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Lord Astor of Hever: Can the Minister say why she is so certain that this will affect only a few hundred people?

Baroness Hollis of Heigham: Yes. I am sorry; I tried to cover this. We believe that something like 25,000 pension sharing orders will affect occupational pension schemes. Within that, we know that the average age of divorce is under 35, which means that people usually have 30 years of working life to rebuild their pension. We also know that under 5 per cent--indeed, between 2.5 per cent and 5 per cent--already have no head space within which to do so. Putting all of that together and excluding those people who cannot afford to rebuild because they are only just above the £22,000 threshold, our figures suggest that we are talking about only a few hundred people who might wish to rebuild their scheme

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but are prevented from doing so by virtue of the fact that they have no head space within which to do so. That is the basis for our figures.

Given that explanation, I emphasise that it is not a question of finance because the cost would only be about £1 million a year annually, although that would build up thereafter. It is primarily a matter of principle. However, I have to say that we cannot ignore the risk that a concession to divorcing couples would create pressure for special treatment for other groups, which could involve a significant loss of tax revenue.

I should also add that the amendment makes no direct reference to finance legislation, although it seeks to influence the tax approval arrangements for pension sharing. I do not believe that it would be appropriate to amend the Bill in a way that would bring it into conflict with the tax arrangements for pension-sharing that have been agreed in the other place.

I recognise that the amendment addresses one of the major concerns that has emerged since we published the draft Bill in the summer of 1998. The Government have listened to those concerns and the distance between us has reduced, so to speak, by more than half. However, we have not been persuaded that it would be right to take the extra step required by the amendment. Nevertheless, we shall continue to listen carefully to representations on the issue and to keep the matter under review. With that assurance, I hope that the noble Lord will feel able to withdraw his amendment.

Lord Astor of Hever: Does that mean that the Government might return with an amendment of their own on Report?

Baroness Hollis of Heigham: No, it certainly does not. All I am saying is that any such figure--I refer to the figure I have given of £22,650--is obviously one that the Chancellor would want to keep under review, as he does all other figures in terms of income related benefits, upper earnings limit, lower earnings limit, tax thresholds and the like. I meant no more than that.

Lord Astor of Hever: I am grateful to the Minister for her reply. I accept that the easement announcement that was made in the other place will be of some help. This amendment constitutes a major point, as the Minister said. We shall want to consider carefully what she said and possibly return to it on Report. In the meantime I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 27 agreed to.

Clause 28 [Effect on contracted-out rights]:

Baroness Hollis of Heigham moved Amendment No. 71A:


Page 31, line 42, leave out ("rights under the scheme become") and insert ("right to the pension becomes")

The noble Baroness said: These government amendments, Amendments Nos. 71A to 71D, make a number of minor drafting changes to Clause 28, which deals with the effect of a pension debit on contracted-out rights. It may assist the Committee if I remind it that

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contracted-out rights are those rights built up by people who have opted out of SERPS and have an occupational pension or personal pension that replaces SERPS.

It has been suggested by some pension experts that the current draft of the clause does not accurately reflect the policy intention and its relationship with Clause 27 is unclear. We have given careful consideration to their concerns and as a result have decided to introduce these government amendments to clarify the policy intention.

Clause 27 provides for effect to be given to a pension debit by reducing a member's pension rights by the appropriate percentage. Clause 28 complements this by providing for the reduction of the member's contracted-out rights, along with any other rights shared, by the appropriate percentage.

Amendments Nos. 71A to 71D are designed to iron out any potential inconsistency between Clause 28 and Clause 27. In particular, Amendment No. 71C is intended to make it absolutely clear that a scheme is only obliged, in relation to the guaranteed minimum pension, or GMP as it is usually known, to provide a GMP which has been reduced as a consequence of the pension debit, rather than the full GMP.

This is a group of technical amendments that addresses the concerns expressed by some expert commentators on Clause 28 of the Bill. I beg to move.

Lord Astor of Hever: I am grateful to the Minister for that explanation. I understand that these are technical amendments to tidy up the wording. We shall want to read carefully what she has said, but as things stand we shall not oppose the amendments.

The Earl of Clanwilliam: Does it not appear that the provision in Clause 27 would answer the problem raised by the noble Baroness in Clause 28?

Baroness Hollis of Heigham: I am not sure that I take the noble Earl's point.

The Earl of Clanwilliam: Does not the provision in Clause 27 which would allow members to rebuild their pension rights solve the problem that is addressed by Amendment No. 71C?

Baroness Hollis of Heigham: I am looking for guidance on this. I am not sure whether the noble Earl is correct. I think that I had better write to him to follow up his point in detail.

On Question, amendment agreed to.

Baroness Hollis of Heigham moved Amendments Nos. 71B to 71D:


Page 31, line 44, leave out ("shall be") and insert ("is, subject to subsection (1A),")
Page 31, line 45, at end insert--
("(1A) Where the earner is in pensionable service under the scheme on the day on which the order or provision on which the pension debit depends takes effect, his guaranteed minimum in relation to the scheme is reduced by an amount equal to the appropriate percentage of the corresponding qualifying benefit.

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(1B) For the purposes of subsection (1A), the corresponding qualifying benefit is the guaranteed minimum taken for the purpose of calculating the cash equivalent by reference to which the amount of the pension debit is determined.")
Page 32, line 1, leave out ("subsection (1)") and insert ("this section")

On Question, amendments agreed to.

Clause 28, as amended, agreed to.

Clauses 29 and 30 agreed to.

Clause 31 [Mode of discharge of liability]:

Lord Astor of Hever moved Amendment No. 72:


Page 33, line 40, leave out subsection (1)

The noble Lord said: I rise to move Amendment No. 72 and to speak to Schedule 5 stand part.

The means by which trustees may discharge their liabilities towards a former spouse must be unambiguous and effective. Funded schemes can choose whether or not to provide the pension share within the scheme or externally. Can the Minister confirm that if a scheme transfers out of a pension scheme under the default option--in other words, without the former spouse's consent--and if a trustee has acted reasonably in the circumstances, the trustee will be given a valid discharge by the legislation? I beg to move.

Baroness Hollis of Heigham: Yes. The answer, very simply, is that the trustee will be given a valid discharge.

Lord Astor of Hever: I thank the Minister for that very satisfactory answer. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 31 agreed to.

Schedule 5 [Pension credits: mode of discharge]:

Lord Astor of Hever moved Amendment No. 72A:


Page 105, line 2, at end insert (", and
(c) they are to be discharged by the trustees or managers of the scheme in a manner which they deem appropriate")

The noble Lord said: I rise to move Amendment No. 72A. We have some concerns about the benefits to which former spouses will be entitled as the result of an internal transfer. Most schemes will probably wish to mirror preferred pensioner benefits, but some may not. It is important to ensure that schemes can provide a package of benefits for the former spouse if an internal transfer is chosen. The overriding principle must be that of equivalent value, with a cash equivalent proportion ordered or agreed. We seek the Government's clarification on this point. I beg to move.

Baroness Hollis of Heigham: Amendment No. 72A seeks to amend Schedule 5, which is concerned with the way in which a pension scheme or arrangement can discharge its liability for a pension credit. The pension credit is the share of the pension scheme member's pension that passes to the former spouse.

One of the ways in which a pension scheme can discharge its liability for a pension credit is by conferring "appropriate rights" under that scheme on the former spouse. In layman's terms, one could perhaps

6 Jul 1999 : Column 836

simply call that an "internal transfer" of the rights that have been shared as they stay within the scheme from which the pension credit was derived.

Paragraph 5 of Schedule 5 defines what is meant by "appropriate rights". As currently drafted, it includes two provisions which are designed to safeguard the interests of the former spouse. First, the rights must be conferred from, and including, the day on which the pension sharing order takes effect. The second safeguard is that the value of the rights conferred must be equal in value to the amount of the pension credit.

Amendment No. 72A seeks to impose a third condition which would enable the trustees or managers of the scheme to discharge their liability by conferring rights in the scheme in a manner in which they deem appropriate.

The noble Lord has explained that this is a probing amendment to tease out the extent to which the Government believe that the trustees or managers should be free to design the package of benefits to the former spouse. I am happy to reassure the Committee that that is indeed our intention. With one exception, which I shall explain in a moment, we want schemes that offer "internal transfers" to be able to choose the arrangements that suit them best. The key safeguard, already enshrined in paragraph 5 of Schedule 5, is that the value of the package of benefits offered must be equal in value to the pension credit.

However, as I have just mentioned, there is one exception, and that relates to pension credits derived from contracted-out rights, which are called "safeguarded rights" in the Bill. As the Committee will be aware, the Pension Schemes Act 1993 and the regulations made under it impose extra conditions on contracted-out rights. To give a simple example, protected rights built up in a personal pension to replace SERPS rights cannot be used to provide a pension before age 60 and cannot be commuted to a tax-free lump sum.

The Government believe it is right that where part of the pension credit is derived from protected rights, that part of the pension credit--the safeguarded rights part--should be subject to similar restrictions. So, for example, if the former spouse becomes a member of the same personal pension scheme as her ex-spouse, she too should not be able to draw a pension from her safeguarded rights until age 60 and, like her ex-husband, should not be able to take a tax-free lump sum from that part of her personal pension fund. Imposing similar restrictions on the safeguarded rights is fair to both parties, protects the interests of the taxpayer and will ensure that those rights continue to be used for the purpose for which they are intended: to provide a secure income in retirement.

To conclude, with the exception of some restrictions in respect of safeguarded rights to be set out in regulations, schemes will be free to offer the package of benefits that best suits them. It is not the intention that schemes will be required to offer former spouses benefits that mirror those offered to early leavers. So the amendment is unnecessary.

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I hope that I have clarified the Government's intention sufficiently to persuade the noble Lord to withdraw his amendment.

10 p.m.

Lord Astor of Hever: I asked for clarification, and the Minister has answered fully the points that I made. I am glad to have the assurance that she gave. In the light of that, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Schedule 5 agreed to.

Clauses 32 to 45 agreed to.

Clause 46 [Effect of state scheme pension debits and credits]:


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