Lord Sikka (Lab)

My Lords, this amendment deals with a gap in the Bill. The transfer of surplus to employers could leave employees in jeopardy, especially when an employer enters bankruptcy. I will lay out a scenario. Suppose a pension scheme surplus is distributed to an employer but, soon afterwards, the pension scheme is in deficit and the employer enters bankruptcy. Under the pecking order at insolvency, as specified in the Insolvency Act 1986 and the Enterprise Act 2002, pension schemes rank as unsecured creditors, which is near the bottom. This usually means that they will receive little or nothing from the sale of assets of the bankrupt entity, and employees could lose some of their pension rights. A pension scheme with a deficit can be bailed out by the Pension Protection Fund, but the bailout is restricted to a maximum of 90%. This means that future retirees will lose some of their pension rights. Those already retired may lose some value compared with their original scheme, as the PPF annual increase could be lower than the rate of RPI or CPI. There is nothing in the Bill that enables a pension scheme to claw back surpluses taken by employers during the last few years—the amendment mentions 10 years, but I am happy to change it to five if that persuades some noble Lords to support it. In any case, if the employer is insolvent, there is no chance of recovering the deficit from the employer anyway, so the only possibility is to prioritise payment to the pension scheme from the sale of the assets of the bankrupt entity. In other words, the pension scheme must be paid before any other creditor.