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Baroness Seear: My Lords, in the case of the USS scheme, with which I am most directly familiar because I am a beneficiary, the lump sum is part of your pension. When one retires one receives a pension and a very convenient lump sum. What I ask is this. When the ex-husband retires—he does not have to die for my interest in him—he receives his pension and a very convenient lump sum. Does the ex-wife receive her share of the lump sum as well as her share of the annual pension? That is what I want to know.

Baroness Turner of Camden: My Lords, before the Minister responds, perhaps I may ask another question. We are talking about a situation where there is power to commute. In many schemes there is power to take a half pay pension when you are entitled to two-thirds and one has the remaining part as a lump sum. It is called commutation. It applies in public service schemes as a matter of course. However, it also applies in a good many private schemes where one can agree to commute part of one's pension and receive a lump sum as well as one's pension.

Lord Mackay of Ardbrecknish: My Lords, the trouble with bringing forward amendments to which you think everyone agrees is that one gets into this kind of

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question. I believe that the noble Baroness, Lady Seear, has neatly changed the question she asked. Her original question related to death. I hope that I have answered the question about death before retirement and death after retirement; namely, if there are lump sums due there is no difference.

I am now asked about lump sums that are paid as what is called commutation at the time of retirement when the member of the scheme is still alive. The answer to the question about splitting that lump sum is yes, she can get some or indeed all of the lump sum on commutation. It is for the courts to decide on that matter. The courts could order the ex-husband to take the commutation and to arrange for an amount specified by the court to be paid to the ex-wife. I hope that that answers the three questions about the lump sum.

I turn to the more general point on the case for splitting, to which the noble Baroness returned. As she knows, it is rather like the amendments which we accepted from both her and my noble friend Lady Young which begin as a few lines. However, when we start ensuring that we write in something which will work in law, the few lines expand considerably. I have never given much thought to the issue, but obviously I have had to do so since the turn of the year and the problem is more complicated than the noble Baroness suggests it is in broad principle.

I believe that at some stage of the Bill I conceded that it was not an issue which we could lay to rest through what we propose in the Bill. As I explained, we have commissioned research and look forward to receiving the results. My honourable friend Mr. James Arbuthnot, who has now moved to the Ministry of Defence, said in the other place that we would be prepared to return to the subject once we had received the results of the research which had been commissioned. Therefore, we are prepared to revisit the issue in the future when the research becomes available.

Baroness Hollis of Heigham: My Lords, I thank the Minister. However, he has not so far responded to our third question, if he can. It relates to the flow of earmarked income which ceases when the spouse, the husband, dies. The wife may then find herself in her last 10 years of life living on a pension down to income support level. We hoped that Ministers in the other place would take up the point and remedy the problem.

Given what the Minister said, the courts may require the husband to write into his pension that his first spouse should be the beneficiary of a lump sum, whenever that may be paid. There is no reason why the courts should not require exactly the same procedure to follow that portion of the widow's pension—let us say 50 per cent. of what would fall to the widow—which should be apportioned fairly between the first and the second wife, or however many wives there may be. The matter could be judged in terms of years of marriage, transfer value or whatever, by regulation or whatever the Minister chooses to lay down. That is simple.

Even at this late stage, why should the Minister not extend the principle of the court ordering the husband to have a defined nominee to inherit the lump sum? Why should that principle not apply to a defined nominee

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who would share in the widow's pension? Then the biggest single problem left with earmarking would be overcome.

Lord Mackay of Ardbrecknish: My Lords, perhaps I was rather more brief than I intended. I indicated that that difficulty would remain, and I accept the point. However, one of the purposes of conferring the power on the courts to order the scheme member to nominate the former spouse as the beneficiary of a lump sum payable on his death is to try—perhaps not as well as the noble Baroness would like—to provide the former spouse with compensation for the loss of the widow's pension. So that possibility exists. However, I am afraid that it is one difficulty more than we felt we could deal with.

As the noble Baroness rightly said, the issue would be dealt with if one went down the road of pension splitting. I believe that I have gone as far as I can at this late stage of the Bill. I suggest that she should accept the benefits that have come in the wake of her amendment and that of my noble friend Lady Young and not try to push me further and further.

On Question, Motion agreed to.


COMMONS AMENDMENTS
165Clause 86, page 54, line 23, leave out from second 'section' to 'an' in line 24 and insert '(Forfeiture by reference to obligation to the employer)'.
166Page 55, line 14, after 'section' insert 'and section (Forfeiture by reference to obligation to the employer)'.
167After Clause 86, insert the following clause:—

Forfeiture by reference to obligation to the employer

.—(1) Subject to subsection (2), section 86(1) does not prevent forfeiture of a person's entitlement, or accrued right, to a pension under an occupational pension scheme by reference to the person having incurred some monetary obligation due to the employer and arising out of a criminal, negligent or fraudulent act or omission by the person.
(2) A person's entitlement or accrued right to a pension may be forfeited by reason of subsection (1) to the extent only that it does not exceed the amount of the monetary obligation in question, or (if less) the value (determined in the prescribed manner) of the person's entitlement or accrued right to a pension under the scheme.
(3) Such forfeiture as is mentioned in subsection (1) must not take effect where there is a dispute as to amount of the monetary obligation in question, unless the obligation has become enforceable under an order of a competent court or in consequence of an award of an arbitrator or, in Scotland, an arbiter to be appointed (failing agreement between the parties) by the sheriff.
(4) Where a person's entitlement or accrued right to a pension is forfeited by reason of subsection (1), the person must be given a certificate showing the amount forfeited and the effect of the forfeiture on his benefits under the scheme.
(5) Where such forfeiture as is mentioned in subsection (1) occurs, an amount not exceeding the amount forfeited may, if the trustees or managers of the scheme so determine, be paid to the employer.'. '
168Clause 87, page 55, line 17, after & 86' insert 'and (Forfeiture by reference to obligation to the employer)'.
169Page 55, line 25, at end insert:
'( ) references to a charge are to be read as references to a right in security or a diligence and "charged" is to be interpreted accordingly,'.
170Page 55, line 31, leave out from '1980'to end of line 35 and insert:

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'( ) the reference to an income payments order under the Insolvency Act 1986 is to be read as a reference to an order under section 32(2) of the Bankruptcy (Scotland) Act 1985, and
( ) the reference to the making of a bankruptcy order is to be read as a reference to the award of sequestration or the making of the appointment of such a judicial factor.'.

Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do agree with the Commons in their Amendments Nos. 165 to 170 en bloc. I have already spoken to them.

Moved, That the House do agree with the Commons in their Amendments Nos. 165 to 170.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.


COMMONS AMENDMENT
171After Clause 87, insert the following clause:—

Pension rights of individuals adjudged bankrupt etc

'.—(1) After section 342 of the Insolvency Act 1986 (adjustment of certain transactions entered into by individuals subsequently adjudged bankrupt), there is inserted—
"Recovery of excessive pension contributions.

342A.—(1) Where an individual is adjudged bankrupt and—
(a) he has during the relevant period made contributions as a member of an occupational pension scheme, or
(b) contributions have during the relevant period been made to such a scheme on his behalf,
the trustee of the bankrupt's estate may apply to the court for an order under this section.
(2) If, on an application for an order under this section, the court is satisfied that the making of any of the contributions ("the excessive contributions") has unfairly prejudiced the individual's creditors, the court may make such order as it thinks fit for restoring the position to what it would have been if the excessive contributions had not been made.
(3) The court shall, in determining whether it is satisfied under subsection (2), consider in particular—
(a) whether any of the contributions were made by or on behalf of the individual for the purpose of putting assets beyond the reach of his creditors or any of them,
(b) whether the total amount of contributions made by or on behalf of the individual (including contributions made to any other occupational pension scheme) during the relevant period was excessive in view of the individual's circumstances at the time when they were made, and
(c) whether the level of benefits under the scheme, together with benefits under any other occupational pension scheme, to which the individual is entitled, or is likely to become entitled, is excessive in all the circumstances of the case.
Orders under section 342A.

342B.—(1) Without prejudice to the generality of section 342A(2), an order under that section may include provision—
(a) requiring the trustees or managers of the scheme to pay an amount to the individual's trustee in bankruptcy,

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(b) reducing the amount of any benefit to which the individual (or his spouse, widow, widower or dependant) is entitled, or to which he has an accrued right, under the scheme,
(c) reducing the amount of any benefit to which, by virtue of any assignment, commutation or surrender of the individual's entitlement (or that of his spouse, widow, widower or dependant) or accrued right under the scheme, another person is entitled or has an accrued right,
(d) otherwise adjusting the liabilities of the scheme in respect of any such person as is mentioned in paragraph (b) or (c).
(2) The maximum amount by which an order under section 342A may require the assets of an occupational pension scheme to be reduced is the lesser of—
(a) the amount of the excessive contributions, and
(b) the value (determined in the prescribed manner) of the assets of the scheme which represent contributions made by or on behalf of the individual.
(3) Subject to subsections (4) and (5), an order under section 342A must reduce the amount of the liabilities of the scheme by an amount equal to the amount of the reduction made in the value of the assets of the scheme.
(4) Subsection (3) does not apply where the individual's entitlement or accrued right to benefits under the scheme which he acquired by virtue of the excessive contributions (his "excessive entitlement") has been forfeited.
(5) Where part of the individual's excessive entitlement has been forfeited, the amount of the reduction in the liabilities of the scheme required by subsection (3) is the value of the remaining part of his excessive entitlement.
(6) An order under section 342A in respect of an occupational pension scheme shall be binding on the trustees or managers of the scheme.
Orders under section 342A: supplementary.

342C.—(1) Nothing in—
(a) any provision of section 159 of the Pension Schemes Act 1993 or 84 of the Pensions Act 1995 (which prevent assignment, or orders being made restraining a person from receiving anything which he is prevented from assigning, and make provision in relation to a person's pension on bankruptcy),
(b) any provision of any enactment (whether passed or made before or after the passing of the Pensions Act 1995) corresponding to any of the provisions mentioned in paragraph (a), or
(c) any provision of the scheme in question corresponding to any of those provisions,
applies to a court exercising its powers under section 342A.
(2) Where any sum is required by an order under section 342A to be paid to the trustee in bankruptcy, that sum shall be comprised in the bankrupt's estate.
(3) Where contributions have been made during the relevant period to any occupational pension scheme and the entitlement or accrued right to benefits acquired thereby has been transferred to a second or subsequent occupational pension scheme ("the transferee scheme"), sections 342A and 342B and this section shall apply as though the contributions had been made to the transferee scheme.
(4) For the purposes of this section and sections 342A and 342B—

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(a) contributions are made during the relevant period if—
(i) they are made by or on behalf of the individual at any time during the period of 5 years ending with the day of presentation of the bankruptcy petition on which the individual is adjudged bankrupt, or
(ii) they are made on behalf of the individual at any time during the period between the presentation of the petition and the commencement of the bankruptcy,
and
(b) the accrued rights of an individual under an occupational pension scheme at any time are the rights which have accrued to or in respect of him at that time to future benefits under the scheme.
(5) In this section and sections 342A and 342B—
"occupational pension scheme" has the meaning given by section 1 of the Pension Schemes Act 1993, and
"trustees or managers", in relation to an occupational pension scheme, means—
(a) in the case of a scheme established under a trust, the trustees of the scheme, and
(b) in any other case, the managers of the scheme."
(2) After section 36 of the Bankruptcy (Scotland) Act 1985 there is inserted—
"Recovery of excessive pension contributions.

36A.—(1) Where a debtor's estate has been sequestrated and—
(a) he has during the relevant period made contributions as a member of an occupational pension scheme; or
(b) contributions have during the relevant period been made to such a scheme on his behalf;
the permanent trustee may apply to the court for an order under this section.
(2) If, on an application for an order under this section, the court is satisfied that the making of any of the contributions ("the excessive contributions") has unfairly prejudiced the debtor's creditors, the court may make such order as it thinks fit for restoring the position to what it would have been if the excessive contributions had not been made.
(3) The court shall, in determining whether it is satisfied under subsection (2) above, consider in particular—
(a) whether any of the contributions were made by or on behalf of the debtor for the purpose of putting assets beyond the reach of his creditors or any of them;
(b) whether the total amount of contributions made by or on behalf of the debtor (including contributions made to any other occupational pension scheme) during the relevant period was excessive in view of the debtor's circumstances at the time when they were made; and
(c) whether the level of benefits under the scheme, together with benefits under any other occupational pension scheme, to which the debtor is entitled, or is likely to become entitled, is excessive in all the circumstances of the case.
Orders under section 36A.

36B.—(1) Without prejudice to the generality of subsection (2) of section 36A of this Act, an order under that section may include provision—

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(a) requiring the trustees or managers of the scheme to pay an amount to the permanent trustee;
(b) reducing the amount of any benefit to which the debtor (or his spouse, widow, widower or dependant) is entitled, or to which he has an accrued right, under the scheme;
(c) reducing the amount of any benefit to which, by virtue of any assignation, commutation or surrender of the debtor's entitlement (or that of his spouse, widow, widower or dependant) or accrued right under the scheme, another person is entitled or has an accrued right;
(d) otherwise adjusting the liabilities of the scheme in respect of any such person as is mentioned in paragraph (b) or (c) above.
(2) The maximum amount by which an order under section 36A of this Act may require the assets of an occupational pension scheme to be reduced is the lesser of—
(a) the amount of the excessive contributions; and
(b) the value (determined in the prescribed manner) of the assets of the scheme which represent contributions made by or on behalf of the debtor.
(3) Subject to subsections (4) and (5) below, an order under section 36A of this Act must reduce the amount of the liabilities of the scheme by an amount equal to the amount of the reduction made in the value of the assets of the scheme.
(4) Subsection (3) above does not apply where the debtor's entitlement or accrued right to benefits under the scheme which he acquired by virtue of the excessive contributions (his "excessive entitlement") has been forfeited.
(5) Where part of the debtor's excessive entitlement has been forfeited, the amount of the reduction in the liabilities of the scheme required by subsection (3) above is the value of the remaining part of his excessive entitlement.
(6) An order under section 36A of this Act in respect of an occupational pension scheme shall be binding on the trustees or managers of the scheme.
(7) The court may, on the application of any person having an interest, review, rescind or vary an order under section 36A of this Act.
Orders under section 36A: supplementary.

36C.—(1) Nothing in—
(a) any provision of section 159 of the Pension Schemes Act 1993 or 84 of the Pensions Act 1995 (which prevent assignation, or orders being made restraining a person from receiving anything which he is prevented from assigning, and make provision in relation to a person's pension on sequestration);
(b) any provision of any enactment (whether passed or made before or after the passing of the Pensions Act 1995) corresponding to any of the provisions mentioned in paragraph (a) above; or
(c) any provision of the scheme in question corresponding to any of those provisions,
applies to a court exercising its powers under section 36A of this Act.
(2) Where any sum is required by an order under section 36A of this Act to be paid to the permanent trustee, that sum shall be comprised in the debtor's estate.
(3) Where contributions have been made during the relevant period to any occupational pension scheme and the entitlement or accrued right to benefits acquired

12 Jul 1995 : Column 1746

thereby has been transferred to a second or subsequent occupational pension scheme ("the transferee scheme"), sections 36A and 36B of this Act and this section shall apply as though the contributions had been made to the transferee scheme.
(4) For the purposes of this section and sections 36A and 36B of this Act—
(a) contributions are made during the relevant period if they are made at any time during the period of 5 years ending with the date of sequestration; and
(b) the accrued rights of a debtor under an occupational pension scheme at any time are the rights which have accrued to or in respect of him at that time to future benefits under the scheme.
(5) In this section and sections 36A and 36B of this Act—
"occupational pension scheme" has the meaning given by section 1 of the Pension Schemes Act 1993; and
"trustees or managers", in relation to an occupational pension scheme, means—
(a) in the case of a scheme established under a trust, the trustees of the scheme; and
(b) in any other case, the managers of the scheme." '.

Lord Mackay of Ardbrecknish: My Lords, I beg to move that the House do agree with the Commons in their Amendment No. 171. With it, I wish also to speak to Amendment No. 313.

This is the smallest group of amendments with which we have to deal, but although there are only two, they still look pretty formidable. Let me try to explain. Amendment No. 171 inserts a new clause into the Bill to deal with pension rights on bankruptcy. It is intended to prevent abuse by a bankrupt of the statutory protection offered to occupational pension rights under Clause 84(2) of the Bill.

The Bill protects all pension rights in occupational schemes from creditors. A trustee in bankruptcy will be able to gain access only by applying to a court for an income payments order against income payable from the pension fund.

It is right that we should protect pension rights in this way. But we must not ignore the possibility that there might be unscrupulous debtors who seek to use the statutory protection to defeat creditors. This long and complicated clause prevents such abuse by inserting provisions into the Insolvency Act 1986 for England and Wales and the Bankruptcy (Scotland) Act 1985 for Scotland. They will enable a court to order recovery of some or all occupational pension contributions paid in the five years before bankruptcy. The court would make such an order only if it believed that the contributions were excessive in that they unfairly prejudiced the interests of creditors.

The amount of the recovery will normally be limited to the amount of the contributions considered to be excessive. The court is required to take account of any fall in the value of contributions to ensure that the pension scheme does not suffer any loss.

We expect that the complexity of the application procedure and the small number of cases in which the bankrupt is likely to have made excessive pension

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contributions which have prejudiced creditors' interests will mean that there will be very few cases. The measure is aimed at preventing abuse. We have taken great care to ensure that the relative needs of the creditors, the individual and the pension scheme are balanced equitably.

Amendment No. 313 is designed to avoid inconsistent treatment of debtors north and south of the Border. It inserts provisions into the Bankruptcy (Scotland) Act 1985 which equate to the amendments which this Bill already makes to the Insolvency Act 1986 in relation to England and Wales. I hope that your Lordships will agree that these are useful amendments.

Moved, That the House do agree with the Commons in their Amendment No. 171.—(Lord Mackay of Ardbrecknish.)

On Question, Motion agreed to.


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