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103Clause 45, page 28, line 31, at beginning insert 'Subject to subsection (3A)'.
104Page 28, line 39, leave out from 'scheme' to ', and' in line 40.
105Page 28, line 45, leave out from 'it' to second 'is' in line 46.
106Page 28, line 47, at end insert 'or, in the case of money purchase benefits, to payments in respect of employment carried on on or after the appointed day'.
107Page 29, line 2, at end insert 'or, as the case may be, to payments in respect of employment carried on'.
108Page 29, line 5, at end insert:
'(2A) Subsection (2) does not apply to a pension under an occupational pension scheme if the rules of the scheme require—
(a) the annual rate of the pension, or
(b) if only part of the pension is attributable to pensionable service or, as the case may be, to payments in respect of employment carried on on or after the appointed day, so much of the annual rate as is attributable to that part,
to be increased at intervals of not more than twelve months by at least the relevant percentage and the scheme complies with any prescribed requirements.
(2B) For the purposes of subsection (2A) the relevant percentage is—
(a) the percentage increase in the retail prices index for the reference period, being a period determined, in relation to each periodic increase, under the rules, or
(b) the percentage for that period which corresponds to 5 per cent per annum,
whichever is the lesser'.
109Page 29, line 6, leave out 'subsection (2)' and insert 'subsections (2) and (2A)'.
110Page 29, line 8, leave out from 'service' to end of line 12 and insert 'or to payments in respect of employment were attributable to pensionable service or, as the case may be, payments in respect of employment—
(a) before the appointed day,
(b) on or after that day, or
(c) partly before and partly on or after that day'.
111Page 29, line 12, at end insert:
'(3A) This section does not apply to any pension or part of a pension which, in the opinion of the trustees or managers, is derived from the payment by any member of the scheme of voluntary contributions.'.
112Page 29, line 13, leave out subsection (4).
113Clause 48, page 30, line 40, leave out from second 'the' to end of line 43 and insert 'revaluation percentage for the revaluation period the reference period for which ends with the last preceding 30th September before the increase is made (expressions used in this definition having the same meaning as in paragraph 2 of Schedule 3 to the Pension Schemes Act 1993 (methods of revaluing accrued pension benefits)'.
114Page 30, leave out lines 44 to 50.
115Page 31, line 2, leave out from 'scheme' to end of line 7 and insert 'and includes an annuity'.
116Clause 49, page 31, leave out lines 19 to 22 and insert 'the principal appointed day for the purposes of Part III of the Pensions Act 1995'.

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Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 103 to 116 en bloc. I should like to speak at the same time to Amendments Nos. 244 to 247.

This group of amendments change the indexation provisions in the Bill. When we discussed the indexation requirements both in your Lordships' House and the other place, the view was put forward that there should be a statutory requirement to index pensions derived from free-standing additional voluntary contributions. Those of your Lordships who attended the debate will remember that we consistently opposed that view. These arrangements are, by definition, voluntary. Individuals may be deterred from making such arrangements for their retirement if tighter controls are put in place.

We have accepted the point that it would be inconsistent to treat free-standing AVCs differently from AVCs paid to an individual occupational scheme. By definition, all AVCs are voluntary. So we have brought forward amendments to treat all pensions derived from AVCs in the same way. We do that by excluding them from the indexation requirements. Let me make it clear that Amendments Nos. 103, 104, 111 and 114 simply stop indexation being a statutory requirement. Schemes will still be free to index pensions arising from AVCs if they so choose.

We have listened to concerns about the administrative difficulty that some schemes may face by linking the increases required in the Bill to the timing of revaluation orders. The difficulty is that schemes have their own scheme year and may well already have indexation requirements which link with it. The Bill would require schemes to base their increases on the period ending every 30th September. We believe that that is too restrictive. Therefore, we have allowed an appropriate exemption. We have also taken a regulation-making power in Amendments Nos. 108 and 109 so that details of variations in the way that schemes administer increases can in fact be catered for. I should like to make clear that this is not at all a dilution in any way of the indexation requirements. It is simply to deal with the administrative difficulties that I mentioned.

Moved, That the House do agree with the Commons in their Amendments Nos. 103 to 116.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.

117Clause 50, page 31, line 34, after 'verified' insert 'by a prescribed person and'.
118Clause 51, page 32, line 4, leave out 'at' and insert 'before the end of'.
119Page 32, line 5, after 'occasions' insert 'or within prescribed periods'.

120Clause 52, page 33, line 24, after 'be' insert:
'(i) rates of contributions determined by the trustees or managers, being such rates as in their opinion are adequate for the purpose of securing that the minimum funding requirement will continue to be met throughout the prescribed period or, if it appears to them that it is not met, will be met by the end of that period, and

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(ii) other'.
121Clause 53, page 34, line 3, at beginning insert 'Except in prescribed circumstances'.
122Clause 54, page 34, line 42, at beginning insert 'Except in prescribed circumstances'.

Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 117 to 122 en bloc. I should also like to speak to Amendments Nos. 152, 153 and 155.

This group of amendments deals with funding. Amendment No. 117 is designed to ensure that the minimum funding requirement will operate properly by ensuring that the scheme actuary appointed by the trustees will also be the individual who undertakes the valuation of the scheme assets and liabilities. We shall be able to do that in regulations made as a result of this amendment. We intend to make it clear that the individual will be a properly qualified actuary who is a Fellow of the Institute of Actuaries or Faculty of Actuaries. This mirrors a similar provision in Clause 69(5).

Amendments Nos. 118 and 119 affect the timing of actuarial valuations and certificates. We intend that schemes should have valuations at intervals of not more than three years, with annual certificates to check on the funding position in the years in between. The Bill could have been interpreted as requiring those to be carried out on a particular day. Amendments Nos. 118 and 119 allow for flexibility to ensure that the provisions actually work in practice.

Amendment No. 120 has already been signalled in an earlier debate. It is about the operation of the schedule of contributions. We would normally expect the employer and trustees to agree the rates of contribution to be entered in the schedule. But there needs to be a failsafe should they not be able to agree. That needs to rest with the trustees, but they should not have a carte blanche to expose employers to financial risks. This amendment would leave the trustees with the power to set the contribution rate but limit their discretion so that they cannot preset a rate which is more than adequate to comply with the minimum funding requirement.

Amendments Nos. 121, 122 and 153 will enable regulations to clarify the duty on trustees to notify OPRA and members when payments due in the schedule of contributions are not made by the date. Without these amendments, the Bill would require trustees to notify OPRA and scheme members whenever a payment was overdue, even if it was delayed for a short time or for a trivial reason. That would involve unnecessary costs and cause anxiety for members. The amendments will allow regulations not to require OPRA and members to be notified where payment is delayed for good reason, for example, administrative fault or where it is made following OPRA's intervention.

I am sure your Lordships will be aware of the importance of the schedule showing rates of contributions and when they should be paid. Amendment No. 152 clarifies how the rates and due dates of contributions to be shown in the schedule are to be determined in respect of money-purchase schemes. It has been suggested that the clause does not make it sufficiently clear that the matters to be shown in the schedule should be consistent with

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scheme rules. To make it completely clear, Amendment No. 152 spells out that if the matters are already set down in the scheme rules, it is what is contained in those rules that should be shown on the schedule. If they are not contained in the scheme rules, they should be agreed between the employer and the trustees. If exceptionally they cannot agree they should be determined by the trustees. This amendment will leave trustees in no doubt how the matters to be shown in the contributions schedule should be determined.

Amendment No. 155 introduces a power to modify the minimum funding requirement and the employer debt provisions to apply to money-purchase schemes in certain circumstances. The PLRC Report noted that:

    "in money-purchase schemes funding is automatic unless a scheme member bears the investment risks but there is no reason why the member should also bear the risk of loss through misappropriation of scheme assets".

We have accepted this by agreeing that the compensation arrangements should cover money-purchase schemes where there has been dishonest removal of assets. But this will apply only where the employer is insolvent. This amendment addresses the situation where an employer sponsoring a money-purchase scheme which has suffered fraud remains solvent. It places a requirement on such employers to make up a deficit arising from theft or fraud. Our proposal is about protecting members from the risk of loss through misappropriation of assets, not about protection from investment risk. So members, not employers, of money-purchase schemes will still bear the investment risk, but members should have similar protection to members of salary-related schemes in cases of misappropriation. The amendment will ensure that they do.

Amendment No. 155 will also provide a power that can be used to ensure that certain schemes that pay defined benefits are not inadvertently excluded from the minimum funding requirement. That is because some of the schemes are hybrid and pay out defined benefit pensions instead of purchasing annuities. We would not wish to exclude them from the minimum funding requirement.

I believe that these amendments will all improve the Bill and I commend them to your Lordships.

Moved, That the House do agree with the Commons in their Amendments Nos. 117 to 122.—(Lord Mackay of Ardbrecknish.)

4.15 p.m.

Baroness Hollis of Heigham: My Lords, we welcome Amendment No. 155. However, can the Minister give us a little more help in relation to Amendment No. 120? It may be that I misunderstood the purport of what he was saying. He seemed to be suggesting that trustees could not increase the rate of contribution which would produce funds which would more than meet the minimum funding requirement. In other words, they may levy only such contributions as would meet a minimum funding standard.

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If that is correct—I believe that is what the Minister said—it would mean that what was a minimum has become a maximum. At present, as I understand it, virtually all good company schemes are funded above the current minimum funding level, which is only around 80 per cent. on average of what most schemes contain. From what the Minister said in his introduction to the amendment, that would in future depress that level of funding and reduce the level of contributions payable by the employer and possibly also by the members but would expose the scheme to greater risk in the unlikely event of a subsequent wind-up. Can the Minister explain that point to us?

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