These are purely consequential drafting amendments necessitated by subsection (7) of Clause 18, which was incorporated in the Bill on Report in this House. When the Government accepted that amendment, we did so on the understanding that it might be necessary to make further consequential amendments. These amendments are required.
Lords amendment: No. 10, in page 18, line 32, at end insert—
(7A) In section 40(3) of the Pensions Act, after the words "the rule has taken effect" there shall be inserted the words "except that the rule may also accord priority, on a winding up occurring after an earner has attained normal pension age, to liabilities of the scheme in respect of pensions and other benefits to which he will be entitled on ceasing to be in employment or to which the earner's widow or widower or any dependant of the earner's will be entitled on the earner's death".
I beg to move, That this House doth agree with the Lords in the said amendment.
Section 40(3) of the Social Security Pensions Act 1975 provides that for an occupational pension scheme to be contracted out it must contain a rule whereby any liabilities of the scheme in respect of certain items are accorded priority on a winding-up. These liabilities include guaranteed minimum pensions, equivalent pension benefits under former legislation, State scheme premiums, and pensions and other benefits in respect of which entitlement to payment has already arisen. The effect of this amendment is to add optional extra categories of pension to the existing categories.
It has to be admitted that some confusion has arisen over what is meant to be covered by Section 40(3)(c) of the Act. It seems to have been originally intended that the priority liabilities should among other things, include postponed pensions and other benefits which would have been in payment but for the fact that the beneficiary had remained in employment after reaching normal pension age. Legal advice strongly suggests, however, that such pensions to the extent that they exceed the guaranteed minimum pension are not in fact included in the priority categories in Section 40(3). Moreover, it appears that certain schemes have been under the belief that prospective widows' pensions where the earner has qualified for his own pension would also be in the priority categories, and have altered their rules accordingly. Certainly the Government would not want to disturb any rule giving priority to such a widow's pension.
At this stage, it is clearly undesirable that schemes which have brought their rules into conformity with Section 40(3) as it now stands should be required to amend their rules yet again. It is equally undesirable that schemes which have, in all good faith, extended their priorities to conform with what they understood were the Act's priority requirements should be required to amend their rules yet again so as to reduce their priority categories. This amendment therefore gives schemes the option of including the extra categories as priority ones, so that all schemes which have priority rules either conforming with Section 40(3) as it now stands or including any or all of the extra categories specified in the amendment will satisfy the priority requirements for contracting out.
The Government are indebted to the pensions organisations, and particularly to the Life Offices Association, for their help in bringing the difficulties to notice and in helping to identify the sort of corrective action which would be most likely to meet the general needs of the situation. I accordingly commend the amendment to the House.
Once again the Government have been wise in dealing with this matter in a sensible manner. It may seem strange for one to say that, but obviously it is a highly complicated matter. The fact is, however, that the amendment removes the need for much further complication by the private pensions interests outside. I welcome that.
Unlike the Minister's noble Friend, Baroness Phillips, in another place, I do not propose to use this amendment as an occasion for asking a question about the cohabitation rule. That may be an interesting subject but it does not seem to be wholly relevant, and I shall save the Minister the embarrassment of having to reply to such a question.