disregard everything that he said in accusing my amendment of requiring a subsidy to be paid, because I do not think that even he, if he had read it more carefully, could have interpreted it in that way. Between now and Report, I shall consider what to do with this amendment, alongside the other amendments that are really about terms and conditions of provision of services, and I will consider whether there needs to be some valuation or appeal mechanism. For today, I beg leave to withdraw the amendment.

Amendment 115 withdrawn.

Clause 70 agreed.

4 pm

Clause 71 : Pensions

Amendment 115A

Moved by Viscount Eccles

115A: Clause 71, page 36, line 22, leave out subsection (4)

Viscount Eccles: This is a short probing amendment. I will be brief because I think that the subsequent debates on this clause will be much more interesting than mine. The amendment would take out Clause 71(4), which states:

“Provision by virtue of this section may (but need not) amend the terms of a pension scheme”.

I think that we would all agree that amending the terms of a pension scheme is a very sensitive matter. The position would of course be easier if a failing bank was taken speedily into public ownership in whole and not in part—then, if and when sales were subsequently made to private sector purchasers, there would be time to sort out the pension issues which are often complex when a group of companies is split. However—with assets going one way and shares another, with residual assets and liabilities, and with a staff divided when the FSA pulls the trigger for the tripartite authorities—no time is provided. The pension die is, in effect, cast. In contrast, when groups, typically, make part-sales of subsidiaries, there are established principles, present law and well tried appeal procedures to deal with the pension issues that arise. I beg to move.

Baroness Noakes: My noble friend raises important points in his amendment. I have given notice that, on a probing basis, I wish to oppose the Motion that Clause 71 stand part of the Bill. I have grouped this opposition with my noble friend’s amendment as I suspected that I would raise issues covering the same territory. I seek to ascertain the extent to which the power could be used.



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The clause is phrased in terms of being able to modify the property rights and liabilities of a pension scheme, and I have some specific questions for the Minister on what it allows the authorities to do. Does it allow the Treasury or the Bank of England to rewrite a defined benefit scheme so that it becomes, for example, a defined contribution scheme? Does it allow the Treasury or the Bank to alter accrued rights of employees of the failed bank? Does it allow the Treasury or the Bank to alter the accrued rights of deferred pensioners or pensions in payment? Does it allow the Treasury or the Bank to single out the pension rights of individuals as opposed to dealing with the rights of all members of a pension scheme? I am well aware of the public annoyance at finding that former directors sometimes have very large pension pots due to them when they leave. Is that one of this clause’s targets? Can this clause be used to amend rights in relation to individuals’ pension pots?

If any of those things can be done, can the order or instrument affect the existing legal rights of the individual? Can the individual demand his existing rights, or can the clause be used to rewrite his contractual rights? I see that the noble Baroness, Lady Turner, is in the Chamber. Will the unions have any say whatever about the rewriting of a failed bank’s pension scheme—if that is what this clause allows—before it is done?

At face value Clause 71 appears to allow practically anything to be done, with virtually no intervention by anyone. That is why it is important that the Minister is clear with the Committee about how the clause will be used.

Baroness Turner of Camden: I listened with interest to what the noble Baroness, Lady Noakes, said, and I agree with quite a lot of it. I am most interested in the arrangements that could be made to preserve and protect the rights of existing employees, as that is important. In banking, generally speaking, employees have reasonable pension provision, and attempts should be made to ensure that their rights are protected. I am not at all certain whether Clause 71 does that and I await the Minister’s response with interest.

Lord Higgins: I intervene at this point because I have a meeting elsewhere in the House at 4.30 pm and may not be able to speak on whether Clause 71 should stand part of the Bill.

I agree with my noble friend on the Front Bench. It seems that this clause enables the Government and the Treasury to do almost anything with regard to a failed bank’s pension scheme, as compared with the situation that would exist if the bank failed—I was going to say “in the normal course of events”—without the Government having set up the arrangements in the Bill. In that context, I ask the Minister to what extent there has been consultation on this clause with anyone representing trustees of pension schemes or organisations involved in pension schemes generally?

This issue is of great importance if, indeed, under subsection (4) powers are being taken to amend the terms of a pension scheme with apparently no qualification whatever regarding the protection of existing pension interests. If a bank fails, perhaps the pension

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scheme and pension fund will have certain protections, but what will the situation be with regard to the pension fund as against the more general assets of a failed bank? In particular, I presume that provision could be made to change a final salary scheme to a defined contribution scheme to the disadvantage of the pensioners, but that may or may not happen if the bank has not been operating under a new regime established by the Bill. Therefore, I think that very grave issues are raised, and the fact that all this is contained in a single clause indicates that the detail of how the Government envisage the clause, and in particular subsection (4), operating is rather lacking.

Lord Newby: This debate raises some important issues. I am sure that all noble Lords will take the view that, for the generality of members of a bank’s pension fund, protecting the fund should be given a high priority. However, there is a difference between the generality of a bank’s staff and some of its more highly paid members. Under Clause 20, we discussed the situation in respect of directors, but I think it is the case that, with regard to some of the banks which are now in most difficulty, those who acted in the most reckless fashion and lost billions of pounds were not necessarily directors. They ran a unit of the bank but were not technically directors. Therefore, would this clause enable their huge pension entitlements to be curtailed to reflect the losses that they have run up?

Lord Davies of Oldham: I very much appreciate the succinct way in which the noble Viscount, Lord Eccles, introduced his amendment. I had prepared to respond to his points in a similarly succinct way and to give reassurance on those limited areas. However, the fact that the question on Clause 71 stand part is grouped with the amendment has inevitably led to a much wider survey of the issue. That has happened before I have been able to move government amendments, which will require me to spell out the thinking behind the clause in considerably greater detail, and before I have had the chance to listen to, and reply to, the arguments relating to additional amendments to the clause. I am therefore in some difficulty. I hope noble Lords will forgive me if I try to answer the points briefly at this stage, as fairly substantial discussions on this clause and the whole issue of the pension position are still to flow in our later proceedings.

I want first to emphasise why Clause 71 is necessary. A modification to a pension scheme may be necessary to facilitate a fully effective transfer. An order or instrument may in particular make provision regarding the consequences of a transfer for a pension scheme or about the property, rights and liabilities of a scheme. The instrument may, among other things, modify rights and liabilities, apportion rights and liabilities, or transfer property or accrued rights to another pension scheme.

If a failing bank is part of a group of companies—the point raised by the noble Lord, Lord Higgins—then all group employees may participate in the group’s pension scheme. In this situation, if a deposit-taker is transferred from the group, it is likely to be necessary for the employees of the bank to be transferred to a separate scheme. This clause provides that the authorities may make provision to transfer the employees from

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the group pension scheme and to establish a new scheme, or to transfer the employees into the transferee’s pension scheme for all future service benefits. In the case of a partial property transfer, for example, it may be necessary to make provision to apportion pension liabilities between the failing bank and the transferee. Further, it may be appropriate to make consequential provision regarding the terms of a pension scheme.

I want to assure the noble Viscount, Lord Eccles—this is the cardinal point which I want to establish with the Committee—that this provision would not amend accrued rights. It does not do that and does not create the possibility of doing it, nor have we any intention of doing it. It applies both to the group position and to individuals. The powers taken in Clause 71 are necessary because leaving pension matters to be dealt with through normal corporate transactional methods could jeopardise the ability of the authorities to effect a swift and effective transfer to resolve the problems of a deposit-taker. For example, in normal commercial conditions any reallocation of pension liabilities would almost always require agreement from the trustees of the pension scheme. That could lead to significant delay while the trustees considered the matter, but it could also result in the trustees requiring a figure—even a ransom—to secure consent. In addition, there might be general regulatory requirements which involve lengthy notice periods, which for obvious reasons is frequently the custom with pension arrangements. All of these matters may impede the resolution of what is intended to be a fairly rapid exercise, and that would be contrary to the broader public interest in effecting the transfer.

Lord Higgins: The noble Lord has made two very important points: first, on the protection of accrued rights; and, secondly, on the position of the trustees. I have looked in vain to find any mention of that in the clause. As it is so important, one would have thought that it would be explicit.

Baroness Noakes: Perhaps the Minister can explain an issue that I tried to tease out when I spoke on clause stand part. Subsection (3) states:

“In particular, an order or instrument may—

“(a) modify any rights and liabilities”.

I heard what the Minister said about transferring accrued rights and ensuring that the trustees do not get in the way and about this being a rapid exercise—although I have never found that dealing with pension schemes is a rapid process, whatever instrument is used—but he is ignoring the fact that Clause 71 appears to contain powers to do the things that my noble friends have been asking him about.

Lord Northbrook: I add my concern to the comments of my noble friend Lady Noakes. Subsections (3) and (4) suggest that they may affect accrued rights.

4.15 pm

Lord Davies of Oldham: That is where we started with the probing amendment of the noble Viscount, Lord Eccles. Perhaps the Committee will accept that I am giving the clear assurance on the cardinal points raised there.



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We do not intend, nor are we taking the power, to amend accrued rights. We have no intention of intervening with the pension position of individuals or groups. We are seeking to avoid those conditions which obtain in normal commercial practice with regard to the operation of trustees and aspects of concern about pensions. We seek to do that because—I bring the Committee back to the obvious point—we are involved in a transfer that we hope on many occasions to effect as rapidly as possible, because the transfer relates to institutions in considerable difficulty.

Nothing in the Bill, or in the clause, obviates our obligation to act in accordance with the European Convention on Human Rights. Those rights will be observed and there will be no exercise of power to disrupt accrued rights, which would be quite contrary to Article 1, Protocol 1, of the convention. The Government are giving the clear assurance that we have no intention of doing that through the drafting of the clause. However, we need to move with greater dispatch than in normal commercial transfers. The clause is not drafted to undo employees’ pension rights, pots or entitlements. The noble Lord, Lord Newby, asked why we do not single out one group of employees, a limited number. That is not what the clause does, nor is it the intention behind it; it is merely to ensure that we can deal with the problem of institutions more rapidly than is the case under normal commercial transactions.

I emphasise that I have a considerable amount to say to justify the government amendments to the clause; that is why I am in great danger of repeating myself not only at length but ad nauseam—a fault of which I have been accused in the past. I hope that the Committee will accept that at least I have set out my response to the amendment moved by the noble Viscount, Lord Eccles. The issues raised by the noble Baroness will inform our debate on the next two or three amendments.

Baroness Noakes: I certainly would not want to encourage the Minister to repeat himself at length; I find it difficult to see how he could do so on the amendments that he is about to move, but wonders will never cease.

The Minister has said extremely helpfully that he does not wish to affect any accrued rights. Yet the Bill, at face value, gives the Government the power to do just that. Perhaps he ought to think between now and Report about an amendment to Clause 71, so that it covers those who have deferred rights—current employees with accruing service or, indeed, those with pensions in payment—but makes it clear that there is no intention to deal with accrued rights. That would be extremely helpful. I know that the Minister cites Article 1, or whatever it is, of the European Convention on Human Rights, but frankly that overarches a lot of things. It is not a first-line provision of restraint on the use of a power; it simply indicates that some people might have to resort to that in due course if challenging it in a court of law. It is not as preferable as having clear statements in the Bill, especially if we are dealing with employee rights. That is an important point in respect of accrued rights.



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Separately, the Bill appears to say that rights can be changed for the future because provision can be made to amend the terms of a pension scheme. That could indicate that you could change the terms of future accrual in the pension scheme from defined benefit to defined contribution, or, if in defined benefit, from 60ths to 80ths, or whatever might give you a lower pension entitlement. I do not think the Minister is saying that; I think he is saying that he wishes to use the clause to make more efficient what can be quite complicated and take quite a long time in the real world. I certainly would not challenge the Government on having that sort of power, but I am most unhappy with a power that is drafted as it is and which appears to suggest that the Government can use it to make fundamental changes to one of the most important rights that people have in their current or former employment with an organisation.

Lord Davies of Oldham: Let me emphasise that rights can be transferred with great rapidity. Under the Bradford & Bingley transfer order, which the Committee will recall, employees were transferred to a new scheme with Banco Santander much more rapidly than one would expect in normal commercial transactions. We all recognise the element of urgency that is bound to attend an issue of that kind.

I am merely bringing to the Committee’s attention the fact that the Government are not seeking to rewrite the law on pensions to disadvantage a single pensioner in the country; they are seeking merely to ensure that, with transfers that are in the public interest and that need to be effected with speed, the pension position is not a block because of the normal processes that obtain with the transfer of pensions. Such a block would jeopardise the successful conclusion of a transfer that is very much in the public interest.

I cannot emphasise the position a great deal more, but I hear what the noble Baroness says: I have to establish further the Government’s position on non-interference in accrued rights. Of course I will take that point on board.

Viscount Eccles: I feel privileged that this debate has been grouped with a stand-part debate, having started with a very modest probing amendment. I am sure that we are all grateful for the assurance that the position of individuals will be reconsidered, because that is what we are talking about and the clause does not really address that situation at all. Accrued rights in a sense make the person paid up when, perhaps because of luck and good negotiation, there is a second pension phase when the business for which he or she works is transferred to a new owner. The Minister referred to the contrast between, in negotiation, being held to ransom and what I might wish to describe as a reasonable deal. In this circumstance, we should not overemphasise this rapidity point. It is slightly reinventing the wheel. There have been many circumstances in which it has been necessary for groups of companies to sell in a fairly distressed situation its subsidiaries. They have had to have negotiations during those sale proceedings about what will happen to the membership of pension schemes. I do not think that there is anything much new in the circumstance of a failing bank.



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I have had experience of taking over a company that was not in a very good condition. Of course, there needed to be negotiation about what would happen to the pension rights of the people in that company. I believe that there is a need for further thought to be put into this clause and, in putting further thought into it, I hope, along with quite a lot of the other provisions of this Bill, that the dice have not been loaded too much in favour of an easier life for the Bank of England or the Treasury. In the mean time, I beg leave to withdraw the amendment.

Amendment 115A withdrawn.

Amendment 116

Moved by Lord Davies of Oldham

116: Clause 71, page 36, line 30, after “bank” insert “, or a group company of the bank,”

Lord Davies of Oldham: In moving Amendment 116 standing in the name of my noble friend Lord Myners, I shall speak also to the other government amendments in this group. These amendments relate to extending to bank holding companies the provisions of the Bill that relate to temporary public ownership. As the Bill is drafted, the stabilisation options exercisable by the share and property transfer powers, which form part of the special resolution regime, are exercisable only in relation to banks. The authorities have, during the course of developing and consulting on the Bill, continued to consider the question of how best to resolve different types of failing banks.

The events of autumn 2008 made it apparent that in some cases exercising a power conferred by the special resolution regime in relation simply to the bank may be insufficient fully to achieve the resolution objectives, particularly that of protecting and enhancing the stability of the financial system of the United Kingdom. The starting point for this issue is that banks often form part of complex corporate groups, and the ultimate “parent” company may not be the company which has the deposit-taking permission and is, therefore, the “bank” for the purposes of the special resolution regime.


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