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Lord Mackay of Ardbrecknish: I hope that I can persuade the noble Lord to withdraw his amendment because I am afraid that I cannot accept it.

The objective of insolvency law is, so far as possible, the equal distribution of assets among unsecured creditors. As the law stands, the trustees of the pension scheme are ordinary creditors of the employer. The PLRC report identified a significant reason why a deficit should not become a priority debt.

Bearing in mind the value of many pension schemes relative to the value of the employer company, the creation of a contingent debt of a size potentially greater—sometimes several times greater—than that of the employer could deter potential creditors from investing in the company and, as the PLRC report states:


Nevertheless, we are obviously anxious to ensure that pension schemes are properly funded. That is the basic rationale for the minimum solvency requirement under the requirements and schemes to establish a schedule of contribution consistent with meeting that requirement. Any contribution unpaid before the due date becomes a debt on the employer. This applies while the scheme is

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ongoing and offers the trustees a clear means of securing funds due from the employer to the scheme. It should reduce the risk of a deficiency arising in the event of an employer insolvency or of the scheme winding up.

Clause 68 provides a further layer of protection for scheme measures. It re-enacts existing employer debt provisions, which mean that any shortfall in the fund at the point of employer insolvency will also be a debt on the employer. With the MSR in place, there should be less need for schemes to resort to these provisions.

We believe that they should remain in place as a useful additional contribution to members' security. But we do not believe that it would be appropriate to go further and to make any such debt a priority debt to the disadvantage of other creditors mainly, as I have pointed out, because of the adverse effect that that might have on the availability of credit for employers sponsoring defined benefit schemes. In the light of what I have said, I hope that the noble Lord will withdraw the amendment.

Lord Haskel: I thank the noble Lord for that explanation. We are trying to look after members' interests. The money in question is employees' past earnings, and earnings have always been a priority debt whenever there has been a liquidation. However, I shall read what the Minister said and I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Lord Lucas moved Amendment No. 151CA:


Page 39, line 40, at end insert:
("( ) This section does not apply to an occupational pension scheme falling within a prescribed class or description.
( ) Regulations may modify this section as it applies in prescribed circumstances.").

On Question, amendment agreed to.

Clause 68, as amended, agreed to.

Clause 69 [Surplus on winding up]:

Lord Lucas moved Amendment No. 152:


Page 40, line 8, at end insert ("the requirements of subsection (3A) and (in prescribed circumstances) (3B), and any prescribed requirements, are satisfied.
(3A) The requirements of this subsection are that—").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 153 and 154. The effect of these amendments is to provide that, in a scheme which is winding up and has excess funds remaining after all liabilities have been secured, including limited price indexation increases, the trustees must notify scheme members of their intention to make a payment to the employer. This will enable scheme members to make representations to the trustees. The amendment also provides that, where a member is concerned at a decision of the trustees to grant a payment to the employer in these circumstances, he will be able to ask the authority to check whether the trustees have complied with the statutory requirements.

On Question, amendment agreed to.

[Amendment No. 152A not moved.]

Lord Lucas moved Amendment No. 153:


Page 40, leave out line 19 and insert:

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("(e) notice has been given in accordance with prescribed requirements to the members of the scheme of the proposal to exercise the power.
(3B) The requirements of this subsection are that the Authority are of the opinion that—
(a) any requirements prescribed by virtue of subsection (3) are satisfied, and
(b) the requirements of subsection (3A) are satisfied.").

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 154:


Page 40, line 20, leave out ("(3)") and insert ("(3A)").

On Question, amendment agreed to.

Lord Lucas moved Amendment No. 155:


Page 40, line 28, at end insert:
("( ) If, where this section applies to any trust scheme, the trustees purport to exercise the power referred to in subsection (1) (c), or give their consent under subsection (2), without complying with the requirements of this section, sections 3 and 9 apply to any of them who have failed to take all such steps as are reasonable to secure compliance.
( ) If, where this section applies to any trust scheme, any person other than the trustees purports to exercise the power referred to in subsection (1) (c) without complying with the requirements of this section, section 9 applies to him.").

The noble Lord said: This amendment was spoken to when I moved Amendment No. 136. I beg to move.

On Question, amendment agreed to.

Clause 69, as amended, agreed to.

Clause 70 [Assets remaining after winding up: power to distribute]:

[Amendment No. 155A not moved.]

Lord Lucas moved Amendment No. 156:


Page 41, line 16, at end insert:
("( ) If, where this section applies to a trust scheme, the requirements of this section are not complied with, section 3 applies to any trustee who has failed to take all such steps as are reasonable to secure compliance.").

The noble Lord said: This amendment too was spoken to when I moved Amendment No. 136. I beg to move.

On Question, amendment agreed to.

Clause 70, as amended, agreed to.

Clause 71 [The Compensation Board]:

Lord Lucas moved Amendment No. 156A:


Page 41, line 21, after ("be") insert ("so").

The noble Lord said: In moving this amendment, I shall speak also to Amendments Nos. 161B, 161D, 161E and 161F. Amendments Nos. 156A and 161B make it clear that the Secretary of State will appoint the chairman of the compensation board and ensure that the board will be able to make payments out of any funds it holds, not only those directly attributable to the levy. Amendment No. 161D deletes one of the definitions listed in Clause 74 as the expression is not used in Clauses 74 to 78, while Amendment No. 161F brings the wording of Clause 75 in with that in Clause 76. Amendment No. 161E concerns the recovery of lost assets where compensation is payable.

The amendment is necessary because under trust law trustees have a duty to recover any lost assets. The fact that compensation is payable does not remove that duty; nor do we think that it should do so. It is in the interests

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of scheme members that missing assets should be recovered so that pensions can be paid in full as far as possible. But there is a risk that some trustees will relax their efforts to recover assets in the knowledge that the compensation scheme will safeguard most of the pensions. That would increase the costs of the compensation scheme, and any increase in costs would be borne by other schemes paying the levy. We need to be sure that measures are in place to protect the interests of other pension schemes and ensure that there is no abuse of the compensation scheme. I beg to move.

On Question, amendment agreed to.

10 p.m.

Baroness Seear moved Amendment No. 156B:


Page 41, leave out lines 23 and 24 and insert:
("(3) In addition to the chairman, the Board shall comprise—
(a) a member appointed after the Secretary of State has consulted—
(i) organisations appearing to him to be representative of employers, and
(ii) the chairman,
(b) a member appointed after the Secretary of State has consulted—
(i) organisations appearing to him to be representative of employees, and
(ii) the chairman,
and such other member or members as the Secretary of State may appoint after consultation with the chairman.").

The noble Baroness said: We are now considering the compensation board, which is obviously another very important institution being established under the legislation. The point of the amendment is that, as proposed, the selection of the people who will be on the compensation board seems to be a somewhat cosy arrangement between the Secretary of State and the members of the board. In other words, the Secretary of State appoints the chairman and then, in consultation with the chairman, he appoints two other people.

In these days when there is so much talk of how people get on to quangos—and I shall not go into that argument—I should have thought that it was most important to make it absolutely clear that the compensation board is not just a creature of the Secretary of State. As the industry will fund the compensation board, it must be appropriate after the chairman has been appointed for members of the board to be selected in consultation with representatives of employers and trade unions. If the funding of the board is to be met by the industry surely as a matter of sheer justice control of it should at least be influenced by selection from both sides of industry. I beg to move.


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