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53Clause 31, page 18, line 29, leave out from beginning to 'except' in line 33 and insert:
'(2) Any discretion of the trustees of a trust scheme to make any decision about investments—
(a) may be delegated by or on behalf of the trustees to a fund manager to whom subsection (3) applies to be exercised in accordance with section 33, but
(b) may not otherwise be delegated'.
54Page 18, line 44, at end insert 'or the person who made the delegation on their behalf has taken all such steps as are reasonable to satisfy himself'.
55Page 18, line 45, leave out 'he' and insert 'the fund manager'.
56Clause 31, Page 19, line 3, leave out subsection (5) and insert:
'(5) Subject to any restriction imposed by a trust scheme—
(a) the trustees may authorise two or more of their number to exercise on their behalf any discretion to make any decision about investments, and
(b) any such discretion may, where giving effect to the decision would not constitute carrying on investment business in the United Kingdom (within the meaning of the Financial Services Act 1986), be delegated by or on behalf of the trustees to a fund manager to whom subsection (3) does not apply to be exercised in accordance with section 33;
but in either case the trustees are liable for any acts or defaults in the exercise of the discretion if they would be so liable if they were the acts or defaults of the trustees as a whole.
( ) Section 30 does not prevent the exclusion or restriction of any liability of the trustees of a trust scheme for the acts or defaults of a fund manager in the exercise of a discretion delegated to him under subsection (5) (b) where the trustees have taken all such steps as are reasonable to satisfy themselves, or the person who made the delegation on their behalf has taken all such steps as are reasonable to satisfy himself—
(a) that the fund manager has the appropriate knowledge and experience for managing the investments of the scheme, and
(b) that he is carrying out his work competently and complying with section 33;
and subsection (2) of section 30 applies for the purposes of this subsection as it applies for the purposes of that section.'.
57Clause 32, page 19, line 34, at end insert:
'( ) Neither the trust scheme nor the statement may impose restrictions (however expressed) on any power to make investments by reference to the consent of the employer.'.
58Clause 33, page 20, line 9, leave out 'they have delegated any discretion' and insert 'any discretion has been delegated'.
59Page 20, line 28, leave out 'fund manager' and insert 'the fund manager to whom any discretion has been delegated under section 31'.

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60Page 20, line 32, leave out paragraph (a) and insert:
'(a) where giving the advice constitutes carrying on investment business in the United Kingdom (within the meaning of the Financial Services Act 1986), advice—
(i) given by a person authorised under Chapter III of Part I of that Act,
(ii) given by a person exempted under Chapter IV of that Part who, in giving the advice, is acting in the course of the business in respect of which he is exempt,
(iii) given by a person where, by virtue of paragraph 27 of Schedule 1 to that Act, paragraph 15 of that Schedule does not apply to giving the advice, or
(iv) given by a person who, by virtue of regulation 5 of the Banking Coordination (Second Council Directive) Regulations 1992, may give the advice though not authorised as mentioned in sub-paragraph (i) above'.

Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 51 to 60 en bloc. I wish to speak also to Amendments Nos. 75, 78, 81, 83 and 84. We now move on to amendments covering investments.

When we considered Clauses 30 to 33, a number of noble Lords expressed concern that they did not provide trustees with sufficiently wide powers to delegate their investment functions and therefore to administer their pension funds effectively. There was also concern that it could result in trustees being less willing to make investments, such as in property, which fall outside the scope of the Financial Services Act. I can recall the noble Lord, Lord Ezra, being very involved in the matter, as well as my noble friend Lord Buckinghamshire.

I then promised your Lordships that we would look carefully at the issues and would introduce suitable amendments as necessary. The outcome is Amendments Nos. 53 to 56. They will enable trustees to continue to enjoy the benefits associated with wider powers of delegation, such as greater operational flexibility and reduced administration and operational costs. We have also introduced a number of consequential amendments.

Amendment No. 56 will enable trustees to continue to benefit from exemptions from liability, when they invest in areas outside the scope of the Financial Services Act, provided that proper care is taken in appointing and monitoring those managers. The group of amendments, Amendments Nos. 53 to 56, I believe meet the concerns which were expressed when we considered matters during our discussions on the Bill. Amendment No. 57 is intended to make it absolutely clear that Clause 32 makes the trustees responsible for deciding investment policy after taking appropriate professional advice and fully consulting the employer. That is in line with recommendation 46 of the Pension Law Review Committee.

I hope that your Lordships will agree that we have taken full account of the debates which we had at an earlier stage on these important issues. I beg to move.

Moved, That the House do agree with the Commons in their Amendments Nos. 51 to 60.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

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COMMONS AMENDMENTS
61Clause 34, page 21, line 21, at end insert:
'( ) where the power is conferred by the scheme on the employer, the employer has asked for the power to be exercised, or consented to it being exercised, in the manner so proposed'.
62After Clause 34, insert the following clause:

Power to defer winding up

'.—(1) If, apart from this section, the rules of a trust scheme would require the scheme to be wound up, the trustees may determine that the scheme is not for the time being to be wound up but that no new members are to be admitted to the scheme.
(2) Where the trustees make a determination under subsection (1), they may also determine—
(a) that no further contributions are to be paid towards the scheme, or
(b) that no new benefits are to accrue to, or in respect of, members of the scheme;
but this subsection does not authorise the trustees to determine, where there are accrued rights to any benefit, that the benefit is not to be increased.
(3) This section does not apply to—
(a) a money purchase scheme, or
(b) a scheme falling within a prescribed class or description.'.

Lord Mackay of Ardbrecknish: My Lords, with the leave of the House I beg to move that the House do agree with the Commons in their Amendments Nos. 61 and 62. With those amendments I should like to speak also to Amendments Nos. 132 to 146 and Amendment No. 234.

These amendments are in a group of amendments that deal with surplus and wind up. Amendment No. 61 provides that trustees who wish to make a payment from surplus to the employer must ensure that the employer is content to receive it. Perhaps it will help to remind your Lordships that Clause 34 provides that in a scheme which permits a payment from surplus to the employer, the trustees alone will be able to decide whether or not to make such a payment. Trustees may exercise the power only where certain statutory requirements have been met.

One of the main conditions is that benefits must be increased annually, in line with inflation, up to a maximum of 5 per cent. for both past and future service. In defined benefit schemes, the employer stands behind the pension promise and funds accordingly. Most scheme rules give the employer the sole power to authorise improvements.

The Bill places a statutory obligation on employers to fund their schemes so that the benefits are protected. That is entirely reasonable if the employer controls the commitment to additional enhanced benefit. But it would be more difficult to justify if the employer can be faced with potential additional costs as a result of benefit increases which he has not agreed.

Amendment No. 61 therefore provides that the trustees must ensure that the employer is content to receive a payment from surplus and not act unilaterally. That will ensure that any consequent increase in benefits

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is approved by the employer and that the employer has the opportunity to weigh all the implications before accepting the payment.

Amendment No. 62 overrides scheme rules which require the scheme to wind up in certain circumstances. It will allow trustees to continue a scheme where they believe it would be in the interests of the members to do so. We believe that it is right that trustees of a properly funded scheme should be able to discharge their liabilities on a gradual basis as and when they crystallise. Members will be protected because the trustees can continue with the scheme only if it is in the best interests of the members.

Amendments Nos. 132 and 133 develop our intention that additional voluntary contributions should attract a high level of protection, even when they have been transferred from another pension scheme. I have accepted that it is right in principle that the first priority should be given to any pension rights attributable to additional voluntary contributions. I undertook to bring forward an amendment at a later stage to cater for all variations. These amendments redeem that commitment.

Amendments Nos. 134 and 135 deal with the priority to be accorded to dependants' benefits. An example would be of a pensioner who died during winding-up. His pension would attract a high priority under the Bill because it was in payment at the time winding-up commenced. But a widow's or widower's pension coming into payment after the date on which the winding-up commenced would appear to attract a lower priority. My noble friend Lord Buckinghamshire raised the point and I promised to consider it. These amendments make it clear that any contingent dependant's benefit is accorded the same priority as the scheme member's entitlement.

We were also concerned that the way in which the categories of preferential liabilities in the clause are set out could be interpreted as implying that accrued rights do not include provision for indexation. They do. However, misunderstandings could have arisen because accrued rights and indexation are treated separately in the clause. The amendments remove any potential ambiguity.

Amendments Nos. 136 and 137 add to the flexibility which Clause 68 gives trustees in the way they discharge scheme liabilities when a scheme winds up. The clause provides a range of options for discharging liabilities but it has been suggested that the option to purchase transfer credits in another scheme does not apply when it is in respect of an existing pension entitlement. That could be particularly important when an employer is merging schemes or is being taken over. In those circumstances, a transfer may be a suitable alternative to the purchase of an annuity for the discharge of pensioner liabilities.

Amendments Nos. 138 and 146 address the situation where the scheme has wound up, liabilities have crystallised and the value of any excess assets can be calculated precisely. Most scheme rules have clear provisions setting out exactly how assets should be allocated on wind-up. A small minority of schemes have wind-up rules which could in principle result in assets being left unallocated. There could be need for a court to

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determine whether the excess assets should be deployed to increase members' benefits to Inland Revenue limits, whether they should be paid to the employer or whether they should go to the Crown. The PLRC recommended that where scheme rules were clear on the allocation of scheme assets on wind-up they should not generally be interfered with.

It has been suggested to us that Clause 70 does not achieve the desired effect. It would in practice override scheme rules on allocating excess assets on scheme wind-up by effectively requiring the trustees to authorise benefit improvements up to Inland Revenue limits before any payment could be made to the employer. That is not what the PLRC recommended; and it is not what we intend.

Amendments Nos. 138 to 146 restructure Clause 70 so that clear scheme rules will be applied, subject to the additional constraint that limited price indexation must be awarded in respect of past and future service, and members must be notified and given an opportunity to make representations to the authority.

Amendment No. 234 introduces a new clause to provide new options for contracted out money purchase schemes which are in the process of winding up. It addresses concerns about the problems that many schemes have found in placing protected rights in appropriate homes. The new clause brings in new ways for discharging protected rights and will help trustees and managers to wind up schemes. It will enable insured schemes to secure protected rights through appropriate insurance policies. We believe that these measures will protect the interests of both the members and the taxpayer who has contributed to members' protected rights. I beg to move.

Moved, That the House do agree with the Commons in their Amendments Nos. 61 and 62.—(Lord Mackay of Ardbrecknish.)


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