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The noble Baroness said: My Lords, this group of government amendments makes adjustments to Clause 124, entitled "Eligible schemes", and Clause 135, entitled "Board to act as creditor of the employer".
The first amendment to Clause 124 will enable regulations to prescribe that a scheme is to be treated as an eligible scheme when it would otherwise lose its eligibility status during an assessment period. That is necessary to enable all the subsequent provisions to apply.
The second amendment to Clause 124 introduces a regulation-making power to exclude schemes from the PPF, including the requirement to pay the levy in certain circumstances. We shall use that power to exclude schemes when, outside an assessment period, the scheme trustees have compromised the Section 75 debt, and when such an arrangement means that members would receive less than the current PPF level of benefits.
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The final amendment is to Clause 135 and is linked to the amendment on compromise agreements. This amendment will ensure that the board will have no more power than the trustees would have had in any insolvency arrangement with the employer. It has been introduced following an opposition amendment tabled in Committee and further consultation with the Institute of Chartered Accountants in England and Wales.
We have again responded to the debate in your Lordships' House and have brought forward what we hope is an appropriate amendment, one that has been tabled very much in response to our Committee discussions. I hope that noble Lords understand the intention behind these amendments and I urge their acceptance. I beg to move.
Lord Higgins: My Lords, these provisions certainly do arise from our previous discussions. However, when the noble Baroness speaks of a "compromise agreement", is she referring to what is normally known as a Bradstock agreement?
"(3) Regulations may provide that where
(a) an assessment period begins in relation to an eligible scheme (see section 130), and
(b) after the beginning of that period, the scheme ceases to be an eligible scheme,
the scheme is, in such circumstances as may be prescribed, to be treated as remaining an eligible scheme for the purposes of such of the provisions mentioned in subsection (4) as may be prescribed.
(4) Those provisions are
(a) any provision of this Part, and
(b) any other provision of this Act in which "eligible scheme" has the meaning given by this section.
(5) Regulations may also provide that a scheme which would be an eligible scheme in the absence of this subsection is not an eligible scheme in such circumstances as may be prescribed."
The noble Baroness said: My Lords, this amendment has been tabled in my name and that of my noble friend Lady Gibson of Market Rasen. The situation the amendment addresses is where trustees propose to reach an agreement with the employer to waive a debt owed to them, enabling the employer to stay solvent.
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The situation could arise where an employer, unable to fund the pension scheme, puts forward a proposal whereby the scheme will wind up in deficit. Ordinarily, that would trigger an obligation on the part of the employer to make up the deficit under Section 75 of the Pensions Act 1995, but the employer cannot afford to meet it. Under the agreement which it reaches with the trustees, this debt is waived in whole or in part, the scheme winds up with an unmet deficit and benefits are cut. Waiving the debt, however, means that the employer is saved and no insolvency proceedings are needed.
This situation is possibly not covered in the Bill as drafted. To fall within Clause 125, which requires the PPF to take responsibility for the scheme, the employer must be insolvent. To fall within Clause 127, which enables the trustees to call in the Pension Protection Fund, they must be satisfied that the employer is unable to meet its debts. Arguably, the trustees could refer the scheme to the board under this section on the basis that the employer is unlikely to be able to continue as a going concern, the requirement of Clause 127, unless the trustees are prepared to let it.
Clause 127 deals with the situation where the trustees are obliged to apply to the board of the PPF for the board to assume responsibility for the scheme. This amendment extends the obligation to the situation where the trustees form the view that the employer can be saved only if the trustees will agree to waive the debt owed by the employer. They would then have the obligation to make an application to the board for the board to assume responsibility. That would not require the trustees to cease discussions with the employer. Recent experience shows that a compromise can be reached with the employer which will deliver better benefits than perhaps might be provided by the PPF. In other words, the trustees could put the board on notice, and the board should consider whether to take the scheme under its wing. An assessment period commences and the board must consider whether a scheme rescue would be possible. The trustees are not prevented from continuing negotiations which might produce a better out-turn for members than the PPF will deliver.
As we know, the Government agreed to an earlier amendment of mine that one half of the trustees should be employee trustees. We expect that those trustees will have an opportunity to receive appropriate training. I am grateful for that concession on the part of the Government because I am certain that properly trained employees will take into consideration all the benefits accruing to scheme members as well as the interests of both scheme members and employees generally. I beg to move.
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