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Lord Astor of Hever: My Lords, I thank the Minister for that reply and I apologise to the House for introducing at this very late hour these technical and complicated amendments. However, they are matters of great concern to the Law Society of Scotland. In view of the late hour, I shall not add anything. I shall read Hansard carefully and consider what the Minister has said. Possibly we can correspond. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 73 to 75 not moved.]

Clause 28 [Reduction of benefit]:

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[Amendments Nos. 76 to 81 not moved.]

Clause 29 [Effect on contracted-out rights]:

Lord Astor of Hever moved Amendment No. 82:

Page 32, line 9, leave out subsection (3).

The noble Lord said: My Lords, I rise to move Amendment No. 82 and to speak to the consequential amendment, Amendment No. 83. Amendment No. 82 removes the provision for the reduction of guaranteed minimum pension in consequence of the pension debit. We are of the view that the proposed Section 15A is incompatible with Clause 28. Clause 28 assumes that benefit under a pension arrangement is calculated in accordance with scheme and statutory provisions and then the pension debit applies.

Clause 29(3) would, however, alter the basis of calculating benefits by reducing the member's guaranteed minimum pension for the purposes of calculating revaluation under Schedule 3 to the Pension Schemes Act 1993.

In terms of Clause 28, the member's benefit continues to be calculated as if the pension sharing had not taken place. When the member's benefits come into payment on his retirement--the future benefit referred to in Clause 28(2)--a negative deferred pension is calculated and deducted at that time. If the member's GMP is reduced in terms of new Section 15A at the time of the order, that would alter the method of calculating the member's benefits as a scheme would no longer test its benefits against the full GMP or calculate revaluation and protection based on the full GMP. The member's total benefits are already reduced by Clause 28(1) once they come into payment, so there is no need for any special provision for GMP.

We must ensure that these clauses are workable before they become law. I accept that the Minister's department has gone some way to be flexible in this matter in correspondence with the Law Society of Scotland. However, the society has made it clear that it does not feel that the concessions go far enough. Clause 29(3) should therefore be deleted. I beg to move.

Baroness Hollis of Heigham: My Lords, Amendments Nos. 82 and 83 proposed by the noble Lord would result in an inconsistency in the legislation on pension sharing and the general rules on contracting out. In particular, it would pull the provisions in Clause 29 out of line with those in Clause 28. The latter clause makes provision for each qualifying benefit which forms part of the member's shareable rights to be reduced by the appropriate percentage specified in the pension sharing order.

Perhaps I may briefly explain the function of Clause 29(3). For consistency with the provisions in Clause 28, this subsection inserts a new Section 15A into the Pensions Schemes Act 1993 that provides for the reduction of the guaranteed minimum pension as a result of a pension debit. The practical effect of

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Section 15A is that the scheme trustees will be discharged of their liability to pay a full GMP to the member whose rights are subject to a pension debit.

As noble Lords are no doubt aware, employers making occupational pension provision can contract their employees out of the state earnings-related pension scheme. Prior to 6th April 1997, the contracting-out bargain required employers operating salary-related schemes to pay a minimum level of pension. That was called the GMP. From 6th April 1997 individuals no longer build up an entitlement to a GMP for future service; instead, the scheme has to satisfy an overall test of quality.

Section 15A puts it beyond all doubt that schemes can pay a reduced GMP as a result of a pension sharing order or agreement without breaking the contracting-out rules. In the absence of Section 15A, members with GMP rights whose pension rights were reduced by a pension sharing order might consider themselves as remaining entitled to a full GMP and take steps to secure it. That would be contrary to the policy intention and could leave schemes at risk of having to foot the bill for the part of the pension debit relating to the GMP.

I hope that that brief explanation has reassured the House, and in particular the noble Lord, Lord Astor, that Section 15A is indispensable to the correct operation and proper interpretation of the legislation. It provides an important protection for trustees who put a reduced GMP into payment when the member retires. I therefore urge the noble Lord to withdraw his amendment.

Lord Astor of Hever: My Lords, the House will be grateful to the Minister for that full reply. In the light of what she has said, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendment No. 83 not moved.]

Clause 34 [Requirements relating to pension credit benefit]:

Baroness Hollis of Heigham moved Amendment No. 84:

Page 42, leave out lines 28 and 29.

On Question, amendment agreed to.

Clause 43 [Interpretation of Chapter I]:

[Amendments Nos. 85 and 86 not moved.]

Lord Astor of Hever moved Amendment No. 87:

Page 48, line 32, after (“(1)") insert--
(“(i) where the benefits secured by the annuity are payable to the trustees of a trust, to the trustees of that trust, and
(ii) where the benefits secured by the annuity are payable to the beneficiaries").

The noble Lord said: My Lords, in moving this amendment I shall speak also to Amendment No. 88. These are probing amendments to establish who is responsible for pension arrangements in terms of the Bill.

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In view of the Minister's earlier comments tonight, I hope that she will accept that I merely seek clarification. The amendments would remove any ambiguity which currently exists in relation to who is responsible for pension arrangements. There is doubt as to who would be responsible in the case of a buy-out policy written under the trust.

One argument is that the order applies to the insurer and that that restricts the amount payable to the trustees. The other argument is that the insurers should pay the money to the trustees and then the trustees ought to be responsible for implementing the order.

The amendments remove that ambiguity and make it clear that the trustees are always the “responsible person" and that the insurer would come in as responsible person only if there were no trustees. I beg to move.

2 a.m.

Baroness Hollis of Heigham: My Lords, we have heard that Amendments Nos. 87 and 88 are intended to modify the definition of “person responsible for a pension arrangement". I am grateful to the noble Lord for explaining the reasons behind the amendments. I agree with him that where specific definitions in legislation lack clarity, we should, as far as possible, try to correct that. To that end, these are helpful amendments. However, I do not accept that the definitions to which these amendments refer are unclear. I understand that in discussion with officials the National Association of Pension Funds has indicated that it is content with the current definitions as drafted.

The Bill places various obligations on persons responsible for pension arrangements. The term “pension arrangement" is a new definition. It primarily covers occupational and personal pension schemes, but it also includes other types of pension provision, such as retirement annuity contracts, buy-out policies and insurance policies used to discharge liability for the pension credits acquired by a former spouse as a result of a pension sharing order. This is because we want pension sharing to be available in respect of all pension rights where it is practical for those rights to be shared, not just pension rights held in an occupational or personal pension scheme.

There will be a number of obligations on persons responsible for pension arrangements; for example, to provide information and valuations and to implement pension sharing orders within specific time-scales. We believe that Clause 43(2) is clear about who is responsible for meeting these obligations. In cases where rights are secured under an annuity contract or insurance policy, we believe that it is appropriate for the responsibility to rest with the annuity provider or the insurer, even in those cases where the policy is written under trust; that is, where the benefits are paid to the pension scheme trustees. With these types of pension arrangement the insurer is generally responsible for the day-to-day

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administration of the annuity contract or insurance policy, while the trustees usually have only a peripheral role. In our view, therefore, it would be an unnecessary burden to place the responsibility for the arrangement on the trustees in such cases as the amendment suggests.

If, exceptionally, an annuity provider or insurer has difficulty in implementing a pension sharing order because of the action or inaction of the trustees of a pension scheme, OPRA will take this into account in determining what needs to be done and has the power to impose sanctions. Again, we do not believe that there is a case for shifting responsibility to the trustees. I hope that that clarifies the position and that, in the light of my explanation, the noble Lord will feel able to withdraw his amendment.

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