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Lord Mackay of Ardbrecknish: The actual details of how often and in what time-scale documents are circulated to members on occupational schemes will be part and parcel of the regulations upon which we shall

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be consulting. However, the cost of distributing information to members will obviously have to be met by the scheme.

Lord Eatwell: I am grateful for the Minister's explanation. However, at the end of his remarks, the noble Lord said that he had demonstrated to me the fact that what I sought to achieve was already contained in the Bill. But that contradicted what the Minister said earlier when he said that what I was seeking would be covered by regulations. Given the importance of the information which goes to members, I believe that it is appropriate for us to invoke legislation which has already been passed by the Government under Section 113 of the Pensions Schemes Act 1993 and put it on the face of the Bill, instead of having yet another element in such an important area being buried in regulations.

I know that the Minister has been nagged continuously about the excessive use of regulations in the Bill. Given the fact that the amendment is simply citing legislation which has already been passed by the Government in another context, I hope that the Minister will take the matter away and think again. In the meantime, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 50, as amended, agreed to.

Clause 51 [Schedules of contributions.]

Lord Lucas moved Amendment No. 145WA:


Page 29, line 1, leave out ("following") and insert ("before the end of a prescribed period beginning with").

The noble Lord said: Section 51(3)(c) provides that the schedule of contributions must be revised following an actuarial valuation. Amendment No. 145WA will provide that any such revision must be made within a specified period. We will consult on the appropriate period in the context of draft regulations but are minded to propose that revision should be made within two months of the signing of the valuation report. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 145X and 145Y not moved.]

Lord Lucas moved Amendment No. 145ZYA:


Page 29, leave out lines 15 to 25 and insert:
("(6A) The actuary may not certify the rates of contributions shown in the schedule of contributions—
(a) in a case where on the date he signs the certificate it appears to him that the minimum solvency requirement is met, unless he is of the opinion that the rates are adequate for the purpose of securing that the requirement will continue to be met throughout the prescribed period, and
(b) in any other case, unless he is of the opinion that the rates are adequate for the purpose of securing that the requirement will be met by the end of that period.").

The noble Lord said: I have already spoken to the above amendment. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 145YA to 145YD not moved.]

Lord Lucas moved Amendment No. 145ZYE:


Page 29, line 27, leave out from ("the") to end of line and insert ("period referred to in subsection (6A)").

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On Question, amendment agreed to.

[Amendment No. 145YE not moved.]

Clause 51, as amended, agreed to.

Clause 52 [Determination of contributions: supplementary]:

[Amendment No. 145YF not moved.]

Lord Lucas moved Amendment No. 145ZYG:


Page 29, line 45, leave out from ("any") to ("that") in line 46 and insert ("prescribed period").

The noble Lord said: Subsection 52(3) provides that, where a scheme has failed to comply with the minimum solvency requirement, the trustees must produce a report explaining to members the reason for that failure. The amendment provides a power to specify when such a report should be completed. It was originally intended to be produced at the end of the period covered by the schedule of contributions but we now accept that, practically, it needs to be tied in with the valuation report. It is a minor change to allow the provision to work simply without the need for additional actuarial enquiries. I beg to move.

On Question, amendment agreed to.

[Amendments Nos. 145YG and 145YH not moved.]

Clause 52, as amended, agreed to.

Clause 53 [Serious underprovision]:

Lord Marsh moved Amendment No. 145YJ:


Page 30, line 7, after ("(2)") insert ("or (2A), as the case may be,").

The noble Lord said: In moving the above amendment I shall, with the leave of the Committee, speak also to Amendments Nos. 145YK, 145YL and 145YN. The effect of the amendments would be to allow an employer the choice of making good smaller deficits in the same way as the larger ones by paying a lump sum into the fund where the shortfall is less than 10 per cent.

As has been said over and over again—and to state the obvious—the main thrust of the Bill is to protect the members of pension schemes from fraud or mismanagement. There is no problem between any of us on that objective. However, the one thing which I have learned from our debates is the fact that achieving such a simple objective is rather more complicated than might have been expected. I believe that we would all agree that it would be disastrous if, in our enthusiasm for protecting existing pension schemes, we succeeded in causing employers to move more to money purchase schemes, for one example, or inhibited the introduction of new schemes. Both of those are real possibilities that we all recognise.

While the amendments relate to the employer's obligations arising from the minimum solvency requirement, I hope to convince Members of the Committee that they are very much in the interests of the employee. As drafted, Clause 53 requires the employer to make good any shortfall in the solvency requirement where it exceeds 10 per cent. Where the shortfall is less than 10 per cent., Clauses 51 and 52 anticipate that that will be met by an increase in contributions. Of course, that increase includes the employee contributions.

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The purpose of the amendment is to give the employer the choice to make good the smaller deficits in the same way as the larger ones. In short, the employer should be able, should he wish, to pay a lump sum into the fund where the shortfall is less than 10 per cent. I stress that the amendment continues to protect the fund and provides advantages to the employees. I hope in a moment to argue that cash should not be the only option to employers in these circumstances and that there are real advantages to be gained by allowing the employer to meet shortfalls in the MSR by bank guarantees and other means rather than increase contributions from both employers and employees. This, in my view, is a measure which can only benefit both sides. I accept that the other amendments raise much larger, or at least much more complex, issues than this. I beg to move.

Lord Mackay of Ardbrecknish: We have looked carefully at the amendments of the noble Lord, Lord Marsh, Amendment No. 145YJ and some others with it. However, we seemed to do a bit of sprinting just before we reached this amendment. It is important to recognise that the alternatives to cash contributions were originally proposed in the light of widespread concern that the original minimum solvency proposals, and especially the three-month time limit to get to 90 per cent., could have resulted in employers having to put in large amounts of cash at short notice. I believe that these concerns are now very much less valid. I shall explain why.

As I have already mentioned—I believe twice in the course of today—the statement by my right honourable friend the Secretary of State on 8th December made certain important changes to the proposed method of calculating the minimum solvency requirement which directly addressed fears that stock market fluctuations would force employers to put excessive amounts of money into their pension schemes. Extending the time limit for restoring solvency—which will apply to all schemes—will tend to reduce volatility in required contribution grades.

The further measure to smooth the calculation over a number of months will also avoid the risk of focusing the calculation on a particular day when market values might be unusually depressed. The further modification for large schemes—that is, schemes which would be likely to run as closed schemes rather than be wound up in the event of employer insolvency—allows a proportion of pension liabilities to be valued by reference to rates of return on equity investment. That means that the value of the liabilities—

Lord Marsh: I am grateful to the noble Lord but I am certainly puzzled. I genuinely do not think that the reply is addressed to the amendment. The amendment, as I remember it, is to enable employers to make cash payments rather than contributions.

Lord Mackay of Ardbrecknish: I was saying in a rather longwinded way that originally there was considerable worry in this regard, but I believed that the proposals to make the timescale a bit longer had reduced

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that worry, which concerned the need for schemes to rely on cash contributions. I believe the noble Lord wants alternatives to the need to rely on cash contributions in certain circumstances.


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