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Lord Brabazon of Tara: I should like briefly to support the amendments moved by the noble Lord, Lord Marsh. I have been informed by a company for which I have great admiration but in which I have no financial interest whatsoever—and I need to make that clear, particularly in view of present company—that this provision could cause serious problems.

A great deal of the debate on minimum solvency requirements appears to have been centred around companies which have become insolvent and closed pension funds. That is not the case with certain other companies with closed pension funds which are by no means insolvent and are doing extremely well. It occurred to me that these provisions would require that if there were a sudden fall in the stock market more money would have to be put into those pension funds. If the pension fund trust deed does not allow any refund

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to employers, that money would then be stuck in the pension fund and could not be retrieved when, as normally happens and we hope will always happen, the market rises again.

I should like my noble friend who is to answer the debate to give me some reassurance on that particular point.

Lord Monkswell: I rise to support the noble Lord, Lord Marsh, in his powerful argument in favour of his amendments. His exposition of the problems that the British economy would face if some of the scenarios that he painted were to come to pass is important. However, I have a slight reservation about one of the noble Lord's suggestions regarding unsecured company loans to fund the deficit, if I may so put it. The idea of bank guarantees is perfectly acceptable in the sense that the banks would effectively be taking part of the risk. I can imagine that in this scenario the banks should do so.

Lord Marsh: If the noble Lord knows any bank which is prepared to take such a risk, I should like an introduction.

Lord Monkswell: I thank the noble Lord for his intervention. I listened to his remarks and there seemed to be two options: the unsecured loan from the company or some kind of bank guarantee. I may have misheard him. I stand corrected if I did. However, as I understand it, we seek to ensure the security of the pension fund from the point of view of future pensioners. To accept the idea that those pension fund assets which pay the pension could be secured through an unsecured loan by a company which might go bust is asking a little too much. I am not an accountant by profession or, dare I say it, by inclination. I recognise that there are problems which need to be addressed, but I believe that the concept of unsecured loans is a little fragile in this situation.

7 p.m.

Lord Mackay of Ardbrecknish: My noble friend Lord Buckinghamshire made a remark about people disliking uncertainty. I have to tell him that Ministers, too, dislike uncertainty. I apologise for the slight degree of confusion. My only defence is that after two-and-a-half days, with many amendments, having to watch the alphabet as well as the numbers becomes somewhat confusing. I think that I have managed to unbundle the amendments. At the risk of speaking for too long I shall deal with them in groups rather than separately.

While my introduction may have been a little long winded in repeating what had gone before, it was meant to be helpful. We believe that the situation has been improved upon from the original position outlined by Goode and then the White Paper. That was the point I sought to make on timetables.

The whole clause looks at the exceptional circumstances of a scheme failing to meet the minimum solvency requirement by more than 10 per cent.—under 90 per cent. funded. Exceptional measures are required to be taken to ensure that members are given adequate protection. Together with the new clause proposed by

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the noble Lord, Lord Marsh, later in the debate, those alternatives would run a risk of the fund not being brought up to the 90 per cent. level in an acceptable way. We are not keen on that situation.

The problem relates to a fund which is under 90 per cent. funded for which a considerable amount of cash has to be injected to attain that 90 per cent. within a year, and then from 90 per cent. to 100 per cent. in a further five years. The noble Lord, Lord Marsh, asks whether there are other ways which might be less damaging to the company than requiring it to make those quite major cash contributions, especially in the first year, and how such contributions might be better spread out. A number of ways have been suggested.

We can accept, and have accepted, that a bank guarantee or ring fencing of unencumbered assets would be an acceptable means of providing an underpin to a scheme over the period until it achieves a funding level of 90 per cent. of the minimum solvency requirement. However, scheme security is at risk here. It is essential that the alternatives to cash injection are properly described in regulations. I am advised that the term "bank guarantee" is too imprecise to appear on the face of the Bill.

If I followed the intervention of the noble Lord, Lord Monkswell, an unsecured loan quite rightly would not seem to provide sufficient security to be acceptable. We are not talking of self-investment. The funds or assets would need to be made fully secure from other creditors in the event of the employer becoming insolvent while the scheme was still severely underfunded. Therefore, quite clearly, whatever guarantee was given or whatever amount was ring-fenced would not have to be guaranteed or ring-fenced only against the employer using that money but against other creditors in the event of insolvency.

What we propose by way of regulation is intended to be of practical help to employers in the operation of the minimum solvency requirement, but it has also to offer security for members. To set out the alternatives in regulations allows us a certain amount of definition and clarification of the methods which will be used.

The effect of Amendment No. 145YP will be to extend the circumstance in which it will be permissible for employers to secure an increase in scheme assets by means of other than cash contributions. It would allow the prescribed alternatives to a cash contribution, which by virtue of this clause will apply if the scheme is less than 90 per cent. funded on the statutory minimum solvency requirement basis, to apply at any time that the scheme was below that minimum solvency requirement. The amendment would also allow the arrangements to be taken into account as an asset of the scheme when the schedule of contributions falls to be revised. That will go a long way towards accepting that those exceptional alternative arrangements should become a part of a scheme's normal funding. I believe that that would be unacceptable because of the difficult problem of balance.

As a basis of pension scheme funding, the importance of the trust fund is that it is distinct from the employer company. Assets of the trust belong indisputably to the trustees, and we do not want to disrupt that arrangement.

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The alternatives permitted by Clause 53(2), which must also be secure, should be seen as an exceptional measure to deal with exceptional circumstances. Where a scheme is less than 100 per cent. solvent it will have five years to restore solvency. I believe that that has to be done by providing the necessary cash contributions, although, as I have sought to explain, in that first year if the figure is below 90 per cent. one might need quite a lot of money over a much shorter period. We are prepared in regulations to look at secure ways in which that might be done.

I feel a little like a pebble on the beach this time because I am being pulled first one way and then another. However, I am pretty sure that we have a reasonably balanced position.

Of course I understand the point made by the noble Lord, Lord Marsh, and my noble friend Lord Buckinghamshire that we have to consider the position of employers. Employers may well need cash at a time when the economy is going through a recession and is in difficulty. But the same is also true of the pensioner. The whole purpose of my arguments in amendment after amendment in the Bill is to protect the interests of the pension scheme members without imposing unnecessary burdens on British industry. I believe that we have the balance about right. The noble Lord, Lord Marsh, may have to read Hansard because of the slightly confused way in which I have had to tackle the provision, for which I apologise. However, I hope that he will find that we have a reasonable balance, and in regulations we shall be able to put forward sensible ways in which employers can be helped, but not at the risk of the security of the scheme.

Lord Marsh: I find the Minister's response—

The Earl of Buckinghamshire: I am sorry to interrupt the noble Lord, Lord Marsh. I referred to the question of loans in my previous intervention. I am not talking of unsecured loans. The pensions business is highly cyclical. In 1981 one bought out annuities at a 15 per cent. rate of interest and we were not facing any of the situations that exist today. If companies are forced to make a cash contribution into the scheme at any one moment in time because the funding dips below whatever we state is the minimum solvency level, in three or four years' time the markets might have recovered and suddenly we shall be looking at a surplus.

Once the employer has made that cash injection, it is difficult for him to get his money back. Is there any possibility in those circumstances of using a loan from the employer to be put into the fund? There is no question of a cash injection on a loan basis with real rates of return paid to the employer. Then, when the fund recovers, he has an ability to recover his loan. He does not have to go through the system of asking the trustees and meeting all the surplus requirements. I wanted to raise that point and make it clear.

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