Report (1st Day)
Lord Davies of Oldham (Deputy Chief Whip (House of Lords), HM Household; Labour)
My Lords, we debated this issue substantially in Committee and I appreciate the noble Baroness's concern. This is an important issue. I had hoped that I had allayed that concern with the government response on that occasion, but obviously that is not the case. I made it clear, and the noble Baroness reflected that fairly, that it was not the intention of the authorities to make provision in a transfer instrument or order which had the effect of interfering with—and by this, I mean diminishing—a person's accrued pension entitlements. At that time the noble Baroness asked why, if this was the intention of the authorities, provision to that effect was not made in the Bill. I understand that she has returned to the issue because I resisted then.
Clause 71 is important. It may be necessary to make provision in a transfer instrument or order in respect of a pension scheme for the purposes of effecting the transfer. For example, if a failing bank is part of a group of companies, then all group employees may participate in the group's pension scheme. In this situation, if a deposit-taker is transferred from the group, it is likely to be necessary for the employees of the bank to be transferred to a separate pension scheme. The relevant authority may make provision to transfer the employees from the group pension scheme and establish a new scheme, or transfer the employees into the transferee's pension scheme for all future service benefits.
Provision may be made, therefore, in the transfer instrument or order to enable the transfer of the scheme, or, for example, it may enable creation of a new scheme. This would be the case in normal commercial transactions, such as takeovers or de-mergers. Following this, consequential changes to pension schemes may be necessary. This may include consequential provisions relating to accrued rights. For example, we may need to specify who will continue to fund the scheme following the transfer. Where a partial transfer has been affected, we may need to specify apportionment of the contribution rates to the scheme between the transferor and transferee. We may also need to specify other matters of succession from one principal employer to another. That should not be controversial. Indeed, it is difficult to see how the power would work at all if it could not make such consequential provisions. The noble Baroness's amendment could prevent those consequential provisions being made, which is why we cannot accept it.
I suspect that the noble Baroness does not intend to wreck all the schemes but that is the Government's view of the effect of the amendment and it is why we cling so strongly to the clause. It is not intended that Clause 71 will be exercised to reduce accrued rights. I made that very clear in Committee and I am happy to reassert it. There is absolutely no question of using this clause to carry out a raid on people's pension schemes. That would be counter to the special resolution objectives, and it would infringe convention rights and would therefore be prohibited by this Bill and European legislation.
I shall explain this point further. The authorities must act proportionately in exercising the powers under Part 1 of the Bill. They must balance broader public policy interests with those of private individuals, including individuals' convention rights. For example, Article 1 of Protocol 1 of the European convention specifies that a person is entitled to the peaceful enjoyment of his possessions, and this includes economic interests such as an entitlement to a pension. This is a qualified right—that is, the authorities may interfere in that right if that interference is lawful and justified in the public interest. However, the authorities will, as in the case of any other exercise of powers under Part 1, only take steps necessary for the purposes of the resolution.
Of course, the authorities will also have regard to the special resolution objectives. Objective 5 provides that the authorities must avoid interfering with property rights in contravention of a convention right. We will have regard to that in considering making provision in respect of a pension scheme.
As such, we do not think that the amendment is necessary or appropriate, but Clause 71 certainly is. The clause gives us the scope to make the consequential amendments to pension schemes that may be necessary. It is also suitably limited by the special resolution objectives and the European convention so that action cannot reasonably be taken to diminish accrued rights. That is why I was so emphatic on this point in Committee.
I hope that the noble Baroness will appreciate that we have examined this matter with the greatest thoroughness. She has raised a very important issue concerning the special resolution procedure, but the Government believe that Clause 71 meets all objectives, including those of ensuring that individuals' pension rights cannot be diminished. With that assurance, I hope that she will feel able to withdraw her amendment.