We cover a range of topics in clauses 29 to 31. Clause 29 continues with the issue of deficits and surpluses, and deals with one very specific issue. I want to read into the record a precise description of what the clause tries to achieve as there has been some uncertainty about what we are trying to do here. The clause enables regulations to be made to provide for an amount to be treated as a debt due from an employer to the trustees or managers of a pension scheme that provides collective benefits in cases where there is a deficit that is attributable to a specified offence or the imposition of a levy.
In general, the employer is not on the hook for a CDC scheme, but, in this one specific case, we may provide for an amount to be treated as a debt due from an employer. I will explain that situation.
The provisions under section 75 of the Pensions Act 2004, referred to as the employer debt provisions, are usually not relevant in the context of collective benefits, because a funding shortfall that has to be met by the employer cannot arise. For the same reason, money purchase schemes are also not usually subject to the employer debt provisions. However, there are some limited circumstances in which it is appropriate for an amount to be treated as a debt due from an employer to the trustees or managers of the scheme, both in the context of money purchase schemes and to the extent that a scheme provides collective benefits.
Our intention is that, in specific circumstances where money purchase schemes could be subject to the provisions of section 75, the same should apply to the extent that a scheme provides collective benefits. I stress, however, that we only intend to use such powers in specific circumstances.
Although subsection (2) provides that regulations may correspond to or resemble any provisions made by section 75 of the Pension Act 1995 that in turn resemble a provision in section 89(2) of that Act in relation to money purchase schemes, we do not intend for that power to be exercised in any circumstances other than those set out in subsection (1).
Our intention is that regulations made under clause 29 should capture the same situations as those set out in regulation 10 of the Occupational Pension Schemes (Employer Debt) Regulations 2005 to ensure consistency between the treatment of money purchase schemes and schemes to the extent that they provide collective benefits. I am sure that that is clear.
Clause 30 is on transfer values. We are creating this new collective benefit, but what value does someone get when they transfer their money out of a scheme containing collective benefits? The clause contains a power to require in regulations that trustees or managers of a scheme offering collective benefits have, and follow, a policy for the calculation and verification of cash equivalents for collective benefits. A cash equivalent means—not surprisingly—the cash equivalent calculated on a given date of any benefits that have accrued to or in respect of a member under the rules of the scheme.
Regulations can require trustees or managers to ensure that the policy is consistent with any requirements imposed by regulations under section 97 of the Pension Schemes Act 1993, which deals with the calculation of cash equivalents; make provision about the content of the policy; require trustees or managers to consult about the policy, and make provision about reviewing and revising the policy. There are similarities between the regulatory regime for collective benefits and other forms of provision, but there are also distinct characteristics. Collective benefits are different, so transfers have to be different.
There is a collective pool of assets. Members’ benefits are calculated from the assets available and risks are shared between members to try to achieve a smoother outcome. Therefore, we cannot deal with transfers in the same way as other benefits. Transfer values for money purchase benefits use the realisable value of the member’s share of the assets, and final salary schemes, for example, use a cash equivalent for the promised benefits. There will not be one model of collective benefit, so whatever we do needs to work across a range of models.
Transfer values for collective benefits will need to take account of the effect of pooling of assets and risk sharing at the time a transfer value is calculated to ensure that a given member does not get a disproportionately low or high figure. The process needs to be transparent, and the requirement for trustees or managers to have policies on transfer values will provide such transparency. I assure the Committee, however, that we will consult on any regulations made under the clause.
Clause 31 covers what happens when a scheme winds up. It enables the Government to make regulations to cater for the winding-up of schemes providing collective benefits. It provides for regulations to disapply or modify the application of sections 73, 73A, 73B and 74 of the Pensions Act 1995, which, as the Committee well knows, concern the winding-up of occupational pension schemes in relation to collective benefits. It also allows for provisions to be made on those matters in relation to collective benefits.
Section 73 of the 1995 Act provides for a priority order if a scheme winds up without enough assets; section 73A makes provisions for how a scheme should operate during wind-up; section 73B makes supplementary provisions, and section 74 deals with the discharge of liability on wind up. All that the clause does is ensure that we have equivalent provisions for the wind-up of schemes with collective benefits as we do for other forms of pension provision. The details of that will follow in regulations as we work through the Bill, but the basic point is that the clause is giving us primary power to introduce such regulations to work through the fine detail over the coming months.
I hope that is helpful. I have covered a range of topics and I commend clauses 29, 30 and 31 to the Committee.