Baroness Sherlock (Lab)

My Lords, I am grateful to the noble Lords for introducing their amendments. The amendments in the names of the noble Baroness, Lady Altmann, and the noble Viscount, Lord Thurso, would commence the regulation-making power in Section 169(2)(d) of the Pensions Act 2004 to allow the PPF board to discharge its liabilities through a lump sum. As we have heard, Amendment 155 would have the additional effect of enabling PPF members to transfer out of the PPF to an arrangement that offers benefits higher than PPF compensation, where an alternative sponsor can be found. The PPF is designed to discharge its liabilities by making regular payments to its members. That enables investment returns, plus levy payments, to make good the funding of schemes that transfer to the PPF and to build a buffer against future risk. This model has put the PPF in a strong financial position, but allowing transfers out would undermine its operation. Before the PPF board takes responsibility for a scheme, there is an assessment period, the aim of which is to ensure that the scheme does not go into the PPF until it is clear that no linked employer will rescue the scheme. Given that nobody took up the option originally for schemes that have transferred into the PPF, it is hard to see related employers who would do so many years later. However, Amendment 155 opens up this possibility, including from non-related entities. It could therefore require a fundamental restructuring of the PPF’s funding and investment strategy to reflect transfers out. This is not a minor option which costs nobody any money; in practice, it raises range of complex issues to be addressed. Importantly, these include how to safeguard members by ensuring that their destination is appropriately secure. The complexity could be significant. Enabling transfers out of the PPF would require a fundamental rethink of how it operates, its compensation structure and how the compensation system more broadly is managed. At this time, if any willing sponsors were identified, there is no framework to assess how adequate their funding would have to be to minimise the risk of returning to the PPF. If the sponsor were to fail subsequently, the scheme could end up transferring back to the PPF, and members could receive benefits at PPF levels even lower than they had been before they were taken out in the first place. The Government cannot agree to commence a regulation-making power which would enable lump sums to be paid in this way. The provisions in Section 169 were meant to be used only in exceptional circumstances, which have not yet come to pass. To open it up more widely would not be wise when the potential costs and risks of the PPF are unclear.