My Lords, I have it in command from Her Majesty the Queen to acquaint the House that Her Majesty, having been informed of the purport of the Pensions Bill, has consented to place her prerogative and interest, so far as they are affected by the Bill, at the disposal of Parliament for the purposes of the Bill.

Read a third time.

Clause 4 [Regulator's functions]:

moved Amendment No. 1:

Page 2, line 30, leave out from "in" to end of line 31 and insert "subsection (3) of section 9 must, by virtue of subsection (2) of that section, be discharged by the committee established under that section,"

My Lords, in moving Amendment No. 1, I shall speak also to the other 35 amendments in the group. It gives me particular pleasure to bring forward these amendments because, as noble Lords will see from the Marshalled List, the noble Baroness, Lady Hollis, has added her name to the amendments and therefore I have every reason to believe that they will be accepted by your Lordships' House.

I should like to place on the record my thanks to the Minister not only for listening to our debates on the issues lying behind the amendments, but also for ensuring that her officials assisted in the translation of those issues into the amendments before noble Lords today. I am well aware that with a Bill as complex as this, and to which it has been necessary to introduce so many government amendments, the last thing officials wanted in the final week of our consideration was to be told by a Minister to be helpful to an Opposition Peer. But the Minister's officials were both helpful and efficient and I should like to record my thanks to them for that.

I shall not labour the amendments. We discussed the Government's arrangements for the bodies created by the Bill both in Committee and on Report, prompted by amendments tabled by my noble friend Lord Lucas. I was particularly concerned that the proposals in the Bill to create a non-executive committee undermined the unitary nature of the boards that were being created.

Amendments Nos. 1 to 12 and 74 to 79 deal with the Government's arrangements for the regulator. Instead of a non-executive committee under Clauses 8 and 9 with a long list of functions, the effect of the amendments is to require a committee of the regulator's non-executive members to deal only with internal control and remuneration matters. This is fully in line with modern corporate governance practice in both public and private sectors.

In addition, the reporting requirements of Clause 12 have now been adjusted to ensure that the regulator's board as a whole reports on matters such as strategy, performance, targets and objectives, including how it will be monitored by the regulator. The remaining amendments in the group deal with the pension protection fund in a very similar manner.

In my view, the bottom line of the amendments is that the governance arrangements in the Bill are strengthened rather than weakened. I hope that the amendments will find favour with the House. I beg to move.

My Lords, the Clerks had to consider whether it was legitimate for the Government to support and add their name to the amendments of a Peer who, for this purpose, was appearing as a Back-Bencher. However, we decided in the greater interest of the public that it was the wise way to go. I am therefore pleased to share the moving of these amendments in regard to the non-executive functions of the pensions regulator and the PPF with the noble Baroness, Lady Noakes.

I thank the noble Baroness for her contribution in this matter and for her warm words of appreciation for the work of the officials. As she said, there is nothing more irritating than having to draft 35 consequential amendments at the last moment, as well as redrafting the original, in order to meet the express views of the House.

The noble Baroness has described very well the purpose of the amendments. They serve two main functions. Basically, they ensure that some key functions of both the pensions regulator and the board of the PPF are to be designated as non-executive functions, and for a committee to discharge them—for example, remuneration, review of internal finance and control functions. But the list of non-executive functions is now much shorter, which gives the regulator and board greater flexibility. So it moves away from a non-executive director board.

I confess that I am agnostic about these additional functions and the way that we have moved. However, if the noble Baroness is right that there should not be this kind of divided board, the practices and procedures of both the fund and the regulator will be stronger for it. If, however, she is wrong, the board under these amendments will retain full discretion to introduce such an arrangement. It seems to me that it is a win/win situation in which we delegate the decisions downward from government to the board and the fund on the ground. It is a very wise way forward.

I am delighted to support the noble Baroness. I thank her and, like her, I commend the amendments to the House. I should be rather taken aback if there were any opposition to them.

My Lords, those of us who have had practical experience of such boards recognised in the earlier discussions that if you were to set up an organisation within the board itself it might not be as unified as it otherwise would be and therefore less effective.

The way in which the Government have reacted is typical of how we have sought to improve the Bill. An enormous list of changes has been made as a result of debate, quite apart from those which the Government have introduced and those upon which we have had to vote. These amendments are in addition to that very large list. I join with my noble friend in expressing our appreciation to the Government for the way in which they have acted in this respect and to the officials who have carried out the drafting.

My Lords, we on these Benches support the amendments. We are pleased that they have emerged in this way. We supported them in Grand Committee and we are happy to support them now.

My Lords, I am in the pleasant position of having agreement on all sides of the House. If this is what happens when the noble Baroness, Lady Hollis, is agnostic, I look forward to future occasions when she is a true believer.

On Question, amendment agreed to.

Clause 8 [The Non-Executive Committee]:

moved Amendment No. 2:

Leave out Clause 8.

On Question, amendment agreed to.

Clause 9 [Functions exercisable by the Non-Executive Committee]:

moved Amendments Nos. 3 to 9:

Page 4, line 25, leave out subsection (2) and insert—

"(2) The Regulator must establish a committee to discharge the non-executive functions on its behalf.

(2A) Only non-executive members of the Regulator may be members of the committee." Page 4, line 29, leave out paragraphs (a) to (d). Page 5, line 3, leave out "Non-Executive Committee" and insert "committee established under this section" Page 5, line 6, leave out "Non-Executive Committee's" and insert "committee's" Page 5, line 7, at end insert— "( ) The committee may establish sub-committees, and the members of any such sub-committee— (a) may include persons who are not members of the committee or of the Regulator, but (b) must not include persons who are executive members or other staff of the Regulator." Page 5, line 8, leave out "Non-Executive Committee" and insert "committee" Page 5, line 12, leave out "Non-Executive Committee" and insert "committee" On Question, amendments agreed to. Clause 12 [Annual reports to Secretary of State]:

moved Amendments Nos. 10 to 12:

Page 7, line 18, after "prepared," insert "including the matters mentioned in subsection (2A),"

Page 7, line 19, leave out from "prepared" to end of line 20 and insert "under subsection (4) of section 9 by the committee established under that section."

Page 7, line 20, at end insert—

"(2A) The matters referred to in subsection (2)(a) are—

(a) the strategic direction of the Regulator and the manner in which it has been kept under review;

(b) the steps taken to scrutinise the performance of the Chief Executive in securing that the Regulator's functions are exercised efficiently and effectively;

(c) the Regulator's objectives and targets (including its main objectives as set out in section 5 or in any corresponding provision in force in Northern Ireland) and the steps taken to monitor the extent to which they are being met."

On Question, amendments agreed to.

Clause 39 [Contribution notices where avoidance of employer debt]:

moved Amendment No. 13:

Page 28, line 31, leave out "11th June 2003" and insert "27th April 2004".

My Lords, in moving Amendment No. 13, I shall speak also to Amendment No. 27, with which it is grouped.

I agreed to bring forward these amendments during the debate at Report stage. They relate to retrospection. Your Lordships were concerned that the power to issue a contribution notice in relation to acts occurring after 11 June 2003 was not sufficiently clear in the Secretary of State's announcement and that, as such, this retrospection could be challenged in the courts.

I said at the time that the Government believe that the limited retrospection proposed was proportionate as a matter of law; that we had taken advice and we thought that we were entirely secure. However, we accept that some might seek to challenge this, resulting in the regulator being tied up in court for a number of years and unable to act to protect members of the PPF. This would benefit only lawyers. It is for this reason that I have tabled these amendments which seek to limit the retrospective effect of both contribution notices and restoration orders to acts, or deliberate failures to act, in transactions at an undervalue which took place on or after 27 April 2004—the date suggested by the noble Lord, Lord Oakeshott.

When the clauses were debated in Committee in the other place and at the time we were discussing it, this seemed to be the way forward. I believe everyone feels that there is now a fair and reasonable playing field. Given that the Government have moved in the way I hoped we would be able to, I am confident that your Lordships will accept the amendment. I beg to move.

My Lords, the Government have again showed a flexible attitude in this difficult part of the Bill concerned with moral hazard and so on. It is entirely appropriate that the noble Baroness should bring forward these amendments, which we welcome.

My Lords, having suggested the date in a previous debate, I am very happy to support the middle way as presently proposed.

On Question, amendment agreed to.

moved Amendment No. 14:

Page 28, line 41, leave out "include those persons who" and insert "shall not include those persons who do not"

My Lords, from the wording of the amendment it is clear that this is a technical point. However, it is not unimportant. I shall deal with it as rapidly as possible but it is important that I make clear what is involved.

The clause we are seeking to amend is concerned with the tests that should be applied in relation to the issuing of a contribution notice where there is avoidance of employer's debt. We suggested at an earlier stage that the "knowingly assists" tests should be put in the negative—that is to say, the parties to an act or failure to act should not include those who do not knowingly assist.

The Government had some difficulty in understanding the point. It may be that I did not explain it as precisely as I might have done. We realise that the cause of the misunderstanding between the Government and ourselves is on the meaning of "party" in Clause 39(3)(a). If "party" means, broadly speaking, someone who actually signs documents or gives instruction on the act or failure to act, or otherwise actively participates in such an act or failure, the Government's approach is understandable. The Government will aim to catch those who sign up to an order or act or failure, and those who knowingly assist. In these circumstances the amendment I am proposing would be unnecessary. However, the Government have not defined "party"; there is therefore a danger that the party could be construed to mean anyone deemed to be connected with an act or failure to act, however remote. Hence, we are trying to limit that extremely wide range of people only to those who knowingly assist, which is why we have put the test in the negative. If we can misunderstand what the Government are driving at, then it is possible that the courts may do so and there will be subsequent disputes.

There are two ways around the dilemma. The Government can indicate that by "party" they mean almost anyone remotely connected with an act or failure and accept our amendment to limit that wide set of people to those who knowingly assist. Alternatively, they can indicate that by "party" they mean only those who, generally speaking, actually execute documents associated with the act or failure. In that case, we could reasonably withdraw our amendment. Presumably the well known Pepper v Hart situation would apply, in that what the Minister says in relation to this technical, but not unimportant, point would be taken into account by the courts.

So I hope that the Minister will either accept the amendment or clarify the situation in the way in which I have described. I beg to move.

My Lords, I am grateful for the way in which the noble Lord has introduced his amendment. I hope that I may be able to elucidate the matter in such a way that there is no ambiguity about it.

Our worry about accepting the amendment, which was the noble Lord's first option, is that it would create a dangerous loophole within the moral hazard provisions, which could allow those who are parties to the act of avoiding pension liabilities to avoid responsibility and prevent the regulator recovering any sum from them in relation to that avoidance.

Clause 39(6)(a) provides that the parties to an act or a deliberate failure to act include those persons who knowingly assist in that act or deliberate failure. The purpose of Clause 39(6)(a) is to ensure that a person cannot avoid a contribution notice by arguing that they were not a party to the act or deliberate failure, even though they had been the person who had made the act or deliberate failure to act happen.

The amendment would limit the people who can be a party to an act or deliberate failure to act to those people who knowingly assisted in that act or deliberate failure to act. It is possible that a person could be a party to an act or deliberate failure without having knowingly assisted in that act or deliberate failure. For example, if X enters into a contract with Y, then X is a party to the contract. However, it could be argued that X is not a person who has knowingly assisted with entering into that contract because X did the act—entering into the contract—rather than assisting with it. The amendment could prevent the regulator being able to issue X with a contribution notice, which runs entirely contrary to the policy.

It is unlikely that a person could be a party to an act or deliberate failure without that person realising that they are such a party. However, we cannot limit the imposition of contribution notices to people who were knowingly parties to acts or deliberate failures. This could leave the door open to people engineering a situation in which they made sure they did not have the requisite knowledge, or, at least, it was impossible to prove knowledge, something which we do not wish to encourage.

The regulator has to consider it reasonable to impose liability on a person. One of the factors that must be considered is the degree of involvement the person has had with the act. If, for example, a person had no conscious involvement in the act or deliberate failure, the regulator would take account of that in considering whether it was reasonable to issue a contribution notice.

Let me go over again the circumstances in which a contribution notice could be issued. It can be imposed only if a person was a party to an act or deliberate failure to act; and one of the main purposes of the act or deliberate failure was to prevent the recovery of the whole or any part of the debt that may be due; or, otherwise than in good faith, to prevent such a debt becoming due, perhaps through compromising the debt and so on; and the person is the employer or a person who is connected or associated with the employer. The fourth insurance net, so to speak, is that the regulator considers it reasonable to impose liability on the person to pay the amount specified in the notice.

When determining whether it is reasonable or not, the regulator must consider: the degree of involvement of the person in the act or failure to act; the relationship which the person has or has had with the employer, including, where the employer is a company, whether the person has or has had control of the employer; any connection or involvement which the person has or has had with the pension scheme; and if the act or failure to act was a notifiable event (under Clause 63), any failure by the person to comply with any obligation imposed on him to notify the regulator; all the purposes of the act or failure to act, including whether a purpose of the act or failure was to prevent or limit loss of employment—we are coming to that in a later amendment—and the financial circumstances of the person.

During the summer consultation, the issue of who could be served with a contribution notice was discussed. There was support for the Government's position that a person who was a party to an act or deliberate failure to act or who knowingly assisted in that act or deliberate failure should be potentially liable. It was agreed that there was sufficient protection for the innocent person who knowingly assists with the act, such as the secretary who types the contract, as that person would have to satisfy the other conditions for the imposition of a contribution notice. On the grounds that I have specified, they would not.

I have spoken at some length because of the noble Lord's reference to Pepper v Hart. I see that the question of where liability might fall could be of concern to some people. I hope that, with that rather full explanation, given all the safeguards in place and the need to engage the person who required the act to happen as well as those who assisted in it, which was one of the limitations of the proposal, the noble Lord will feel able to withdraw the amendment.

My Lords, I am most grateful to the noble Baroness. I understand why she does not feel able to accept the amendment, and I shall be withdrawing it. It is not always easy on these occasions to grasp precisely what is being said. I may be proved wrong when I read Hansard tomorrow, but my understanding is that the noble Baroness has met the points which we have sought to establish. If that is so, I am grateful. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 43 [Section 39 contribution notices: clearance statements]:

moved Amendment No. 15:

Page 33, line 23, at end insert—

"(2A) A clearance statement may contain terms that impose such obligations on the applicant, and such restrictions on the actions of the Regulator, as may be prescribed."

My Lords, in moving Amendment No. 15, I should also like to speak to the other amendments in the group.

In Committee, the Minister challenged me to go out and find some people in industry who would support the views I was putting forward on the implications of these clauses. I accepted her challenge, and I have been totally defeated—absolutely crushed. I went out into the market place, blew my bugle, and nobody came. Even my e-mails to certain senior persons in certain senior organisations were not returned. No, that is not entirely true. The Society of Turnaround Professionals—the STP—was there, but I suspect that, in honour of this occasion, its initials should stand for Sancho T. Panza.

The Minister's officials have been, throughout this episode, entirely courteous and helpful. In the correspondence that has taken place since Report, the Government's position has probably moved a little, so that we are closer to the spirit of Amendment No. 16 than that which would automatically be gathered from what the noble Baroness said on Report—that we are looking, as far as Clause 39 is concerned, at the conditions at the time. If somebody has not been clear enough or has not made it clear enough what the position is, the clearance statement can be revisited, not just because markets change some years down the road.

In Clause 39 and later provisions, I find it difficult to see how the new interpretations can be fitted within the wording. However, if the noble Baroness is happy—well, she has the troops and I do not. I shall certainly not think of pressing my amendments, but I beg to move.

My Lords, that honest and straightforward contribution from the noble Lord, Lord Lucas, is entirely in character. It is useful that he explored the position; it has reinforced our views that the Government have the balance about right.

My Lords, the Government initially made various concessions on introducing a clearance procedure. My noble friend Lord Lucas has been assiduous in seeking to clarify exactly what that means. It may not be very easy to make sure that a clearance procedure operates so that it covers everyone in every conceivable circumstance. I believe that the Government probably have the matter right, and we look forward to hearing what the noble Baroness has to say.

My Lords, I thought for one glorious moment that the noble Lord, Lord Lucas, was going to withdraw his amendments rather than seek a response from me. I was trying to think of the most helpful thing that I could do. Given that his concern was to see under what situations the insurance policy of the clearance statement might or might not hold, it would be worth spending a moment or two reading into the record two examples—one when it would hold and one when it clearly would not. However, as the noble Lord said, it would not stop any company revisiting the issue if it so wished.

I will start with the example of a contribution notice. If applied to, the regulator may issue a clearance statement binding itself from issuing a contribution notice in the circumstances described in the application. This statement can be given both before and after the act or failure to act has taken place. Clearance may be applied for on a number of grounds—for example: that the applicant is not a party to an act or a deliberate failure to act one of the main purposes of which was to prevent the recovery of the debt or to prevent such a debt becoming due and so forth, and it would not be reasonable to impose any liability on the applicant.

Let me explain my examples. Take an underfunded pension scheme that is attached to a company within a group of companies. The group as a whole is struggling. When seeking to renew their borrowing facilities, the lenders make it clear to the group that, although the pension scheme has outstanding liabilities, no further borrowing will be possible and indeed, existing facilities may be withdrawn. The group seeks alternative methods of funding, but is unable to find any. Without increasing its borrowing the group is facing insolvency and the loss of all jobs—1,000 or more.

The group considers alternative methods of reducing the cost of the pension scheme, from reducing future accruals, putting in place a recovery plan and increasing employee contributions, but the lenders are not satisfied with those proposals and continue to threaten the withdrawal of borrowing facilities. The group's only option is to make the company with the pension scheme insolvent. The Section 75 debt will then be due in full, but the scheme will rank alongside the other creditors of that company. The members of the scheme may receive compensation for the loss of their pension from the Pension Protection Fund.

The group has a number of reasons for its actions, the main ones being: to allow it to extend its borrowing facilities, to enable it to continue trading, to prevent the loss of its jobs and prevent the recovery of the Section 75 debt. An application is therefore made by a company in the group to the regulator for a clearance statement providing that it would not be reasonable to impose any liability on that company. The application will provide evidence to show the lenders' position, that alternatives have been considered and the reasons for the decision reached.

The regulator will consider the evidence and issue a clearance statement to the effect that it would not be reasonable in the circumstances to impose any liability under a contribution notice to that company. In deciding to make this statement, the regulator would have considered all the purposes of the act, including, for example, the implications for the jobs. If one month later those 1,000 jobs are lost the purpose of the act has not changed so the clearance statement will still be binding. However, the regulator then, by investigating, may find out that the circumstances were not as described in the application—for example, that evidence from the lending bank shows that it had not threatened to withdraw its lending facilities or minutes of a directors' meeting show that the group had decided to restructure and make redundancies prior to applying for clearance, or a statement is received from a director claiming that the purpose of the act in avoiding the pension liability was to increase profitability.

The regulator may consider that the circumstances in which it was considering issuing a contribution notice were not those described in the application and that there was a material difference. It therefore may consider itself not bound by the clearance statement. As I have already explained, it is therefore the case that Clause 43 clearance would bind the regulator to not issue a contribution notice unless the circumstances in the application for clearance for the act or failure are not the actual circumstances of the act or failure and that the difference is material. There is no disagreement between us on that.

Amendment No. 16 would make the clearance binding unless the regulator was materially and deliberately misled. I believe I have described that.

The amendments also apply to financial support directions (FSDs). I will give noble Lords another example because it is an area that has concerned the House. A company may wish to invest in another struggling company, which has an underfunded pension scheme, provided that it does not at the same time as investing in the struggling company have to guarantee the pensions liabilities. Doing that would make the investment an unattractive investment. The company therefore applies to the regulator for a clearance statement, sets out the recovery plan and details the expected return. The regulator issues a clearance statement, which is all fine.

Five years later, the investor company has turned the struggling company around. However, it has kept to the recovery plan and is making the return on investment that it detailed in the application. Therefore, the circumstances as originally outlined still exist and the regulator continues to be bound by the clearance until there is a material change in the circumstances.

However, were a material difference in circumstances to arise, or were there subsequently to be profitability, we would expect that pension scheme to be refloated. Again, there is no disagreement on that around the House.

With that detailed explanation of two examples, I hope that, although it was useful to raise the issue again, the noble Lord will none the less feel that he can withdraw his amendments.

My Lords, I am extremely grateful to the noble Baroness for that explanation, which has clarified a good deal some of the worries that were generated by our discussion at Report. I suspect that we will be able to let this Bill go and see how it works in practice. Given the general good will of the department, I am sure that it will choose a superb regulator and things will go well enough. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

[Amendments Nos. 16 to 18 not moved.]

Clause 45 [Meaning of "service company" and "insufficiently resourced"]:

moved Amendment No. 19:

Page 35, line 24, leave out from "the" to first "the" in line 25 and insert "value of the resources of the employer is less than"

My Lords, I listened carefully to comments made by noble Lords opposite in relation to the calculation of net assets. I tabled these amendments following the suggestion made by the noble Baroness, Lady Noakes, of replacing net assets with resources. The test now means that an employer is insufficiently resourced if at a particular time the value of its resources is insufficient to meet the prescribed percentage of the estimated Section 75 debt and there is a person—who falls within subsection 6(b) or (c) of Clause 44—the value of whose resources is not less than the difference between the value of the employers' resources and the prescribed percentage.

Regulations will determine the meaning of resources. That may include matters which would not have been "net assets"—the point made very persuasively by noble Lords opposite. In considering how resources should be defined we will of course take into account those other matters which were drawn to our attention in the debate.

We are continuing to work and consult on the regulations dealing with how resources are to be defined. Of course these regulations will have to ensure that it is clear to all how the regulator will calculate, determine and verify the value of resources. Further help on this has been offered, which we appreciate, by the Institute of Chartered Accountants and we expect others who joined in our summer consultation also to take part.

In the light of that explanation, I reiterate that when we believed that noble Lords on both Benches opposite had a strong argument that resonated with the industry outside, we tried to accommodate that in conjunction with consultation on the regulations. I suspect that noble Lords will be happy to accept these amendments. I beg to move.

My Lords, I briefly thank the Minister for taking away the amendments that we discussed at previous stages of the Bill and producing a very much better version. I am grateful that she listened and am sure that the Bill has been improved as a result of these amendments. Of course, as she herself mentioned, much of the hard work now starts to turn this into practicable regulations. I look forward to seeing those in due course.

Amen, my Lords,

My Lords, one of the delightful things over the past 40 years has been the way in which the views of economists with regard to valuation and so forth have gradually been accepted by accountants. In the earlier debates I was delighted to see that my noble friend, a distinguished member of the accountancy profession, put forward the basic concepts that I used to teach at Yale a long time ago. I am even more pleased that there is general consensus on both sides of the House that the appropriate measure in these circumstances is that the term "resources" should be used, rather than "net assets". I am glad that the Minister has also been persuaded of that. We are very happy that we are making further progress in improving the Bill.

On Question, amendment agreed to.

moved Amendments Nos. 20 to 22:

Page 35, line 28, leave out "who has sufficient net assets to meet" and insert "the value at that time of that person's resources is not less than"

Page 35, line 30, leave out "amount of the net assets" and insert "value of the resources"

Page 35, line 33, leave out "a person's net assets are" and insert "—

(a) what constitutes the resources of a person is to be determined in accordance with regulations, and

(b) the value of a person's resources is"

On Question, amendments agreed to.

Clause 47 [Financial support directions: clearance statements]:

[Amendments Nos. 23 to 26 not moved.]

Clause 53 [Restoration orders where transactions at an undervalue]:

moved Amendment No. 27:

Page 41, line 34, leave out "11th June 2003" and insert "27th April 2004".

On Question, amendment agreed to.

Clause 113 [The Non-Executive Committee]:

moved Amendments Nos. 28 to 34:

Page 83, line 23, leave out subsections (1) and (2).

Page 83, line 31, leave out subsection (4) and insert—

"(4) The Board must establish a committee to discharge the non-executive functions on its behalf.

(4A) Only non-executive members of the Board may be members of that committee." Page 83, line 35, leave out paragraphs (a) to (d). Page 84, line 19, leave out "Non-Executive Committee" and insert "committee established under this section" Page 84, line 22, leave out "Non-Executive Committee's" and insert "committee's" Page 84, line 23, at end insert— "( ) The members of any sub-committee of the committee (established by virtue of paragraph 15(2) of Schedule 5)—

(a) may include persons who are not members of the committee, but

(b) must not include persons who are executive members or other staff of the Board." Page 84, line 24, leave out "Non-Executive Committee" and insert "committee" On Question, amendments agreed to. Clause 115 [Investment principles]: Lord Lucas: moved Amendment No. 35: Page 85, line 28, leave out subsection (3).

The noble Lord said:

My Lords, the amendment was also discussed at Report stage. The Minister had the advantage of us, in that she had some draft regulations which I had hoped that I would see before Third Reading—but I have not.

My Lords, perhaps I may intervene to ask whether other noble Lords have received the draft regulations.

Noble Lords:

No.

My Lords, they would not have been sent out in a blanket fashion to the whole House, but to those who participated in our previous debates.

My Lords, Members on the Liberal Democrat Front Bench have not received them.

My Lords, I apologise.

My Lords, there is little that we can do now. I had hoped that between Report and Third Reading the Government might have considered what had been said and decided that my amendment would be a wise move. If they have not, I shall accept that. But in the hope that it might be accepted, I beg to move.

My Lords, I apologise profoundly, because I checked and was told that the draft regulations had certainly been sent to Members on the Front Benches and to those who had participated in our discussions. I made a particular point of checking and I was told that they had been sent on 11 November. I am therefore somewhat puzzled that they appear not to have reached your Lordships, given that today is 15 November. I am sorry, but we have now re-checked—I am assured that they were sent on 11 November. I apologise, because I had hoped that the draft regulations would have addressed noble Lords' concerns. There cannot have been an error by the department. I must assume that somehow they have been lost in the delivery system. I made a particular effort in trying to ensure that noble Lords received them by Third Reading, as I had promised. I shall try to obtain extra copies and ask the Doorkeepers to distribute them, if that is permitted, so that noble Lords can examine them before we finish today. I am distressed by this failure, which should not have happened.

Clause 115 establishes the requirement that the board must prepare, maintain and review a statement of its investment principles. This has long been a requirement for the trustees of occupational pension schemes. The amendment seeks to remove the power for regulations to set out procedures that the PPF board must adhere to before preparing or revising that statement. I had hoped that our previous debates on this subject had provided reassurance that the provisions in this clause were not designed to give the Government unfettered control over the board's investment principles. In our previous debates I offered to circulate a draft copy of the regulations which I had hoped that noble Lords would have had the opportunity to consider. As I say, I am distressed by the failure and will ensure that noble Lords reveive photocopies today.

During our most recent discussion of this clause, I was asked whether the intentions of subsection (3) could be met by the provisions in subsection (4). Regulations under subsection (4) will be concerned with the form and contents of the statement of investment principles and could not be used to require that the board considers relevant expert advice. That is why we wish to retain subsection (3) to provide for this important regulatory check.

I believe that it is reasonable for the board to be required to follow certain procedures in producing its statement of investment principles. This paragraph is about procedures rather than principles. We have provided the board with appropriate powers covering investment and statements of investment principles. I hope that we have demonstrated that we intend to use the provisions of this subsection in an entirely reasonable manner. Given that this matter relates only to procedures, not to policy control, I hope that the noble Lord, Lord Lucas, will withdraw the amendment.

My Lords, occasionally I fail to persuade the Government of the correctness of my views. This is such an occasion. I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 120 [Annual reports to Secretary of State]:

moved Amendments Nos. 36 to 38:

Page 87, line 11, after "prepared," insert "including the matters mentioned in subsection (2A),"

Page 87, line 12, leave out from "prepared" to end of line 13 and insert "under subsection (6) of section 113 by the committee established under that section"

Page 87, line 13, at end insert—

"(2A) The matters referred to in subsection (2)(a) are—

(a) the strategic direction of the Board and the manner in which it has been kept under review;

(b) the steps taken to scrutinise the performance of the Chief Executive in securing that the Board's functions are exercised efficiently and effectively;

(c) the Board's objectives and targets and the steps taken to monitor the extent to which they are being met."

On Question, amendments agreed to.

Clause 122 [Insolvency event, insolvency date and insolvency practitioner]:

moved Amendment No. 39:

Page 89, line 2, at end insert—

"( ) a liquidator is appointed provisionally by the court under section 135 of that Act."

My Lords, we debated this matter in Grand Committee, but we were not generally happy with the answer. We believe that the amendment is in line with what the Government wish to do and we have retabled it.

As we said at that earlier stage, the purpose of Chapter 2 of Part 2 of the Bill is to require insolvency practitioners to report to the regulator if insolvency events occurred to the employer and the definition of "insolvency event", in Clause 119, is used elsewhere. As currently drafted, Clause 119 does not include the appointment of a provisional liquidator. Therefore, it would be possible for most of the requirements of the Bill relating to an employer in liquidation not to apply for the period of a provisional liquidation.

That would seem to be contrary to the intention of the Bill. Provisional liquidations tend to occur only as a short emergency measure pending a full liquidation. Nevertheless, there are cases when they become protracted. In addition, if the Government accept that the regulator should not have power to issue notices for any act or deliberate failure to act during the period that the legal effects of an insolvency event remain in force—generally while an IP is in place—the provision should also apply during the period of provisional liquidation.

The Government responded to that, but did not fully cover the point. The purpose of Chapter 2 of Part 2 is to put a duty on an insolvency practitioner to notify the PPF board, the regulator and the trustees of a scheme when an employer in relation to that scheme is in such financial difficulties that insolvency procedures apply. The nature of the insolvency event is not significant itself—it merely provides a convenient reference date for the notification procedures. The underlying financial difficulty of the employer is significant.

In other words, the Government have not addressed the underlying point that when an employer is in such financial difficulties that a provisional liquidator is appointed, that should be of concern to the PPF board. Apparently, such situations may continue for two or three years. In an ideal world we would hope that the trustees would be aware that an employer was in such a dire situation, but that is not necessarily the case and it would not be safe for the Government to rely on the trustees to know what was going on. There appears therefore to be a gap in the procedure of ensuring that the PPF board is properly notified in the event of a provisional liquidation.

I hope that that sums up the situation. This amendment would improve the Bill and, no doubt, the Minister will comment. I beg to move.

My Lords, I am grateful for the amendment, which gives me the chance to explain our approach to this matter. Regarding the noble Lord's particular query about how long a provisional liquidator would be in place—our expectation is that it would normally be six to eight weeks.

The amendment relates to the appointment of a provisional liquidator as a "first insolvency event". The court can appoint a provisional liquidator on or after the presentation of a petition for winding up. This is usually because it is satisfied that the assets of the company may be in jeopardy and that a provisional liquidator should be appointed to seek to secure its assets pending the hearing of the petition.

Those appointments—I think that this is the point the noble Lord proposed—have not been included as an "insolvency event" because they are interim measures pending the hearing of a winding-up petition. At that hearing the court may make a winding-up order—which we have already included as an insolvency event; indeed, the winding-up order is the pivotal insolvency event—but it may also decide not to make a winding-up order.

I have checked the statistics on the number of petitions presented and then withdrawn or dismissed. They may be of interest to your Lordships. In the approximately three months from October/November 2003 to December 2003/January 2004, the number of petitions presented was 5,915, both companies and bankruptcies. Of those, 2,700 were dismissed and 715 were withdrawn. So well over half failed to proceed to the next stage. That was the reason for doing this as we have.

Therefore, had we made the appointment of a liquidator an insolvency event as defined by the noble Lord but a winding-up order was not subsequently given at the hearing—as tended not to happen in half the circumstances I outlined—we would have created an artificial interim assessment period before the assessment period, with all the consequential implications for trustees and the PPF as well as the costs on the levy and the subsequent costs to the payers.

Therefore, with those statistics in mind, we believe that it is right to wait until the court decides to make a winding up order before the assessment period begins. However, I should like to assure the noble Lord, Lord Higgins, that if we were later to be persuaded by industry that we should shift our ground on this and that it would be appropriate to include this event as a qualifying insolvency event—though, given the information we have, we do not believe that it is appropriate—we already have the power to do so by regulation under Clause 122(5).

With those assurances, I hope that the noble Lord, Lord Higgins, will be able to withdraw the amendment.

My Lords, I am grateful for that explanation. Obviously, if the delay is only a matter of a few weeks, then, except in extremely dire circumstances, it would not be particularly important. On the other hand, if the matter drags on for two or three years, then it is. However, the noble Baroness has been clear that if it subsequently turns out that this part of the Bill needs changes, then it will be possible to do so by order. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 128 [Duty to assume responsibility for schemes following insolvency event]:

moved Amendment No. 40:

Page 94, line 20, at end insert "and"

My Lords, this group of amendments relates to the Written Statement from my right honourable friend Mr Malcolm Wicks made in another place on Monday. I understand that that Statement has caused considerable interest in the media and in your Lordships' House. I am also aware that there has been some confusion about the Statement, and an idea, which is untrue—I am perfectly happy to enlarge on this if your Lordships wish—that the Statement made the PPF "retrospective". I should like to reassure the House that that is not the case. Moreover, it would be unfair if it were the case.

The Statement made on Monday simply confirmed how existing provisions in the Bill would apply. It has come to our attention from a number of people within the pensions industry that some pension scheme trustees were unaware of how the Bill's provisions would operate. We thought it essential to confirm the position in order to help trustees to make more informed decisions about the future of their pension schemes.

The Pensions Bill states that in order for a PPF assessment period to start, first, an eligible pension scheme must not commence wind-up prior to the introduction of the PPF; and, secondly, for schemes which are subject to UK insolvency law as defined in Clause 122 of the Bill, the sponsoring employer of the scheme must also have a qualifying insolvency event after the introduction of the PPF. So there must not yet be a wind-up, but there must be a qualifying insolvency event. Those are the two key triggers.

The position has not changed and the Statement merely elucidated that. As both the commencement of scheme wind-up and the qualifying insolvency event occur after the PPF has been introduced, the PPF has not, and cannot, become "retrospective". We merely wished to make it clear that if the sponsoring employer had experienced any insolvency events before the introduction of the PPF, those previous events would not in themselves disqualify schemes from entering the PPF. What matters is not that there was an insolvency event but that there was a qualifying insolvency event and, beyond that, wind-up.

Over the past few months we have been looking at whether we should use the power in Clause 128(3)(c). This power would have enabled us to prescribe the circumstances which would disallow an otherwise qualifying insolvency event in relation to a sponsoring employer. The Statement issued on Monday made it clear that we do not intend to use that power. We are therefore now seeking in our amendment to remove this power from the Bill.

In order to maintain consistency in our approach to the PPF entry rules and the fraud compensation application process, we are also proposing to remove an identical reference from Clause 183(8). Removal of this reference may mean that a few more qualifying insolvency events occur in relation to schemes that may be able to apply for fraud compensation.

I think that I am right in saying that the noble Lords, Lord Higgins and Lord Skelmersdale, tabled amendments which have the same effect as ours, to remove this power from the Bill. Parliamentary counsel have drafted the government amendments and are confident that this drafting will achieve what the noble Lords would like it to do. For that reason, I hope that the noble Lord, Lord Higgins, is able to accept the government amendment and to withdraw his own. I beg to move.

My Lords, as the noble Baroness rightly pointed out, the genesis of this amendment arises from the Written Statement that was made to the House last Monday but that, generally speaking, did not become available to the public or ourselves until the Tuesday morning. It was a matter of some astonishment when we discovered that. The noble Baroness did, of course, repeat the Statement made by her right honourable friend in another place. The final section of it read:

"The Pensions Bill provides a power that could be used to exclude schemes that have an insolvency event before the PPF is launched. We wish to make clear that we have no plans to use this power".—[Hansard, 8/11/04; col. WS17.]

Both the noble Baroness's amendment and ours therefore knock out the clause that the Government do not wish to use. That seems appropriate, although I understand that we have had representations today saying, quite the contrary, that we ought to leave it in in case it is needed. But at all events, the Government do not propose to use it. It seems sensible, therefore, to knock it out.

What gave us great cause for concern, however, was that this information was not available to us during our debates last Monday. Moreover, the other place did not have it ahead of oral Parliamentary Questions. I think that it would have been helpful if it had been available.

Another apparent point of substance which gave us cause for concern was that the Government seemed to be moving the boundaries. We come in a later group of amendments to the question of whether there is a gap between the FAS coming in and the PPF coming in—or whether, indeed, instead of a gap there is an overlap. In those amendments, we are seeking to have one of them in place precisely at the moment when the other begins. However, the Written Statement seemed to move the dividing line—assuming that it was neither an overlap nor a gap—to a later date than we had originally expected. The consequence of that would be to shift the responsibility for, for want of a better expression, "bailing out" the pension scheme from the FAS, financed by the Treasury. There is a division of opinion on this; there are nods and shakes of heads on the other side of the House, no doubt recorded faithfully on television, which show a degree of confusion.

The impression was that the dividing line had been moved later in time—for example, in the particular case of, I think, Turner & Newell, and so on. The effect would be to remove the burden and strain on what is undoubtedly a totally inadequate sum for the FAS—£400 million spread over 20 years—and to place that strain on to the PPF. Indeed, all the way through, ever since the Chancellor was pushed into giving the £400 million figure, with no basis for calculating such a figure, the impression has been that he is trying to get out of as much of that as possible.

When we saw the Written Statement, belatedly as I say, our impression was that the Minister was effectively shifting the cost of bailing out such schemes from the taxpayer to the levy payers, who are already suffering severely. That was rather borne out by reports—for example, one in the Times of 12 November which stated:

"The NAPF were infuriated earlier this week when the Minister appeared to break his promise to the industry that the PPF would not be open to companies that became insolvent before April 2005".

If the noble Baroness says all of this is a complete misunderstanding and that there is no such shift, we shall be reassured that the fears expressed by the NAPF, and others, are groundless. However, it is still my impression that what is happening as a result of this Statement is what we supposed; namely, the dividing line did not apply to the date that we thought it did, but was moved to a later date with the consequent adjustment of costs from the FAS to the PPF.

If the noble Baroness assures me that the NAPF and others have misunderstood the situation, we shall need to consider very carefully the way in which she explains that misunderstanding. The Written Statement, which is an unsatisfactory form of announcement in any case in my view, appears to have created considerable confusion and concern. Be that as it may, certainly the case for knocking out the clause that will not be used, and which we and the Government want to knock out, constitutes a good amendment. We are happy to go along with the Government's version of it.

My Lords, I wish to put one matter on the record as a matter of clarification and simplification, of which we are a little short. I have now been handed a copy of the Minister's letter of 11 November to the noble Lord, Lord Higgins, copied to me and others, which I have received. I am bound to say that it includes a draft regulation so to that extent clearly there has been a misunderstanding. The letter concerned various matters. I am happy to confirm that I have received it.

I have listened carefully to the Minister's comments on this amendment and the Written Statement. No doubt she will tell me that it is all there somewhere, but, given the confusion and the concern that have arisen in industry, if she could tell us in words of one or very few syllables what the qualifications are for an employer's qualifying insolvency event, as she described it, I think we would all be clearer.

My Lords, I am grateful to the noble Lord, Lord Oakeshott, for acknowledging that the regulations were tucked away behind a covering letter, if I can put it that way. As I say, they tend to go out in bundles of stuff due to the assiduity of noble Lords' requests for information and comment. Therefore, we package them up. I hope that other noble Lords have also had the opportunity to study that information although I can quite conceive that they may not have noticed the regulations as they are very short and were tucked at the back of the letter. As I say, I am grateful to the noble Lord, Lord Oakeshott, for acknowledging that he at least has received them.

I accept that much concern and confusion has arisen. I hope it will help if I spend a little time trying to track how all of this fits together. We have made reasonably fast progress and, therefore, I do not think that anyone can accuse us of exhausting the patience of the House.

An insolvency event is described in Clause 122. It qualifies if it takes place after a particular day—which is 6 April 2005—and it occurs in respect of an eligible scheme. An eligible scheme is defined in Clause 127, with its consequent regulations, which states that an eligible scheme would not include a money purchase scheme, a single member scheme, a scheme not recognised by the Inland Revenue or schemes such as public sector schemes guaranteed by Crown guarantee. An eligible scheme would not have started wind-up prior to 6 April 2005. Therefore, an insolvency event applies to those schemes that qualify after a particular day in respect of an eligible scheme. That defines "eligible scheme".

Ambiguity arose—that is why we considered that we needed the Statement—as there was a power under Clause 128 which would have allowed us to prevent an insolvency event becoming a qualifying insolvency event. That power would have been used where we feared that trustees had colluded in delaying insolvency. We were trying to avoid a situation of manipulation. That is why the power was originally included in the Bill. However, we have taken advice from insolvency practitioners and the Insolvency Service. They advised us that it would prove almost impossible to distinguish between a matter that was simply taking a long time due to the complicated nature of the scheme involved and something that involved a possible manipulation of the evidence. We were advised that it would not be possible to make those distinctions very easily. Given that we could not clarify the distinction on which the purpose of the power in the regulation hinged, and therefore we would not use that power, we thought it wise to seek to withdraw that power. I believe that the noble Lord accepted that.

Therefore, if an employer goes into insolvency, he can come into the PPF, as was always the case—that has not changed since the Written Statement was issued—if he has a qualifying insolvency event after April 2005. For example, an employer could be in administration now or could have entered a voluntary arrangement—both of those could constitute part of a business rescue—but if after 2005 those moves fail and that company moves into liquidation, it would then be entitled to enter the PPF provided all the other eligible criteria were met.

The insolvency definition is cast broadly compared with the 1995 Act, which dealt only with the final insolvency event. However, what is key is the date of wind-up. There is absolutely no ambiguity about that. It has not changed at any stage. There could be a long chain of preceding events that might take two or three years or those events might take place very quickly in a few months. What matters is the wind-up. The implications for FAS remain unaltered. Schemes that start wind-up before 5 April 2005 could be eligible for FAS assistance depending on the start day of FAS and other considerations, which have yet to be bottomed out. However, if a scheme started wind-up before 2005 and it was solvent and then became insolvent, we would obviously need to consider whether there could be full buy-out.

I understand that NAPF did not want us to delete the power because it considered that it was a useful moral hazard deterrent. Given the general problems of trying to define what is simply an elongated period of administration as opposed to manipulation, we believe that effective protection is offered by Clause 127(5). We brought forward an amendment on Report to prevent compromises below the PPF level of benefit. In those very rare circumstances where it is clear that manipulation has occurred—for which this power was originally designed—we can address that problem through another part of the Bill.

I hope that I have done what noble Lords sought; that is, to define what counts as an insolvency event which has to qualify after a particular day and in respect of an eligible scheme. I hope that I have defined what counts as an eligible scheme. I think that is fairly obvious. I also hope that I have explained that, crucially, an eligible scheme with an insolvent employer has to have started wind-up after 6 April 2005. That was the situation before the Written Statement was issued and remains the situation. It has not changed. However, it is worth clarifying. I hope that that additional information has been useful to your Lordships.

My Lords, before the noble Baroness sits down, I think that we are agreed on knocking out this clause. However, on the wider issue that we are discussing, the noble Baroness seemed to say that there was a danger that schemes delayed proceedings in order to enter the PPF instead of the FAS because the terms of the former were more advantageous. It seems to us that the Written Statement achieved precisely that. It enabled some schemes to delay proceedings in order to enter the PPF rather than the FAS. We came to that view in part due to the Written Statement, which said that,

"eligible schemes, whose sponsoring employer has already entered into insolvency proceedings may still be able to receive PPF compensation".—[Hansard, Commons, 8/11/04; col. WS 17.]

It looked as though the crucial date was the beginning of insolvency proceedings. The noble Baroness is now saying that we have all misunderstood that, and that it is actually the wind-up. If so, why are we dealing with the insolvency proceedings at the beginning at all? It certainly has not been clear, in Committee or at Report, that the crucial date is the wind-up. It will then be easier for companies to delay that procedure in order to get the PPF, and the Government seem to be encouraging that.

My Lords, a scheme can perfectly well wind up without being insolvent, so one cannot hinge the matter on the wind-up. Three interlocking factors have to be read across. The first is what counts as an insolvency event; the second is what counts as an eligible scheme; the third is the timetable of wind-up. One cannot pull individual provisions out and start changing the words around, but if noble Lords read Clauses 122 and 127 in conjunction, they should get there. The delay for insolvency requires consent of all creditors involved, which could make it difficult for trustees to control insolvency proceedings.

We are not shifting the line to send more on to the PPF in order to protect the FAS, which I think was the worry for noble Lords. Our position has not changed; this is a clarification. We have always been clear about the importance of wind-up, but we cannot only use wind-up, because it could refer to something wound up outside the insolvency, perhaps before a DB scheme is replaced for new members by a DC scheme. We have an interlocking insolvency event triggered after a particular day and in respect of an eligible scheme under Clause 122. We have a definition of an eligible scheme that should not have started wind-up prior to April 2005. We then have the definition of wind-up. Put them together and the line has not shifted.

The FAS and the PPF have the distinct territories that they have always occupied. The noble Lord's concerns were obviously shared by trustees, so we sought to clarify them. I hope that this additional debate will further clarify the situation for trustees.

My Lords, exactly where have we got to on my question about what a qualifying insolvency event is for the employer? Perhaps the noble Baroness will confirm something that I think I heard her say. So far as this part of the interlocking requirements is concerned, did she say that an employer in administration before April 2005 that went into liquidation after April 2005 could be subject to the other interlocking requirements and be eligible for the PPF? I would like that to be clearly stated. Could receivership also be included? Given that a company in that situation in administration is clearly in pretty extreme financial difficulties, if what we are talking about has not happened by 2006, what sort of risk-based levy does she think that such a fund will pay to the PPF?

My Lords, on the second point, I thought that the noble Lord was going to ask how the PPF could afford to pay, in which case I would have said that the liabilities for members would have fallen in over time, rather than with the big bang that people will suggest. In terms of the proportion of risk-based levy falling on companies in such a situation, inevitably any such company would wish to remain with a flat-rate levy as long as possible. A risk-related levy would obviously be relatively burdensome to that company, and one would not wish to see the payment of the levy itself tip the company over into the very thing that the levy sought to avoid. That is right.

In terms of the insolvency event, I am not sure about receivership; I want to check on that. Basically, for any company going into administration, what counts as a qualifying insolvency event is that an eligible scheme goes into wind-up after April 2005. I want to hold on to that. I need clear legal advice on receivership and do not have it at the moment; I shall write to the noble Lord.

On Question, amendment agreed to.

moved Amendment No. 41:

Page 94, line 26, leave out from "event" to end of line 27.

On Question, amendment agreed to.

[Amendment No. 42 not moved.]

Clause 176 [Pension protection levies]:

moved Amendment No. 43:

Page 135, line 27, after "liabilities," insert—

"( ) the likelihood of an insolvency event occurring in relation to the employer in relation to a scheme,"

My Lords, this group includes both government and opposition amendments. The amendments tabled by the noble Lords, Lord Higgins and Lord Skelmersdale, would make two changes to the Bill. They would require the board to take account of, first, insolvency risk when setting the risk-based pension protection levy, and, secondly, a scheme's liabilities when setting the scheme-based pension protection levy.

We believe that the risk of insolvency and the level of a scheme's liabilities are important factors that the board should take into account. We are all in full agreement on that. Where I think that we have a difference of opinion is in our assessment of the difficulties that the board would face in taking those factors into account. At present, there is no consistent measure for determining the risk of an insolvency event. One proxy that has been suggested is to use credit ratings. However, they do not apply to all employers, such as those with two member DB schemes, of which there are around 1,600. That could be considered unfair.

We must also consider the information-gathering requirement that the amendments would place on the board. They would mean that the board might have to collect information on insolvency and liabilities for each and every eligible scheme. Furthermore, the level of a scheme's liabilities could be considered a crude measure of the level of risk posed to the PPF, so the amendments would require the board to duplicate, to some extent, the role of the risk-based pension protection levy. It would be better to give the board the flexibility to take such factors into account as it sees fit.

All that said, the House is clearly of the view that those factors are so important that they should be included in the Bill. Therefore, in the spirit that we have tried to show so far, we are willing to move on the opposition amendments. The noble Lord, Lord Higgins, has kindly allowed me to group with them a set of government amendments. They do exactly the same as the amendments tabled by him, but, as drafted by parliamentary counsel, are consistent in style with the existing clause. They also include the necessary consequential amendments, such as ensuring that all the numbering is correct.

I am not sure that we need the amendments but it seemed that they would do no harm, and might avoid some harm. Noble Lords were very clear in earlier discussions that they felt it important that we move towards them on the matter. We have tabled the amendments in lieu of those of the noble Lord, Lord Higgins, so I urge him not to press his and to accept ours. I beg to move.

My Lords, we have already made it clear that we are against retrospection in many respects. None the less, I want to say a word or two about the missing statutory instruments. The noble Baroness has been extremely helpful—not only on this Bill, but on earlier pension Bills—in letting us have regulations at the earliest possible moment. If there seems to be some mechanical breakdown at this stage, we understand that she would not have wished it. They may have been attached to some other correspondence and consequently, given the pressure under which we are all working at present, one looked at the first page, thought it not relevant to this afternoon and put it on one side, but the important bits were at the back. That may explain what has happened; I am not sure.

Another point—it is completely out of order—is that the amendments are a result of representations that we received from Allied Domecq and others. Many of our amendments are a reflection of representations that we have received from outside. Again, one does not generally have the resources to thank everyone in reply. We must rely on our fans to read Hansard or consult the web to realise that their points have been taken into account. That does not mean that we do not appreciate the advice given, irrespective of whether we take it.

However, the principle of the amendment is that it should be compulsory rather than optional to take into account the likelihood of an insolvency event occurring in relation to an employer when assessing the risk-based nature of a scheme. It is argued that there is no point in looking at the likelihood of an insolvency event in relation to a small firm, but we think that the same principle of risk assessment should apply to all firms—not only large and small ones—which pay a levy for the PPF.

This matter relates to some of our earlier debates. We want to consider the extent to which problems will occur in distinguishing between the situation for large and small firms. But we should take into account whether an insolvency event is likely to take place, and that should not be optional.

My understanding is that effectively the Government accept that position—the noble Baroness nods her head. In that case, we are grateful to her for taking the matter into account, and no doubt those outside who made representations will be equally grateful. I thank the noble Baroness and shall not move my amendments in this group.

My Lords, as noble Lords will recall, we also welcomed these amendments in Grand Committee. Indeed, at Second Reading we strongly expressed the view that the risk-based levy should be based effectively on the joint risk of employer insolvency and the underfunding in the pension scheme. We are very pleased that it is moving in that direction.

The noble Baroness referred to the difficulty of assessing a risk-based levy for very small pension schemes, and—rather late, I fear—we have received from the National Association of Pension Funds suggested amendments to reflect that point. The association suggests that a risk-based levy should not be calculated for the very smallest schemes. In view of the fact that those amendments were not received in time for us to table them for Third Reading, it is only fair to warn the Government that my honourable friend Steve Webb will be seeking to raise this issue in the Commons tomorrow. I think that a genuine point has been raised with regard to very small schemes, but that should not deflect from the importance for most funds of this approach, which we welcome.

My Lords, perhaps I may also apologise for suggesting that the regulations were not circulated. I recognise the front page, and I recognise having put it in the pile because I thought that it related to the amendments of my noble friend Lord Higgins and not the point that I had raised. Given that insolvency will be incorporated in this way, can the noble Baroness say whether the judgments reached on the risk posed by insolvency and debt will be a matter of public record? Will they be the kind of thing to which people turn in assessing a public company or will they be "commercial—in confidence" and never released?

My Lords, I do not know the answer to that question. I suspect that it is "possibly not", but I shall follow that up in writing. I am amused that the noble Lord, Lord Lucas, thinks that comments from this Bench to the noble Lord, Lord Higgins, have "nothing to do with him, guv", but I suspect that that says more about the situation on the Benches opposite.

Noble Lords:

Oh!

Cheap it was indeed, I accept.

The noble Lord, Lord Oakeshott, said that, as a result of the NAPF amendments, his honourable friend may move amendments in the other place. I am concerned about that because I tried to make that case extensively in Grand Committee and on Report but the Benches opposite would not accept my arguments. I do not want to provoke a row about this, but I think it is a little unfortunate that they would not accept the Government's concerns that we may need to keep the flat-rate levy for very small schemes.

When I tried to make that key point on behalf of the Government, it was not acceptable. However, when, beyond the appropriate time, NAPF takes exactly the same line as the Government, we hear that amendments may be moved in the Commons. If I may say so, I do not think that that is the right way to proceed. If people are not persuaded by the Government, I cannot see that they will be persuaded by NAPF running the same argument. It seems to me that if the arguments are valid, they are valid whoever raises them. I do not want to carp but I do not feel that this is the right way to proceed. I try to take on board arguments wherever their merits fall.

My Lords, I am grateful to the noble Baroness. Clearly, what she said warrants a response. I was merely trying to be courteous by warning her about what may happen in the Commons tomorrow. As I understood the matter, and as we heard at length in Grand Committee, the noble Baroness did not accept the arguments that we put forward for a risk-based scheme. She argued that we could not move rapidly to a risk-based scheme, but that was a very different approach and a very different context. We have now reached this point and we are clearly seeking effectively to close off one loophole. But it seems to me that the approaches are different. If the noble Baroness had accepted what we were saying in Grand Committee, the matter would have been sorted out.

My Lords, on the contrary, what has not changed is the situation on transitional arrangements. Therefore, this provision applies to when the transitional arrangements have ended, by which time we shall indeed be in that situation. However, that is now in the past.

Perhaps I may respond to the point raised by the noble Lord, Lord Lucas. Precisely because the information on insolvency, whether it is to be made public or otherwise, will probably be regarded as commercially sensitive for firms, I suspect that the answer to his question will be "no". However, I shall take full advice on the matter and come back to him. I think that the noble Lord will understand that perfectly well. I hope that the Opposition will accept the Government's amendment and that, as a result, the Government will be able to encourage noble Lords not to press the opposition amendments.

On Question, amendment agreed to.

[Amendments Nos. 44 and 45 not moved.]

moved Amendment No. 46:

Page 135, line 31, leave out from "to" to end of line and insert "—

(i) the amount of a scheme's liabilities to or in respect of members (other than liabilities in respect of money purchase benefits), and

(ii) if the Board considers it appropriate, one or more other scheme factors mentioned in subsection (4)."

On Question, amendment agreed to.

moved Amendment No. 47:

Page 135, line 34, leave out paragraph (a).

My Lords, I beg to move.

My Lords, there is a typo on my briefing note as both the Opposition and the Government seem to have tabled Amendment No. 47.

My Lords, I took the liberty of moving it.

On Question, amendment agreed to.

moved Amendments Nos. 48 and 49:

Page 135, line 39, after "The" insert "other"

Page 135, line 39, leave out "(2)(b)" and insert "(2)(b)(ii)"

On Question, amendments agreed to.

moved Amendment No. 50:

Page 136, line 1, leave out paragraph (c).

On Question, amendment agreed to.

moved Amendment No. 51:

Page 136, line 6, leave out paragraph (a).The noble Baroness said: My Lords, the Opposition tabled the amendments in this group on Report. The amendments required that the initial period would start on the appointed day and end on the following 31 March or 12 months after the appointed day and that the board must set both a risk-based pension protection levy and a scheme-based levy for each financial year falling after the initial period, subject to modifications by Clause 181.

My Lords, the effect of the amendments—this goes back to my previous discussion with the noble Lord, Lord Oakeshott—was that the initial period could not be any longer than 12 months and that from the end of the transitional period the board would be obliged to set both a risk-based and a scheme-based pension protection levy in respect of all schemes.

That created two problems. First, the possibility that the initial period could end 12 months after it began meant that the initial period could end after the start of a financial year—for example, if the initial period began in June. Secondly, the amendment to require the board to set both levies left a number of references to a single levy in the Bill. Some further technical consequential amendments are therefore necessary.

The amendments introduce a regulation-making power to Clause 181, which concerns pension protection levies during the transitional period. This is a power to modify the clause in the event that the transitional period does not begin on 1 April. The modifications would alter references so that the provisions under Clause 181 could apply to a period which began part way through the financial year—for example, the regulations would change references to "financial year" to "financial year or part year". Such modifications could apply only for a limited period of time. They would apply to the period from the start of the transitional period to the following 31 March, and then everything would be back on track again.

The other amendments in the group delete references to a single levy throughout Clauses 176, 177 and 179. In view of what I have just said, which delivers on opposition amendments, I encourage noble Lords to accept the amendments, unless they wish to revisit the issue in its entirety. I beg to move.

My Lords, I always worry when amendments are expressed as "just technical" and they are rushed through. If I understand the matter correctly, these amendments are consequential as a result of previous votes.

My Lords, that is correct.

My Lords, I am most grateful.

On Question, amendment agreed to.

moved Amendments Nos. 52 to 55:

Page 136, line 8, leave out "levy or"

Page 136, line 11, leave out "levy or"

Page 136, line 12, leave out "levy or"

Page 136, line 26, leave out "a pension protection levy or" and insert "pension protection"

On Question, amendments agreed to.

Clause 177 [Supplementary provisions about pension protection levies]:

moved Amendments Nos. 56 to 58:

Page 136, line 35, leave out "a levy or"

Page 136, line 38, leave out "levy or"

Page 136, line 41, leave out "any pension protection levy" and insert "the pension protection levies"

On Question, amendments agreed to.

Clause 179 [The levy ceiling]:

moved Amendments Nos. 59 to 61:

Page 137, line 35, leave out "a levy is or"

Page 137, line 38, leave out "a levy is or"

Page 137, line 42, leave out "a levy is or"

On Question, amendments agreed to.

Clause 181 [Pension protection levies during the transitional period]:

moved Amendment No. 62:

Page 139, line 29, at end insert—

"( ) If the transitional period begins with a date other than 1st April, regulations may provide that any provision of this section or of sections 176 to 180 applies, with such modifications as may be prescribed, in relation to—

(a) the period beginning at the same time as the transitional period and ending with the following 31st March, and

(b) the financial year which begins immediately after that period."

On Question, amendment agreed to.

Clause 183 [Cases where fraud compensation payments can be made]:

moved Amendments Nos. 63 and 64:

Page 141, line 37, at end insert "and"

Page 141, line 45, leave out from "event" to end of line 46.

On Question, amendments agreed to.

moved Amendment No. 65:

Before Clause 240, insert the following new clause—

"REMOVAL OF COMPULSION TO TAKE ANNUITIES

Notwithstanding any statutory provision or rule of law to the contrary, the requirement for pensioners to take their pension in the form of an annuity, together with the requirement to do so by the age of 75, shall cease to have effect, provided that the pensioner can demonstrate that he has resources to ensure that he will not become dependent on means-tested benefits."

My Lords, this matter has a long history stretching over decades and over the period of debates on this Bill. We have debated the issue both in Committee and at Report stage. I indicated at both stages—we did not vote on it then—that I intended to raise the matter again on Third Reading.

In a more historical context, amendments similar to this, but perhaps not quite as elegantly drafted, have been carried on two previous occasions by your Lordships' House. On each of those occasions the matter was reversed when it went to another place—a regrettable occurrence, certainly for those who have suffered from the effects of the present rule on annuities ever since. The issue is important and if noble Lords decide that it is an appropriate amendment—as I hope they will—perhaps on this occasion it will not be reversed in another place.

The importance of the issue has not been overlooked by the Chancellor of the Exchequer who, in a recent Finance Bill, sought to deal with the matter in a different way. We are told that he decided to deal with it in relation to the representations from a particular Christian sect, which took the view that annuities are a bet on someone's life and, therefore, immoral. There are those who regard annuities as immoral for a number of reasons, but as is typical of the present Chancellor of the Exchequer, his proposals were unbelievably complicated and not understood by a great many people, in the same way that the whole of the tax credit structure is incomprehensible to many people. I have had a number of letters complaining that that system will not come into effect until 2006, and those writing the letters were approaching the age of 75.

At all events, in earlier debates we discussed the various forms in which an amendment on this issue might be drafted. At Report stage we looked at three possible ways of doing it. I believe that the present form should be acceptable from a technical point of view, whether or not from other points of view. I believe that it should be acceptable from all points of view. As a result of our debates in Committee and at Report stage, the issue is now more closely focused than it has been on a number of occasions—including at least the three occasions when Members of the other place sought to deal with the issue by way of Private Member's Bill.

It is important to distinguish exactly how the matter has come into focus. Effectively there are two elements which are both covered in the amendment. First, whether annuities should be taken at the age of 75. That is to say, whether individuals who build up a pension pot—if I may use that expression—should be required, whether they like it or not, to take that in the form of an annuity, even though they take the view that annuity rates may be better on some future date. Therefore, they are forced to use their pension pot at what they regard as a disadvantageous moment of time.

It has been difficult to establish exactly when the rule came into effect. It may be that the noble Baroness can provide illumination. However, what I have managed to establish is that the age ceiling for annuity buy-out from occupational schemes rose from 70 to 75 in May 1994. Personal pensions were introduced in July 1988 with an annuity age ceiling of 75 years, and the retirement annuity age was raised from 70 to 75 in 1976. Ahead of that, there were earlier periods in which a lower limit existed. That is not surprising. I have not been able to establish precisely whether it goes back to Beveridge or even earlier, but what is clear is that when Beveridge introduced much of our pensions legislation immediately after World War II, the life expectancy of a man at retirement age was only two years. That is to say that a man was expected to survive for only two years after the retirement age of 65. For many people taking an annuity at the age of 70 must have been a fairly academic exercise as they would not be around at that time.

Be that as it may, it seems clear that the age of 75 is not consistent with the kind of point made in the recent Turner report about the extent to which people are living a great deal longer. That is the first point. I stress strongly that the present rule forces people to take an annuity at a time when they do not want to. It seems to us that that is quite wrong.

The second aspect of the matter is whether one should be compelled to take an annuity at all. In the course of the earlier debates I referred to a very comprehensive and technically well executed study by Watson Wyatt about people's attitudes to annuities. Over a reasonable sample survey, it came to the view that something like 58.8 per cent of those surveyed never wanted to annuitise their pension pots; and something like 12.1 per cent wanted to do so later than required to at present. Therefore, something over 70 per cent of the people surveyed were against annuitising their assets as the present law requires them to do. All kinds of interesting reasons were given why they take that view; for example, 74 per cent said that they liked flexibility; 45.9 per cent said they could do it better themselves; some were concerned about the so-called "bequest notice"; and quite a number said that they did not believe they would live long enough to get their money back. There is fairly widespread antagonism to the way in which annuities operate generally.

Our amendment would abolish the rule. In a sense this is a very protected market. Those offering annuities scarcely need a sales force, because people are compelled to buy annuities. Therefore, it is not surprising that, for example, the ABI is not in favour of this kind of amendment. However, I think that one should take its interests into account on the matter.

Another relevant point, which the noble Baroness has made on previous occasions, is that this provision will have a dramatic effect on financial markets. I do not think that she is right in believing that the change will be as dramatic as she supposes; it is only the people who are coming up to the age limit, and so on. Anyway many of them may still decide to take an annuity.

The noble Baroness put forward some cogent arguments—I want to make our position clear in this respect—on what happens to the pension pot if it is taken in a form other than as an annuity. Under present arrangements, 25 per cent of the amount is tax free as a lump sum if individuals wish to take it that way. The remainder is taxed. Clearly, if we were to abolish the rule in the way we have suggested, it seems highly likely that the Chancellor of the Exchequer would have a view regarding taxation. We are not suggesting that the whole amount should be tax free; that would be a wrong attitude to take.

The tax relief that people have already had on their pensions is a very important incentive to encourage them to save to ensure that they have resources available for retirement. Over the life of the Government the savings ratio has halved. The noble Baroness shakes her head—it has virtually halved since 1997. It is very important to maintain that particular incentive. In most cases it has achieved its objective. Clearly, people have decided that they need to make adequate provision for their retirement.

In this context, in the earlier debates the noble Baroness gave some extraordinary figures about the amount of money one needs to have in the pension pot if one was not to go on to means tested benefits. That brings me to the next point, which is clear from the amendment. We do not think it is right that people should be able to take the amount, even if it is taxed, spend it and then go on to means tested benefits. That would be wrong in our view. We believe that it should only be possible if adequate provision is made to ensure that individuals do not rely on means tested benefits—massive and complicated though they are—under the present Chancellor of the Exchequer's policy. I shall not go off into other issues about the basic state pension, and so on. So, in our view, this is an appropriate amendment and one whose time has come.

We said at the earlier stage of the debate that the drafting of the amendment was difficult. I believe that in its current form it should be acceptable to the House of Commons; it was drafted with that in mind. No doubt it could be implemented in a future finance Bill—hopefully, the next finance Bill.

One should stress also that there is no reason why the existing arrangements should not continue if individuals wish to take their pension in the form of an annuity at some stage, not necessarily at 75. They will still be free to do that. We seek to establish as flexible an approach as may reasonably be initiated.

I referred to another place. Against the historical background and the economic situation which I have described, I hope that there are sufficient Members in another place who take the view that their constituents are entitled to the provision and support this amendment. I add one caveat to that: it is not unusual for amendments from this place to go to another place and be rejected on grounds of financial privilege. I looked up the relevant parts of Erskine May. I am surprised; my version is only about 10 years out of date, but I see that it has already been substantially rewritten by Mr McKay, a former Clerk to my committee in the other place.

Looking at this issue with the background of having been a Treasury Minister and chairman of the Treasury Committee in another place for well over 10 years, it does not seem appropriate to claim financial privilege on this particular amendment. I certainly hope that view will be shared by Mr Speaker in due course.

This issue has been going on for far too long. It is one where the present limit is clearly out of line with the way in which life expectancy has changed over time. It is clearly out of line with the way in which financial markets could provide a more flexible and better form of finance in retirement for a great many people. This is not simply a question of those who are well off. Although clearly people who have invested more in their pensions are likely to have some advantage, many of the letters I received have been from people who are obviously quite poor but who, none the less, object to having to take their pension in the form of an annuity and to having to do so at a specific age.

I think this amendment should commend itself to your Lordships. I hope it will. I hope that it will also commend itself to those at the other end of the building I beg to move.

My Lords, noble Lords on these Benches support the amendment and are happy to put our names to it. This is clearly an area where life, work patterns and financial markets have moved on a great deal since the legislation was framed and the limits were fixed.

The noble Lord, Lord Higgins, used a rather nice phrase from the Telegraph today about the origin of this being lost in the "mists of time". We on these Benches have been doing our best to peer into the mists of time. The advice from friends on our working group, which has recently been drawing up our policy, is that they believe these provisions started about 1956 when there was an age limit of 70. I raised the matter with the noble Baroness the other day. We look forward to her giving us the official background before 1976.

If one looks just to 1976—in the letter the noble Baroness kindly sent us—when the limit was raised from 70 to 75, my figures are that the average age of death in 1976 was about 70 for men and 75 for women. So the limit at that stage was raised to five years above the average age of death. The latest official projections for next year, when obviously the Bill would come into effect—as amended we hope—are that the average age of death for men is 76.4. As we know, it is going up rapidly. So we move from a position where effectively the limit was five years below the average age of death to that of one and a half years the other way.

I defer to other noble Lords on financial privilege. I have no view on that, but I hope that the noble Lord, Lord Higgins, is right. Even so, it seems quite clear to me that the limit at the age of 75 is well out of date. Furthermore, whatever the reasons were for fixing the limit previously—and no doubt they were good ones—there should, at the very least, be a substantial increase in the limit.

As I say, we would prefer no limit at all. The fixed limit is a disincentive to people making retirement provision for themselves. We are all in favour of much more flexibility in retirement and of people working longer. It seems wrong that somebody should run up against the buffers of having to use all or most of his pension pot at 75, which is now an age at which many people still work and earn. Surely, we should encourage that.

For all those reasons I support the amendment. At the very least we feel that there is a strong argument for an increase in the limit to 80, if the principle of abolishing the limit altogether is not accepted.

My Lords, I, too, strongly support what my noble friend Lord Higgins said. As the Minister's note makes clear, retirement annuity was raised from age 70 to 75 in 1976, so even on that reasoning, there should be a big increase in the age. The Minister mentioned that when personal pensions were introduced, it was not raised. My comment on that is that in 1986-88 it was not the issue that it is today.

The fact is that the level of annuities then being paid was greatly more than the level of annuities today. Annuities have gone down and down in value. That is what is of public concern at present, which is why there is so much strong public support for this change. That is not surprising. The truth is that today, more and more people approaching the age of 75 realise that the requirement to take an annuity is not a good deal for them.

This weekend, there was a piece in the Sunday press, in which the example given was that at the end of the 1980s—in 1988, as it happened—a person of 65 could get an annuity of 10.8 per cent. Today the figure is 6.8 per cent: 4 per cent less, and set by all predictions to go lower. If you want an annuity that gives full widow's rights and inflation-proofing, you will probably have to settle for less.

People who are retiring can get a decent income in other ways, using other products open to savers, but with the enormous benefit that they keep their capital. Under the Government's rules at present, they get a reduced rate of interest and lose their capital as well. That is what is at the heart of so much objection to the measure and I think it unacceptable, especially if, as my noble friend Lord Higgins said, the individual can establish beyond reasonable doubt that in no way will he come back for support from the state.

So I do not understand why the Government so stubbornly refuse to move on the issue. I cannot understand whom the rules help, apart from the annuity companies. I accept that people have had tax relief, but their expected yield has been reduced and payments from their fund will be subject to tax in any event. Frankly, this Government have done quite enough to take from pension funds the tax due to them, and much more.

The policy is also serious in the following way. We know that final salary schemes are closing down. There is no question about that: evidence establishes that that is the case. We know that money purchase schemes will be the way forward for the vast majority of people in the private sector, if not in the public sector. We know that we want to encourage as much private saving as possible. The policy on annuities goes smack against that central policy. That rule is unjust to savers. It works against a sensible pension policy. It should be scrapped without more ado.

The Minister may resist the amendment today and, as my noble friend said, the Government may get their way on the Bill. But I tell her this: in the end—I hope sooner rather than later—that rule will be swept away because it is insupportable.

My Lords, I, too, shall speak briefly in support of the amendment. I do not need to repeat all the arguments that have already been made about greater flexibility, removal of inflexibility, and greater incentives for savings for one's old age—not through defined benefit schemes, because I agree that they will be much less influential in future. I accept all those arguments. I just want to add one or two points.

I say to the noble Lord, Lord Oakeshott, who gave the average age of death, that the relevant figure is life expectancy after the age of 65, because that is what we are talking about: people who have pensions and life expectancy beyond that. In the excellent report that we debated last Friday from the Select Committee on Economic Affairs on Aspects of the Economics of an Ageing Population, there is a table that I believe originally comes from the Department for Work and Pensions, which shows that, for men aged 65 in 2002, life expectancy was another 16 years and for women another 19 years. So we are well beyond the age of 75 and, increasingly, as longevity increases year after year, many people will have many years beyond the age of 75 in which they will want the flexibility to make their own arrangements for retirement.

My only other point is this. Perhaps the Government are concerned that, given the tax incentives for taking up personal pension schemes and so on, somehow individuals will not be taxed at all on the benefit that they get after they have retired. If so, the majority of people who will be able to benefit from not having to take out annuities beyond the age of 75, given the qualification that my noble friend Lord Higgins mentioned of having enough funds to be above the means test from then on, will, however they deploy their assets after the age of 75, be paying inheritance tax at the full 40 per cent, given the current high rate of, not least, house prices. The argument that somehow they will be able to evade tax on their assets if they do not have to move to an annuity at age 75 no longer applies under current conditions.

I strongly support the amendment. Its time has come.

My Lords, we return to a topic that we have debated not only during the past few years but also during the past few weeks in your Lordships' House. In Committee, we discussed at a blue sky level, to use a phrase that I was teased by the noble Lord, Lord Skelmersdale, for over-using, the arguments for and against the proposal. At Report, the noble Lord, Lord Higgins—unusually; I do not think I have seen this before—produced three different versions to get rid of the annuitisation rule at 75, I think in the hope that he would find out which of those was most robust, so that he could have a go at it on Third Reading.

In the process, I think that the noble Lord accepted that there were serious policy flaws, not merely technical drafting problems. He shakes his head but he has to—"He would, wouldn't he?", as they say. As a result, he decided not to recycle any of those amendments today. So we now have a new version.

The current rules on annuities require members of personal pension schemes to purchase an annuity by age 75 and members of occupational pension schemes to receive a pension by age 75. I was pressed about dates. We circulated what we knew and have done more research since then. As I understand it, it was from 1921 that there was a general assumption that there would be annuitisation of pots at retirement. In 1956, that figure was defined as 70; in 1976, as 75.

The noble Lords, Lord Higgins and Lord Oakeshott, made much of the point about life expectancy, but the noble Lord, Lord MacGregor, made the point that I wanted to make: that the reason life expectancy back in 1921 and 1931 was so low was high infant mortality. Therefore, the gap between life expectancy at age one and at age 65 was very wide. Now, with, fortunately, very reduced infant mortality, any gains in average life expectancy are because people are actually living longer, as opposed to fewer infant deaths.

As the noble Lord, Lord MacGregor, said, if we take the figures for 1921, those people who lived to 65 went on to live another 11.5 years, compared to 16 now. Although the average life expectancy was only 67, those who lived to 65 would have lived to 71, 72 or 73, on average. That makes the point made by the noble Lord, Lord MacGregor, very telling. So, overall, life expectancy from the age of 65 has not changed as dramatically as life expectancy from birth.

My Lords, accepting that point, what was life expectancy at age 65 in 1976, when the level was last raised?

My Lords, in 1971, for men, it was 12.3; in 1981, it was 13. So it was about 12 and a half years and is now about 16, so far as we can tell.

My Lords, I think that the noble Baroness will draw the opposite conclusion from the one that I draw. Increasing longevity over the age of 65 makes this change relevant. Does she not also agree that, compared with 1921, 1960 or whenever, many more people have personal pensions than previously, and therefore removal of the obstacle at 75 is much more relevant today?

My Lords, I do not dispute that. I was trying to address a new point, introduced at Third Reading, about changing life expectancy, on which the noble Lords, Lord Higgins and Lord Oakeshott, had not previously argued. I was saying that there was a fallacy in that argument. I was anxious to explore that.

The second argument, raised by the noble Lord, Lord Fowler, was annuity rates in 1988 and concern that they had fallen. The noble Lord said that annuity rates then were around 10 per cent. He is right; annuity rates have halved since then. But he must accept that that was a reflection of high inflation at the time. One of the differences is that inflation at 5 per cent halves the value of an annuity in 14 years; at 10 per cent, it halves the value of an annuity in nine years; given current inflation rates, today it would halve the value of an annuity in around 30 years. For women, who are likely to live longest, the level of inflation is at least as important a determinant of the value of their income being protected over time as the nominal annuity rate, as I am sure the noble Lord will accept.

Perhaps I may return to the substantive arguments. Why do we require people to take an annuity at 75? It is to ensure an income stream in retirement. To encourage that form of saving for retirement, current tax legislation is very generous in the concessions granted towards contributions. In other words, the pension regime could be regarded as a tax haven for retirement savings.

It is generally accepted that 75 is the age at which further delaying annuitisation could be harmful to retirement income, as the investment returns required to exceed those from taking an annuity become unrealistically large. It has been the maximum age since 1998 and has been applied to occupational pension schemes from 1994. Not only does the age of 75 seem reasonable, but the huge majority of pensioners—almost two thirds—buy their annuity when they retire. If they decide to defer, they normally purchase an annuity long before they reach age 75. It is widely recognised that annuities are the most suitable vehicle for ensuring a regular stream of income throughout the period of retirement, no matter how long or short it may be. None of us can predict what our life span will be.

The amendment tabled by noble Lords opposite would remove the requirement on members of personal pension schemes to secure an income stream by purchasing an annuity as well as the requirement to do so by age 75, but only if they can "demonstrate"—the word used in the amendment—that their existing resources would enable them to avoid any reliance on means-tested benefits.

Who would benefit from the removal of the need to purchase an annuity? Clearly, the wording of this new amendment makes it more apparent than previously that, frankly, it is concerned with those in our society who are well off—in many cases, very well off. By imposing a condition that a member has to,

"demonstrate that he has resources to ensure that he will not become dependent on means tested benefits" the amendment creates an option that at present would be readily acceptable only to the richest 4 per cent of annuitants in the personal pensions market. We do not know yet how they would demonstrate the fact that there would be no fall-back on benefits at a future date, nor does the amendment provide any guidance on the level of resources that would be required to give such an assurance.

How long could such members' level of income be sustained, bearing in mind that none of us knows how long we will live? How long would their levels of private investment continue to generate their current income? What are the future levels of state pension and benefits? What happens if their savings vehicle collapses? We all have that in mind. I know that one very big case will have affected many noble Lords.

Would there be an initial form of means-testing to decide whether the conditions imposed by the amendment were satisfied? I am intrigued that the noble Lord, Lord Higgins, who so vigorously denounced the extension of what he calls "means-testing" on those who are less well off, should now seek to apply the equivalent means-testing to those who are better off to ensure that they stay free of benefits.

My Lords, I am grateful to the Minister; perhaps she can help me. I do not understand her point that the amendment favours those who are best off or well off. Surely the people who have suffered are those with comparatively small pension funds, which have been reduced by the Government's imposition of a tax on their dividends, and who are forced to buy an annuity at a time when annuities produce less income. Surely it is people just slightly above the benefits level, having saved throughout their lives, who now have no income because annuities do not provide it. The Minister has made the case for buying an annuity. Why do the Government not leave it up to those people themselves to decide whether to buy an annuity?

My Lords, we welcome the noble Lord, Lord Forsyth, to these debates. Of the people who take annuities, half of all pension pots are under £40,000. We estimate that about 1 per cent of all annuitants—around 20,000 to 30,000—would have an annuity worth more than about £250,000 that would therefore float them into being able to take advantage of this amendment. The noble Lord presses me about why I say that only the best off would benefit. Perhaps only 1 per cent would have a sufficiently large annuity pot to run an income sufficient to float them off income-related benefits. We explored that subject fairly thoroughly on Report and in Committee.

I know that the noble Lord, Lord Higgins, is aware of all these issues and unanswered questions. I am equally sure that he will say that it is for the Government to sort out the drafting, but I do not think that we can do so at this stage. By introducing the amendment in this manner and without the necessary changes to the Income and Corporation Taxes Act 1988 and the Finance Act 2004, the clause would simply stand in isolation. It would not be usable by either pension schemes or providers. It would certainly not deliver the results that the noble Lord hopes to achieve.

I wish to repeat the arguments that the Government advance. The amendment would benefit only a tiny fraction of people, and possibly against their own self-interest. As it stands, it would not carry the Government's policy intent. The amendment also ignores the fact that people wish to get access to the pension pot precisely because it has been so enhanced by the tax contributions of the rest of us. Probably over half the value—we calculate 55 per cent—of an annuity pot has been contributed in various ways by the taxpayer. It is not surprising that the individual would like to see the pot as a pensions pot, a savings pot and a legacy. But they wish to do so because the taxpayer has built it up, for use neither as a savings pot nor as a legacy, but to provide a secure income in retirement. That is why the pot enjoys the privileges that it has. To extract the income-related benefit requirement, on the one hand, and the tax privileges, on the other, would leave such a small pot that not just 1 per cent but probably far fewer people would see real cash in hand as a result.

I understand where the amendment is coming from. The new argument advanced today, which is attached to life expectancy, is that what matters is life expectancy after 65, as the noble Lord, Lord MacGregor, said—he did not say that exactly, but I shall put a gloss on his words. It does not carry the argument that the noble Lord makes. Technically the amendment does not carry the position that the noble Lord advances. If it were passed and nothing else happened, nothing else would happen, because the Government have to own it through changes in tax legislation.

The bulk of the argument is that the annuity pot is so attractive to people and they wish to gain access to it precisely because it enjoys the tax privileges, tax shelter and tax haven provided by the taxpayer to give an income in retirement.

I have one final argument. At the moment, anybody in a final salary scheme does not have access to the size of the pot, except perhaps with regard to a lump sum. Somebody now entering a pension scheme would, if the amendment were made and there was no annuitisation requirement, have a choice between a pension scheme that paid final salary benefits and a pension scheme that produced a pot to which they would have access whenever they wanted after the age of 65, regardless of whether the full tax privileges had been stripped out. Which do your Lordships think people would choose? I suggest that they would choose the DC scheme, the money purchase scheme. That would destabilise the complicated existing regime, which seeks to sustain DB final salary schemes, while allowing people the choice of when to annuitise under money purchase schemes. Such a change could not be made in isolation from the whole field.

For technical reasons, reasons of longevity, reasons of fairness, reasons of taxpayer's privilege and reasons relating to the implications for the rest of the pensions situation, I hope that your Lordships will not accept the amendment.

My Lords, the noble Baroness said that the amendment was an attack on final salary schemes. That is a bit thick, when the Government's imposition of a sum of £5 billion a year has resulted in the demise of a huge percentage of final salary schemes.

Our proposal would not be to the advantage only of the rich. From the letters that I have received it is clear that many people who are in no sense rich object to being forced to take an annuity, to which many object in principle, and being forced to do so at an age when they do not think that it will be to their advantage. It is true that there has been considerable tax relief to encourage people to save for retirement. They have responded accordingly. However, as my noble friend Lord Fowler and others pointed out, the results have been disappointing, because of the enormous reduction in annuity rates over recent years.

Many of the arguments made by the noble Baroness just now are objections to the idea that the people of this country should have a choice in the matter. On this side, we believe in choice. For the reasons that have been given in all parts of the House, we believe that the position ought to be changed now. I hope that my noble friends will take that view and support the amendment in the Lobby.

On Question, Whether the said amendment (No. 65) shall be agreed to?

*Their Lordships divided: Contents, 198; Not-Contents, 144.

Resolved in the affirmative, and amendment agreed to accordingly.

Clause 287 [Financial assistance scheme for members of certain pension schemes]:

moved Amendment No. 66:

Page 241, line 28, at end insert—

"( ) New qualifying members shall continue to be eligible for membership of the financial assistance scheme until such time as they could, instead, qualify for the Pension Protection Fund."

My Lords, in moving Amendment No. 66, I think that it will also be convenient to debate Amendment No. 67 and government Amendment No. 68. In previous debates, we referred to the problem that exists because the Bill contains two separate systems; namely, the original pension protection fund, which was set out in the Bill when it was debated at Second Reading in another place, and the financial assistance scheme, which was introduced at the very last moment in another place before coming to your Lordships' House.

As your Lordships are aware, the financial assistance scheme is financed by the Treasury from a sum that is apparently limited to £400 million, which would be spread over 20 or more years. Therefore, the present value is probably something like £250 million. We have no idea from where that figure came: it appears to have been taken out of the air by the Chancellor in an attempt to buy off Labour Members of Parliament who were otherwise going to revolt against the problems faced by their constituents. Indeed, they were supported by Conservative Members who had suffered from their pension funds going bust.

The crucial question here is whether the financial assistance scheme, which will come in for schemes that are already bust, overlaps with the pension protection fund; or, alternatively, whether there is a gap in time between the two. I think that I would be right to say that it is common ground between the noble Baroness and those of us on this side of the House that the right structure for the Bill is to have neither a gap nor an overlap between the financial assistance scheme and the pension protection fund; that is, the one fund should cease to have new members at the moment where they are able to enter the second fund.

If that is the intention, it is not clear from the Bill as it currently stands. My two amendments seek to make that clear. Amendment No. 66 states:

"New qualifying members shall continue to be eligible for membership of the financial assistance scheme until such time as they could, instead, qualify for the Pension Protection Fund".

Amendment No. 67 effectively states that there cannot be benefits under both schemes.

The Government have tabled an alternative amendment, which is much more esoteric in character. It may achieve the same end, but I am not clear whether it does. There are a whole series of related problems to be referred to otherwise, which arise because, quite clearly, the financial assistance scheme will be less favourable than the pension protection fund.

Therefore, there is some danger in two ways: on the one hand, that the Government will seek to alter the situation so that people become a burden on the fund's levy rather than on the Government's financial assistance scheme; or, on the other hand, that individual companies may seek to arrange their affairs in such a way that they delay being qualified for the financial assistance scheme in order to become entitled to benefits under the pension protection fund.

Essentially, these two amendments seek to clarify the position. As I said, I believe that the Government's amendment is designed to achieve the same end. If that is so, it may be better drafted than mine, although I hope that mine also has the same effect. We look forward with interest to what the noble Baroness has to say. But we think that this is an important issue. Unless we receive a satisfactory answer, we may wish to vote on our amendments. I beg to move.

My Lords, I said on Report that I appreciated the intention behind the amendment then brought forward by the noble Lords, Lord Higgins and Lord Skelmersdale. It would make explicit on the face of the Bill that the financial assistance scheme would cover schemes winding up between May 2004 and the start of the PPF. However, I argued that it would not be right to announce a decision now on the inclusion of these schemes before we have had an opportunity to assess their circumstances further, and until moral hazard risks are minimised.

This was and remains a finely balanced judgment. The recent statement on PPF eligibility clarified that schemes sponsored by employers currently involved in insolvency proceedings may under certain circumstances still qualify for PPF compensation—referring back to an earlier debate on Amendment No. 39 and the government amendments grouped under Amendment No. 40—if they do not start to wind up until after the introduction of the PPF. That was why I argued that in our written statement we sought to clarify the situation rather than change the starting points of each of the two schemes.

The statement on the PPF has been made to help trustees make informed decisions, particularly when considering compromise agreements or revised contribution schedules tabled by employers. It provides clarification, for example, that when an employer is in administration and has tabled a one-off compromise agreement, a scheme may receive PPF compensation if the trustees reject that agreement and then do not start wind-up until the PPF is introduced. This is subject to the employer having a further insolvency event after the introduction of the PPF.

This has always been the policy of the PPF, but the recent statement has removed any uncertainty for trustees and employers, in particular the commitment not to use the power in Clause 128(3)(c). We are committed to ensuring that trustees are able to make informed decisions about the future of their pension schemes, particularly in those cases where the sponsoring employers are currently in financial difficulty.

In the light of this, and in the light of the views expressed by noble Lords on Report, we have now taken a decision which I hope will be welcome to the noble Lord, Lord Higgins. It will meet the concerns he raised in Committee, on Report and again today at Third Reading. We have taken the decision that the balance of the argument is now in favour of making the position clearer in respect of schemes which have started to wind up after May 2004 or which will start to wind up between now and the start of the PPF.

As my colleague the Minister of State for Work and Pensions said on Friday, this amendment is,

"good news for hard hit individuals in those schemes that have found themselves in difficulty".

At this point I should like to give a brief description of the technical effect of the government amendment, if that is what the noble Lord, Lord Higgins, would wish. It may help the noble Lord to judge whether we have met his concerns. Amendment No. 68 is an amendment to the definition of a "qualifying pension scheme" under Clause 287. The definition of a "qualifying pension scheme" currently provides, among other things, that such a scheme must have begun winding up during such period "as may be prescribed". Under the amendment, I propose that this part of the definition is changed.

Under the amendment, for a pension scheme to qualify under the financial assistance scheme it must have begun winding up during the prescribed period ending immediately before the day appointed under Clause 127(2). This too requires some explanation. Clause 127(2) provides that a scheme is not eligible for the PPF if it is being wound up immediately before the day appointed by the Secretary of State. The amendment would mean that in order to qualify for the FAS, a scheme must have begun winding up during a prescribed period which ends before this date, which we hope will be in April 2005. Any scheme which begins winding up before that date may be eligible for assistance from the FAS, subject to other FAS eligibility conditions being satisfied. Moreover, any scheme which begins winding up after this date may be eligible for consideration by the PPF. So before the date, consideration by FAS, and after, consideration by the PPF, subject in both cases to the usual rules about eligibility—whether the employers are solvent or insolvent, wind-up capacity and so forth.

To recap, our proposed amendment meets our commitment to provide assistance to those hardest hit by their pension schemes winding up underfunded. As noble Lords have recognised, it would be wrong to leave such members and the trustees of their schemes facing uncertainty because of the date on which their scheme starts to wind up. So I hope that I have met in full the concerns of the noble Lord and that, as a result, he will feel able to withdraw his own amendments and to accept the government amendment.

My Lords, this is quite a complicated issue. Is there in effect a single date or cut-off point, call it what you will, on which schemes, depending on when they wind up, cease to be eligible for the FAS and become eligible for the PPF? Am I right in thinking that a single date will be specified in the order? If that is so, I presume that there will be neither an overlap nor a gap.

My Lords, yes, there will be neither an overlap nor a gap. I hesitated because rules of eligibility will still need to be met under both schemes, but they will be seamless in that the PPF will kick in where the FAS stops.

My Lords, if I understand the situation correctly, the government amendment will achieve what we seek. I presume the implication is that it also covers our amendment, Amendment No. 67, specifying that members would qualify under one scheme or the other but cannot qualify in any way for both. However, provided that all the eligibility criteria are met and that they fall later than the amended start date we discussed in our earlier debates, they will all be entitled to one or the other. I see that the noble Baroness is nodding her head. If that is so, the government amendment will set to rest the problem before us. It has at least settled one of the points about which we have been unclear in the single clause covering the FAS which even now is only partially clarified. That is an advantage from everyone's point of view and I hope that the scheme will work satisfactorily.

As the noble Baroness said, there may still be a tendency for people to delay winding up, although it seems that despite the criteria for eligibility, the wind-up date will be the crucial one. On the assumption that all that is so, I beg leave to withdraw my amendment and I shall not move the subsequent amendment. I presume that in due course the House will agree to Amendment No. 68.

Amendment, by leave, withdrawn.

[Amendment No. 67 not moved.]

moved Amendment No. 68:

Page 242, line 8, leave out "such period as may be prescribed" and insert "the prescribed period ending immediately before the day appointed under section 127(2)"

On Question, amendment agreed to.

moved Amendment No. 69:

Page 242, line 22, at end insert—

"( ) Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section"

My Lords, this amendment, tabled in my name and that of my noble friend Lady Barker, seeks to make it clear that,

"Schemes where the qualifying pension scheme was wound up while the sponsoring employer was solvent shall be qualifying pension schemes for the purpose of this section", which means that they would be eligible for inclusion in the financial assistance scheme.

This covers a small number of people, but a group which in our view rightly feels a burning sense of injustice. We think that just under 4,000 people had their schemes wound up while the company was still solvent—in many cases solvent but probably very shaky; and in other cases the company has become insolvent and so is no longer in a position to help its pensioners. It is our intention, as I hope the amendment clearly implies, that this should apply only to funds which were wound up before 11 June 2003 when the relevant statutory instrument came into effect following the Maersk case.

When we discussed this in Committee there was a good deal of talk about moral hazard, to which I make two responses. First, I do not think that there is any moral hazard here, or it is a rather odd form of retrospective moral hazard because we are talking about a clearly defined group of people in the past, rather than anything that may happen in the future. Secondly, so far as concerns the pensioners of these companies, it makes no difference to them, when their fund is in serious deficit and they have lost a large part of their pensions, whether years ago the employer technically was or was not insolvent.

For all these reasons, we believe that this is a small but appropriate action to take. In Committee, the Minister tended to ask us not to tie her hands and not to chip away at the structure of the FAS. We believe that it would be wrong to exclude this small group of people from eligibility for the FAS, however modest the FAS benefits eventually turn out to be.

We were struck by the similar remarks made by the noble Baroness, Lady Turner, in Committee. I hope that she will feel able to support the amendment. I beg to move.

My Lords, I spoke to a similar amendment in Committee. Like many noble Lords who have been involved with the Bill, I have received a great deal of information from a small group of people who have been adversely affected because they seem to be excluded from any kind of assistance at all. As was said in Committee, it is a very small group of people involved in a "once only" situation. I hope that my noble friend will feel able to respond sympathetically.

My Lords, I am not sure I shall be able to do that. Amendment No. 69 seeks to ensure that assistance from the financial assistance scheme may be given in respect of members of pension schemes with solvent employers. We had an extensive and helpful debate at Report stage on this point. The debate underlined that there are real and important principles at stake which are not easily reconciled.

The noble Lord, Lord Higgins, made some apposite remarks at the time. He said:

"it is highly deplorable for a company which is perfectly solvent to renege on its pension promises, a classic moral hazard argument would ensue if the company concerned believes that the FAS will pick up the pieces".—[Hansard, 8/11/04; col. 707.]

Further, if all solvent employers renege on their promises, the cost on the financial assistance scheme will be considerable and the taxpayer would be picking up the tab. That was the argument and I agree with every word.

Noble Lords also discussed cases where a company may be insolvent but has a parent company or other connected company which is solvent and well able to contribute to the pension scheme. On the other hand, the noble Lord, Lord Oakeshott, also drew the House's attention to the situation where an employer is technically solvent but still in a very weak financial position in respect of funding the pension liabilities.

The range of views expressed shows how complex the issue is. The Government's starting point is the principle that solvent employers should be responsible for the occupational pension schemes they provide. If they make that promise they should, if their finances permit because they are solvent, deliver it. They should not ask other people, whether as taxpayers through FAS or levy payers through the PPF, to deliver it on their behalf because the pension promise is now inconvenient to some degree.

However, we are aware that the blanket term "solvent employer" covers an enormous variety of different circumstances. The purpose of our ongoing consultation and research is to understand what these are and whether and to what extent there may be sensible, workable distinctions to be drawn in the detail of the regulations while protecting the principle that neither the taxpayer nor the levy payer should stand behind an employer's voluntary pension promise.

Now that we have announced—this refers back to our previous discussion—that there will be no gap between FAS and PPF, the principle is even more important. Let us consider the position of a solvent employer and pension scheme trustees, tomorrow, who are negotiating a compromise agreement relating to an underfunded pension scheme. Let us assume that they believe they could find 70 or 60 per cent. If they know that FAS will include schemes with solvent employers up until April 2005, the trustees will have less incentive to press for a high level of employer contribution and the employer has less incentive to agree to a high level. Therefore, instead of settling at 50, 60 or 70 per cent, they might very well compromise at a much lower level, expecting FAS to take up the strain.

The impact could extend to solvent employers with ongoing pension schemes. Solvent employers would know for certain that FAS assistance will be available to them only up until April 2005 as, being solvent, they will not qualify for the PPF. So it could encourage solvent employers to decide to start winding up underfunded schemes before April 2005, compromise their debt at artificially low levels—20, 25, 30 per cent or whatever—and obtain FAS assistance. The additional demands on FAS in these circumstances could be vast.

I appreciate the desire for clarity on the position of schemes with solvent employers and I have given assurances that issues around employer solvency remain under consideration. We are not closing the door entirely. However, I hope that I have demonstrated that the price of making that decision now is unacceptably high. Given the very real moral hazard issues that would follow, I ask the noble Lord, Lord Oakeshott, to withdraw the amendment.

My Lords, I do not feel able to withdraw the amendment. I am sorry if I was not as clear as I should have been but I did not hear the Minister reply to the point that I made at the beginning. I was specifically referring only to funds that were wound up before 11 June 2003, so the very interesting and persuasive arguments that the noble Baroness has made about moral hazard do not apply.

Effectively, this is water under the bridge. The schemes were wound up in a period when there was no FAS and no PPF. The world has moved on and these poor people are left in a situation where, unless we insist on the amendment, they will qualify for neither the FAS nor the PPF. That cannot be fair and I wish to test the opinion of the House.

On Question, Whether the said amendment (No. 69) shall be agreed to?

Their Lordships divided: Contents, 64; Not-Contents, 134.

Resolved in the negative, and amendment disagreed to accordingly.

moved Amendment No. 70:

Page 243, line 20, at end insert—

"( ) The scheme established under subsection (1) shall be subject to annual review by Parliament, with a view to ensuring that the money provided is adequate to meet liabilities as set out in subsections (3) and (4)."

My Lords, I normally try to adhere to the requirement that amendments at Third Reading should be limited only to items of overriding importance or to items on which it has not been possible to obtain a reasonable response earlier in discussions. I must say that I might not always have agreed with the Minister's response to most of my amendments, but she has always presented a reasonable argument.

We know that in the matter of the FAS, a great deal has been left deliberately vague, and that I understand. However, in the past couple of days, a report has appeared widely in newspapers, including on the front page of the Financial Times, saying that specialists in the field were very doubtful whether the fund being established would be sufficient to meet the demands that were certain to be made on it. We are not talking about a tabloid, where scare stories are endemic—this was the lead story in the Financial Times, with headlines on the front page. I certainly thought that it was something that should be taken very seriously. It would be disastrous if members of failed schemes, having been led to believe that a rescue was imminent, should find that, after all, there was little for them in the FAS.

The amendment I have devised puts matters in the hands of Parliament. It seems reasonable; it is, after all, MPs who will be lobbied by angry constituents if the FAS is seen to be failing their needs. My amendment would require Parliament to look annually at the fund to make sure that it is adequate to meet the liabilities referred to in the legislation.

I hope that the Minister will agree that this is reasonable. The fund will, after all, be in the hands of elected Members of Parliament, who will know from their constituents whether or not it is working well. We know, of course, that pensioners, whether state or occupational, are not backward when it comes to lobbying Parliament.

We have to make sure that the FAS really is able to meet the requirements of the legislation and that people are not desperately disappointed after having their hopes raised. I beg to move.

My Lords, the noble Baroness has made a very important point. There is a case for having such an annual review. She indicated very clearly in her opening remarks, in referring to the article in the Financial Times, studies by Ros Altmann, and so on, that the scheme was starting off on an unsound basis.

We have complained all the way through the Bill's proceedings that we really do not know what the detail of the scheme is. In fact, apart from the various amendments we have managed to make in the course of our deliberations, which have gone some way towards putting flesh on the skeleton of the single clause in the Bill covering the FAS, a huge amount is still obscure.

By now, it should be possible for the Government to give some idea of to what extent they think that the provisions that are made for the FAS are adequate. The Chancellor, in response to a panic when it looked as if the Government might be defeated in the Commons on providing support for those whose pension schemes had gone bust, came up with a proposal at the very last minute, before it arrived at your Lordship's House, saying that there would be a sum of £400 million. However, that is not £400 million immediately, but spread over 20 or so years. It will therefore probably have a discounted present value of about £250 million, which is a tiny amount compared with many other items of government expenditure.

Of course, it is not only that amount; the assets of the schemes that have collapsed should presumably be taken into account so that the figures arrived at simply by dividing the £400 million spread over 20 years by the number of possible claimants is not the precise figure that is needed. Surely, by now, the Government have done some calculations to establish whether the funding is likely to be adequate. It is generally agreed that something like 65,000 people are likely to qualify, and they are members of a considerable number of schemes which we believe are going to be entitled to help under the FAS. Allowing for the assets and dividing the number of people into the amount of money, it seems that the likely benefit will be very small indeed.

We still have absolutely no indication at all about how the Government arrived at the figure of £400 million—none whatever. As far as we can see, it was plucked out of the air in a panic measure to buy off a revolt. Even at this late stage—it certainly is a late stage; this is almost the last trump as far as this Bill is concerned—we may get an answer. However, all the indications are that false hopes are being raised. I hope that when the Bill, with its various provisions, returns to another place, those who went along with the Government on the basis of this promise, which sounded a nice round figure and generous at the time, will reappraise their positions. In our view, the sum is not likely to be adequate and I hope that the Minister can give us some idea why she thinks that it is.

My Lords, the noble Lord's critique of the £400 million is now a critique that has one or two extra features. It is the first time that I have heard this notion that the discounted present value of that £400 million is £250 million. Is that what the noble Lord said?

My Lords, I have said the same thing time and again throughout the deliberations, and the noble Lord very assiduously attended throughout.

My Lords, £250 million?

Yes, my Lords.

My Lords, well that is my mistake. However, I understand that the question of how the £400 million is interpreted, how the sum is administered and how it can be reported on has yet to be pinned down. Certainly, it is unreasonable to suppose that it would be possible, on the face of the Bill, to specify that £400 million means X, Y and Z. With his experience as a Treasury Minister, the noble Lord should not have expected that to happen. He is trying to have his cake and eat it with his argument about this being a rather obscure matter.

Some of us have difficulty in accepting the noble Lord's critique and are sympathetic towards my noble friend's amendment. Let us see what the Minister has to say, but it is not quite as simple as saying that £400 million must nevertheless equal 20 times 20. There are several ways of skinning this cat, if I can use a different metaphor, and I want to query that there is only one way of viewing this arithmetic and it is the way asserted by the noble Lord, Lord Higgins. I am sure that I could come up with three or four different ways in which the figure could be interpreted, and we are not actually at that point. That is why I do not think that his critique should necessarily be accepted as a factual description.

My Lords, this is not the time or place to have a general discussion about the adequacy or otherwise of the FAS. Views are pretty widely known. We said from these Benches that it was a cruel deception when the figure was announced. Since then, the experts have got to work—people such as Ros Altmann—and her remarks over the weekend were virtually unprintable. It is fair to say that almost all independent experts believe that it will be only a drop in the bucket.

However, we are discussing the amendment moved by the noble Baroness, Lady Turner. I support it. It would be churlish not to, given that it is on similar lines to the one for triennial reports on adequacy that we moved and just lost at Report. It is a sensible amendment and I support it.

My Lords, we have had constructive discussions on the subject of future FAS accountability both in Grand Committee and at Report. I supported and still support the principle that the FAS must be accountable to Parliament and that regular reports on objective questions such as how many people have been helped and how much assistance they have been given ought certainly to be made available. The noble Lord lost his amendment partly because he did not accept my offer. None the less, we would still expect the information to go to Parliament and think that it is right that it should.

We have discussed at length the ongoing work that we are doing to determine how financial assistance will be provided—when, and to whom. I understand noble Lords' frustration at the lack of detail in the Bill today. But long before we begin making assistance payments, we will of course have a much clearer picture of how the FAS will operate and, when we do begin making payments, we want to ensure that the process is transparent and open to public scrutiny, and above all that we are able to keep the promises that we have made about this assistance.

Two other bodies which are being set up through this Bill—the Pensions Regulator and the Pension Protection Fund—will also be open to public scrutiny. Under provisions in Clauses 12 and 120, both the regulator and the board of the PPF will be required to produce reports and to send them to the Secretary of State, who must then lay the reports before each House of Parliament. We can make the same provisions with FAS under powers at Clause 287(4)(j) as well. I can confirm that we will do this to ensure that the arrangements for FAS reports are made in regulations. The detail of the new arrangements will of course depend on future decisions on the Government's arrangements for FAS, but I hope that this will satisfy my noble friend on that matter.

I will return to the concerns that I expressed at Report regarding amendments that refer to the "adequacy" of the assistance provided from the FAS. The problem is against whose judgment will "adequacy" be measured? We are discussing an assistance scheme; the FAS will not, as the amendment seems to imply, have "liabilities" as such, nor is there any reference to such liabilities in subsections (3) and (4). I therefore cannot accept the amendment as drafted. I hope that my noble friend will accept my assurances that we have the powers to require reports to be prepared and laid before Parliament on FAS in regulations. We plan to use them to ensure that FAS will be administered in a transparent and accountable way. With those assurances now in Hansard, I hope that my noble friend will withdraw her amendment accordingly.

My Lords, I thank my noble friend for those assurances and I am glad to learn that the intention is to ensure that the promises that have been made will be kept. I have made a careful note of that. I am glad that transparency is the objective and that the information will be publicly available as well as being available to Parliament. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

moved Amendment No. 71:

Before Clause 297, insert the following new clause—

"POWER TO VARY AGE ADDITION TO BASIC STATE PENSION

The Secretary of State shall have power to vary the amount of the basic state pension payable according to the age of the recipient."

My Lords, the amendment has been tabled for a particular purpose. The Minister and other noble Lords will be aware that it has been the policy of noble Lords on these Benches that there should be greater weighting of pensions towards those who are older. We believe that the longer someone has not received earnings from a job, the greater their need for an enhanced pension. That is our stated policy which we look forward to defending over the coming months.

The particular reason for the amendment, which was not moved at an earlier stage, is to make an inquiry of the Minister. There are already enhanced payments for the over-80s of 25 pence, or the "bottle of milk" provision, as it is known among pensioners. It was recently suggested to our colleague, Mr Steve Webb, in another place that the reason the Government were averse to greater age-related enhancements of the state pension was because they believed that they did not have the power to do so—they had no power to make a greater enhancement other than the current nominal 25 pence. I wish to ask the Minister at this opportune stage of the Bill whether that is indeed the case. I beg to move.

My Lords, perhaps I may say that I am slightly taken aback by the manner in which the noble Baroness moved her amendment. I thought that she was seeking to argue that older pensioners were poorer and, therefore, that they should have an increased state pension. The noble Baroness is signalling that that is her view. That is the argument I wish to address, rather than her more specific point. I have received some advice on that matter—there is no power to do anything about the 25 pence, except for that. We have no separate powers to go after that 25 pence figure. In other words, my understanding is that that would have to be done by primary legislation. If I have misled her I will come back to her. Time and again I have asked, "Why the heck was that not rolled up into something else?", given that we have been dealing with other matters. I am told that that matter would require primary legislation.

I wish to return to the substance of the noble Baroness's basic position and that of her party, which is to allow the Secretary of State to vary the amount of the basic state pension, presumably to increase it by age. We recognise that pensioners have additional expenses as they get older—in terms of warmth, for example. We have addressed the need for extra income by introducing a number of specific measures which help pensioners at the time that they need the extra income.

Winter fuel payments, for example, which from the age of 60 are worth £200 per eligible household, benefit over 11 million people in around 8 million households. Anyone aged 80 or over gets an additional payment of £100 as part of his or her winter fuel payment entitlement, which helps a further 2 million people. Help also includes TV licences and with council tax for those suffering hardship—where people over 70 benefit by up to £100 or so. This payment will go to over 6 million pensioners. We also reintroduced free eye tests, pensioners do not have to pay for their passports and the Transport Act 2000 helps guarantee that pensioners and disabled people can obtain concessionary services.

So we have done much to meet some of the very real areas where older pensioners find that their costs increase. The major point, in my judgment, is that because they tend to be less mobile and spend more time at home, it is heating costs that most affect what pensioners spend. We have addressed that decently, humanely, properly and appropriately with the winter fuel payments. However, going beyond that and providing an age-related addition to the basic state pension, for example £5 per week to all recipients aged 70 or over, with a further £5 at the age of 75 or so, would require a gross additional cost of almost £4 billion a year.

I do not want to rest my argument primarily on its cost, although that would be substantial. My problem is that that cost would not be well targeted, for two reasons. First, although it is clear that as pensioners get older they become poorer—often because their pensions, particularly for widows, do not keep pace with inflation and so on—it is also the case, as the Turner report found, that older pensioners do not spend their incomes. In cash terms, older pensioners actually reduce their expenditure from about £157 per person to about £122 per person. On average, a household headed by a person aged 65 to 74 spends about 90 per cent of its income. From the age of 75 onwards households spend about only 76 per cent of their income. The figures show that there is an average under-spend for older pensioners of about £30 regarding their income.

Obviously, poorer pensioners are much more likely to spend to their ceiling and better-off pensioners are less likely to do that. Whereas pensioners, according to the Turner report, appear not to disinvest themselves of their savings, as one might expect, the reason for the under-spend may be due to concerns about matters such as funeral costs and also that they are less mobile than in the past and are, therefore, not spending the money on transport that they may have done. To give more money to older pensioners when they now under-spend their incomes significantly, compared with younger pensions, would seem somewhat curious.

Secondly, there is a greater and more substantive argument. I know that the noble Baroness has seen the figures that I am about to give, because I have sent them to her honourable friend Mr Webb in the other place three or four times, but I do not believe that he accepts the nature of the argument. It is undoubtedly true that pensioners become poorer as they get older, primarily because they are increasingly likely to be widows without a pension. The median income of a couple under 75 is £261 and the median income for those over 75 is £227. The equivalent figures for a single pensioner under 75 are £150 and £143 for those over 75. There is no doubt that single pensioners' incomes will drop over the course of their time as pensioners by about £7 per week. These are median figures. It is undoubtedly true that pensioners become poorer as they become older.

But the noble Baroness did not tell the House that that is considerably overwhelmed by the difference between the poorest quintile and the highest quintile within each pensioner cohort. Among the under-75s, the bottom quintile has an average income of £161 for couples, with £542 for the top quintile. For those couples over 75 the bottom quintile is £143 and the top is £413. Crudely speaking, within each age cohort, between the poorest and the richest there is a 3:1 ratio of about £200 to £300, compared to the difference in income between cohorts, which, for single pensioners is around £7.

If the amendment were passed, one would be giving an awful lot of money to older, richer pensioners and not to younger, poorer pensioners. The discrepancy within each age cohort is very many more times the discrepancy between age cohorts. That is why the amendment is not fair. The sums and the statistics do not bear it out. I have read the statistics for inclusion in Hansard, because I have provided them to the noble Baroness's honourable friend three, four or five times—in Parliamentary Questions and debates. The Liberal Democrats still recycle their argument and there is still no recognition that the facts do not support the amendment; it is not the best way to target the available resources of around £4 billion.

We have done much to help the particular problems facing older pensioners, where the issue can genuinely be that of heat, which we have tackled with the winter fuel allowance. But given my other arguments, I simply do not accept where the noble Baroness is coming from. She is right that one becomes poorer as one becomes older, but the gap within each age cohort between rich and poor is so great that most of her money would go to pensioners who did not need it, at the cost of other younger pensioners who did. Therefore, I cannot accept the argument behind the noble Baroness's amendment and I hope that she will withdraw it.

My Lords, I thank the noble Baroness for restating the arguments, some of which I had heard before. I have two comments in response. First, pensioners on a higher income will be paying tax, as those on a lower incomes may not. Secondly, she talked about getting payments to those who need them. I believe that a much simplified system which relies on the basic state pension rather than complex claims would get it to those who need it, but who currently are not getting the income to which they are entitled.

The noble Baroness gave us a long list of additional payments which the Government have made to pensioners. However, she left one out of the list. She may have missed it because she regards it as inconsequential, but it is the one that proves the case—the Christmas bonus. None of these payments is uprated; they are all one-off and fixed. She left off the Christmas bonus because it remains at exactly the same level—£10—as when it was introduced.

I remember when the Christmas bonus was introduced because of one particular reason. I went to visit my great-uncle and he told me about a gentleman who had gone to the post office to collect his Christmas bonus. After picking it up, the man, with an air of defiance, said, "Nobody else is going to get their hands on this". He walked straight into the pub, drank the lot and was carried home. I rather suspect that if he were to do the same thing today, he would have the mildest of hangovers. It does not go very much further at all.

I thank the noble Baroness for answering the question that I really wanted answered, on the Secretary of State's power to vary that. I thank her very much for that and beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

My Lords, perhaps this is a convenient moment to announce that, in the first Division on the Pensions Bill, the number of those voting Not-Content was 143 and not 144, as announced. Although it may be improper for me to say so, it may be worth noting that that was not the fault of either the Clerks or the Tellers.

Clause 324 [Extent]:

moved Amendment No. 72:

Page 268, line 38, leave out ", 8"

On Question, amendment agreed to.

Schedule 1 [The Pensions Regulator]:

moved Amendment No. 73:

Page 271, line 3, at end insert—

:TITLE3:"Pension arrangements

The Regulator shall make pension provision for its chief executive and employees by means of a funded defined benefit pension scheme with rates of employer and employee contributions, benefits and indexation of pensions in payment, all broadly comparable to those provided to new members by the 100 pension schemes with the highest number of members for whom levies are payable to the Pension Protection Fund."

My Lords, I rise with a great sense of relief which I am sure is shared by other noble Lords as we near the end of our consideration of the Bill. In moving Amendment No. 73, I should like also, with the permission of the House, to speak to Amendment No. 80. The two amendments are substantially the same except that they refer to two different bodies.

The amendments deal with a simple issue of principle which we have discussed at considerable length both in Grand Committee and on Report. Amendment No. 73, which my noble friend Lady Barker and I tabled, takes very careful note of the Minister's detailed account on Report of the Government's intentions for how the pension schemes—the PPF in this case, but I assume that she also means the regulator—would operate. We have very carefully drafted the amendment to reflect exactly what she said, on the assumption that she meant it.

I am grateful that more research has been done. The statistics produced in Grand Committee were, frankly, a travesty. The noble Baroness has now produced information on 50 FTSE schemes. I should add that I believe that quite a small number of those are open to new entrants, which is the important point if we are talking about having a scheme broadly comparable to those for new entrants into the private sector.

Specifically, the Minister said that the scheme will be contributory, if it is on Civil Service lines; that it will be defined benefit; and that it will be broadly comparable to schemes in the private sector. The problem, with which she did not deal, is what the actual contribution rate will be. A contribution rate of 3.5 per cent from employees is fine, but the Turner report estimates that the implied total contribution rate for schemes with these sorts of benefits is between 22 per cent and 26 per cent. So, knocking off the 3.5 per cent that the employees are contributing, it is a very fair assumption that the total amount that the PPF members will have to pay in the levy towards the pension schemes of those people will be in the order of 20 per cent. We should have a clear provision addressing that in addition to the other provisions which the noble Baroness mentioned.

There is an important principle here. As Adair Turner points out in his excellent report, the public sector employs 18 per cent of the population, comprising 17 per cent of total earnings and 36 per cent of pension rights. He says:

"In 2000 there were about 4.6 million active members of private sector DB schemes, and a similar number in public sector schemes".

He believes that, given current trends, it is unlikely that there will be more than 1.6 million to 1.8 million private sector employees in active DB schemes in 20 years' time. Consequently, in 20 years, about three-quarters of those with good quality pensions will be in the public sector and most of the rest of the country will be out in the cold.

We therefore believe that the Pension Protection Fund is the place to start bridging the chasm between public and private sector pension provision. The staff of the PPF should be the last people to be hermetically sealed in a risk-free inflation-proof Civil Service pension capsule at the expense of the private pension fund members whose pensions they are paid to protect. I invite the House to support the amendment, to start establishing that principle. I beg to move.

My Lords—

Oh.

My Lords, if the noble Baroness does not mind, perhaps I may support the proposition that is being put.

I have sympathy with the amendment. In some ways, I do not think that it goes as far as I would go. In particular, I still find the idea of the chairman having a defined benefit scheme very odd. I do not know of many part-time chairmen in the private sector who have defined benefit schemes. Perhaps the Minister, who is so anxious to reply, can tell us how many of the chairmen in the 50 FTSE companies have defined benefit schemes. I should be very interested to know that. They are paid a fee, and if they want to, they can then contribute to a personal pension of their own. That is the rule.

However, that is not part of the amendment. The noble Lord, Lord Oakeshott—I almost called him my noble friend—has been extremely generous on this. He has raised a very important point, particularly regarding the Turner report. In 2000, there were 4.6 million active members of private defined benefit schemes. It is unlikely, according to Turner, that in 20 years' time, more than 1.6 million to 1.8 million private sector employers will be covered. That, incidentally, is a total reply to the Minister's point in the annuities debate about the destruction of final salary schemes if we went down that path. Much of the destruction has already been done.

I think that the Pension Protection Fund is the place to start, as the noble Lord said, "bridging the chasm" between public and private pensions. I think that an example should be set as far as that is concerned. I think that the noble Lord, Lord Oakeshott, has set that out very well. I hope that he will press the amendment to a Division.

My Lords, I shall speak very briefly. I have every sympathy with the amendment. The principle is right that there should be comparability between those who are employed to oversee these pension funds and the members of those funds. However, I have a problem with the amendment which derives from the currently changing nature of pension provision. There is no doubt that there is a great state of flux in all companies, not only the major companies to which this amendment refers. Although there has been a movement out of defined benefit schemes, companies have by no means settled on any particular method of providing pensions. Defined contribution schemes are shifting all the time even within those companies that are maintaining them.

I suggest to the noble Lord that the amendment might well cause practical difficulties because it implies that pension provision should be changed as we go along. Having said that, I completely support the principle behind the amendment.

My Lords, I was in a hurry to answer because I was being pressed on all sides to expedite the proceedings. Through no fault of my own we are running later than expected. I hope that the noble Lord, Lord Fowler, will understand that point.

I fully agree with the argument made by the noble Baroness, Lady Noakes, that to have a pension based on a comparison with other pensions would result in a shifting sands situation. I do not want to take up the time of the House repeating arguments that we have already discussed. However, I wish to make a few points. First, many of the staff who currently work for OPRA will transfer. They will have TUPE protection. Therefore, if this amendment were accepted, there would be a two-tier pension scheme. Secondly, I emphasised on Report that this was already a contributory scheme with, according to our information, rates of contributions broadly in line with those of 50 FTSE schemes. Thirdly, I emphasise that, given the small numbers involved, we would be dealing with very high costs—something like £120,000 to set up the scheme and £50,000 a year to run a separate scheme rather than allow some members to enter the existing Civil Service scheme.

I cannot give the noble Lord, Lord Fowler, the information he wants about chairmen but given that we regard this as virtually a full-time job we think it not unreasonable to include the relevant measure. I could mention the European directive and other matters, but I shall not do so. I simply ask the House to accept that in my view we have not heard any further arguments beyond those we heard on Report. We consider that this amendment would constitute an expensive gesture given the cost involved that might well outpace any savings which might result were we to establish that the premier scheme, which has a contribution rate of 3.5 per cent, was more advantageous. We would be continually comparing that with schemes that were themselves for ever changing.

For those reasons, which I have not had time to explore in greater depth, I hope that your Lordships will not support these amendments.

My Lords, the hour is late. I accept that not many new arguments have been made since Report. Neither we nor the Conservatives pressed this matter to a Division on Report as the amendment was technically defective and did not apply to the right people. However, in this case it clearly does apply to the PPF and I beg leave to test the opinion of the House.

On Question, Whether the said amendment (No. 73) shall be agreed to?

Their Lordships divided: Contents, 73; Not-Contents, 132.

Resolved in the negative, and amendment disagreed to accordingly.

moved Amendments Nos. 74 to 79:

Page 271, line 36, leave out sub-paragraph (5) and insert—

"(5) By virtue of subsection (2) of section 9 (non-executive functions), the function conferred on the Regulator by sub-paragraph (4)(b), so far as it relates to the terms and conditions as to remuneration, is exercisable on its behalf by the committee established under that section."

Page 273, line 32, leave out paragraph (a) and insert—

"(a) the committee established under section 9 or any of its sub-committees, or" Page 273, line 38, leave out "Non-Executive Committee" and insert "committee established under section 9" Page 275, line 3, leave out from "which" to end of line 4 and insert ", by virtue of subsection (2) of section 9, must be discharged by the committee established under that section)," Page 276, line 18, leave out "Non-Executive Committee" and insert "committee established under that section" Page 280, line 11, leave out "Non-Executive Committee" and insert "committee established under section 9" On Question, amendments agreed to. Schedule 5 [The Board of the Pension Protection Fund]: [Amendment No. 80 not moved.]

moved Amendments Nos. 81 to 87:

Page 294, line 28, leave out sub-paragraph (6) and insert—

"(6) By virtue of subsection (4) of section 113 (non-executive functions), the function conferred on the Board by sub-paragraph (5)(a) is exercisable on its behalf by the committee established under that section."

Page 295, line 1, leave out sub-paragraph (4) and insert—

"(4) By virtue of subsection (4) of section 113 (non-executive functions), the functions conferred on the Board by sub-paragraph (3)(a) and (b) are exercisable on its behalf by the committee established under that section."

Page 295, line 18, leave out "Non-Executive Committee" and insert "committee established under section 113" Page 295, line 20, leave out sub-paragraph (6). Page 295, line 32, leave out "Non-Executive Committee" and insert "committee established under section 113" Page 295, line 37, leave out from "which" to end of line 38 and insert "must, by virtue of subsection (4) of section 113, be discharged by the committee established under that section)" Page 299, line 33, leave out "Non-Executive Committee" and insert "committee established under section 113" On Question, amendments agreed to.

My Lords, I beg to move that this Bill do now pass. I shall say only a few sentences. The Bill is in a very different shape from when it entered the House. The changes have been made with consent all around the House, apart perhaps from on annuities. I am very appreciative of the active work of those on the Liberal Democrat and Conservative Front Benches; the work has been done in a spirit of co-operation and non-partisanship that shows the House of Lords at its best.

Apart from thanking my own team, I want to recognise on behalf of us all, I am sure, the work produced by the officials in terms of briefings, meetings, information and the like. I have never dealt with a team of officials who have shown such unrivalled good humour and intelligent industry. The Bill is better not only for your Lordships' work, but also for the work that the officials have continued to exhibit. The House and I have been fortunate in that work.

Moved, That the Bill do now pass.—(Baroness Hollis of Heigham.)

My Lords, it is increasingly clear that the time restraints under which the Commons operates with Programme Motions make it extremely difficult for it to do the job properly. I agree entirely with the noble Baroness; an enormous number of government amendments has gone through. There have been many government concessions, which have been entirely justified. We have divided the House on certain issues, all of which have involved amendments that ought to be accepted in another place.

The noble Baroness has done a remarkable job in improving the Bill. We have had great support from those on the Liberal Democrat Benches, and the House of Lords has operated as it ought to. We have carried out our task as best we can, and the Bill is a great deal better as a result of that. I join her in expressing thanks to officials.

My Lords, we join in those expressions, particularly those addressed to the officials. It is fair to say—they have been the first to admit it—that they have been on a very steep learning curve for much of the Bill, and we have greatly appreciated their help. I also thank the noble Baroness for her kind remarks. I am not sure about the "non-partisanship"; she will be interested to see when we start getting partisan. However, we have greatly enjoyed our proceedings and hope that we have improved the Bill.

On Question, Bill passed, and returned to the Commons with amendments.