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Pensions Bill

My Lords, when I look down at my notes, which perhaps I should do more frequently, I do notice that the word is ““undesirable”” and not ““desirable””. I am most grateful that we have the record absolutely correct on this. Let me just home in on the issue. Trustees could buy a separate annuity for each member. However, in practice, trustees frequently buy one insurance policy or annuity covering the benefits for a number of members. Under this arrangement, there should be no risk to members provided that the policy covers all the benefits due under the scheme. If we were to make this proposed amendment, trustees of such schemes could find that they would have to comply with the scheme funding, employer debt and PPF legislation in respect of such benefits, which would impose additional costs without any benefit to members. Indeed, it would be diverting scheme assets from their primary purpose of providing pensions. It is our view that where a member has accrued rights on a money purchase basis, and then the scheme has bought an annuity exactly matching its liability to the member, those benefits should remain money purchase in character. Importantly, the benefit of that annuity should be ring-fenced for that member. We will be considering whether schemes are, in practice, ring-fencing the benefit of such annuities appropriately. If not, it would be appropriate to legislate to clarify the position. I can reassure the noble Baroness that the powers that would be conferred by Amendment 31 would enable the Government to make regulations in this area as necessary. With that assurance, I hope the noble Baroness will feel able to withdraw her amendment. The noble Baroness also asked about the breadth of the power conferred by Amendment 32 and was concerned that it could be used to remove PPF protection retrospectively by broadening the definition of ““money purchase benefit””. It may be helpful if I set out the Government’s overall view of this issue. In general, the PPF offers protection to members of occupational pension schemes unless it is not needed, either because the scheme is a money purchase scheme and hence cannot be in deficit and needing the protection of the PPF, or because the benefits are secured in some other way; for example, if the scheme benefits from a Crown guarantee. If the Government do not intend to use the power conferred by Amendment 32 to remove PPF protection from schemes or members who may need it—sorry, the Government do not intend to use the power. Perhaps I need to read more carefully! It is conceivable that pensions professionals could develop benefit structures that would be outside the definition of ““money purchase benefit”” as it would be after these amendments come into effect, but which do not need to be covered by the protections of the statutory scheme funding regime, employer debt legislation and the Pension Protection Fund. It might therefore be appropriate to amend the definition of ““money purchase benefit”” further in order to respond to these market developments while maintaining suitable protection for members. However, the Government have no current intention of using these powers to either broaden or restrict the meaning of ““money purchase benefit””. The proposed amendments would also permit regulations to be made with retrospective effect but would not require that any regulations had retrospective effect. If the Government were responding to an innovative benefit design it would seem unlikely that any retrospection would be needed. Finally, I note that the UK is bound by the provisions of the 1980 insolvency directive, and that it therefore needs to ensure that pension scheme members are protected in the event of the insolvency of the employer sponsoring their pension scheme. This would limit any Government’s freedom to use the power conferred by Amendment 32—or, indeed, the power at Section 126 of the Pensions Act 2004, which permits Ministers to prescribe that certain schemes are not eligible for PPF protection—to prevent members losing out. I hope that the noble Baroness is reassured about the breadth of these powers.