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Standing Committee B
Thursday 18 March 2004
[Mr. James Cran in the Chair]
Requirement for member-nominated trustees
Kevin Brennan (Cardiff, West) (Lab): I beg to move amendment No. 299, in
clause 196, page 122, line 30, leave out 'one-third' and insert 'one-half'.
The Chairman: With this we may discuss the following amendments: No. 301, in
clause 196, page 123, line 2, leave out 'one-third' and insert 'one-half'.
No. 303, in
clause 197, page 123, line 37, leave out 'one-third' and insert 'one-half'.
No. 305, in
clause 197, page 124, line 6, leave out 'one-third' and insert 'one-half'.
Kevin Brennan: The amendments deal with involving members in their pension fund. The subject has generated much interest in recent years since it has become more accepted by trade unions, in particular, and workers that they should regard pension schemes as a form of deferred wages. In many cases, rather than paying money directly to workers, employers are making contributions to a worker's pension fund. Rather than pay wages, therefore, employers are making a promise that at some point in the future the worker will receive a pension. Later we will discuss the problems with that pension promise, which the Bill is meant to rectify.
The Bill presents an opportunity to strengthen the association between workers and their pension funds. The amendments would do that by probing the Government on the clauses about member-nominated trustees. It is well established in most pension schemes that member-nominated trustees are on the boards of trustees of pension schemes, but perhaps it is time to consider increasing the proportion of member-nominated trustees up to best-practice levels. Why have the Government picked the proportion of one-third as the number of trustees to be nominated by members?
The amendments would increase that proportion from one third to one half, which seems sensible. At the very least, employees have half an interest in what is happening to a pension fund, and it could be argued that they have more. Employers have legitimate interests, too. From the point of view of what is happening to the workers' pension scheme, it is important that at least half of the trustees are member-nominated. That would help to boost members' confidence in schemes, which is attempted
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elsewhere in the Bill with the provision of both a pensions regulator and a pension protection fund.
Recent events at Allied Steel and Wire and in many other companies have shown that employers retain more than adequate powers to safeguard their interests. Generally, for example, benefits cannot be increased without the consent of the employer, but employers can force reductions in benefits and contributions through their power to discontinue schemes. The Bill also requires that employers agree on the funding strategy as adopted by the trustees, so there is no argument that having 50 per cent. of trustees nominated by members would infringe employers' interests, which are protected in any case.
This morning we debated people's past statements and their pasts coming back to haunt them. In opposition, the Labour party supported one half of trustees being member nominated, so I look forward to hearing why the Under-Secretary has fixed on the proportion of one third and whether he will consider increasing it.
Mr. Nigel Waterson (Eastbourne) (Con): I do not want to speak against the amendments. As the hon. Member for Cardiff, West (Kevin Brennan) knows, we will debate amendments tabled by the Conservatives which also hope to strengthen and bolster the position of member-nominated trustees, albeit in a different way.
I want to probe the hon. Gentleman's thinking. We all received the same briefing, I think, and it is basically the TUC's position. There is nothing wrong with that, but it is right to put its provenance on record. While I understand the logic of the arguments made by the TUC and the hon. Gentleman, has he considered whether enough people will come forward? We will discuss some of the more onerous requirements that will be placed on trustees, especially those in the smaller companies. Is he, or is the TUC, convinced that there will be sufficient candidates?
Kevin Brennan: Some of the amendments on members' training requirements and so on are designed to make it easier for people to come forward. The greater interest in the issue means that people will be much more likely to do that than they have been.
Mr. Waterson: The hon. Gentleman might be right, and I hope that he is. We have a lot to say on the issue of training and the yardsticks. The Bill puts some broad and potentially onerous responsibilities on trustees in the future and it will need a special kind of person to fulfil that role, whether they are a member or from some other source. I hope that that is something that the TUC and others might wish to get involved in because a recognised set of qualifications or training must be developed. That would be fine if the TUC have an input. My only reservation is whether enough members would be prepared to take on that task. Let us hope that that is the case. Although I have that slight reservation, I have no problem with the amendment.
The Parliamentary Under-Secretary of State for Work and Pensions (Mr. Chris Pond): Before I discuss
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the amendments, I shall say a few words about the purposes of clauses 196 and 197 to which they relate. Clause 196 does two things: it ensures that every occupational pension scheme has member-nominated trustees and brings much needed simplification to that area of legislation. Clause 197 has the same effect in relation to member-nominated directors, where the trustee is a company. Trustees will be required to make and implement arrangements for appointing at least one third member-nominated trustees and to do so within a reasonable time.
The Government believe that member-nominated trustees add value to any pension scheme by bringing different skills and experiences to the role. They help to give members confidence in their scheme and a sense of ownership. Many more schemes have member-nominated trustees than was the case before the Pensions Act 1995. However, there are still too many that do not. That is why we are withdrawing the employer's right to opt out of having member-nominated trustees.
We are told that current legislation is too complex and too difficult to operate. That view is reinforced by the recommendations of the Pickering report. The clauses represent simplification because they focus on the outcome—member-nominated trustees in all schemes—rather than the process by which trustees must be nominated and selected. The effect of the amendments would be to increase the minimum proportion of member-nominated trustees from one third to one half.
At the outset, I must say that we have no difficulty with the practice or the principle of one half of the trustees being member-nominated. Pension schemes can exceed the one-third minimum and we are happy for them to do so. However, we need to think carefully about the potential burden on schemes that could arise from making that a legislative requirement for every scheme. For many schemes, member-nominated trustees are still a relatively new concept. A requirement was introduced in the Pensions Act 1995 and schemes have gone to a great deal of trouble and expense to put arrangements for one third member-nominated trustees in place. We must think carefully before making any change, despite the powerful arguments of my hon. Friend the Member for Cardiff, West. However desirable a 50 per cent. requirement might seem, we need to bear it in mind that even small legislative changes, such as this one, often create widespread disruption as thousands of schemes are obliged to change accordingly.
Some schemes already have 50 per cent. member-nominated trustees, which is to be welcomed. However, what is important is not the exact proportion, but getting some members on every board. Having ordinary members on the board is not about having individuals to represent the interests of scheme members, nor is it about creating a voting block to balance the power of employers; it is about bringing a different set of skills and experiences to bear and providing board discussions with a different perspective. It therefore follows that 50 per cent.
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should not be seen as a critical or pivotal figure that ensures that member-nominated trustees get their way somehow or outvote their fellow trustees on the board. It could be argued that it is wrong to set scheme governance against a conflict background of that sort.
All trustees have the same responsibilities. That is the important point. They have the responsibility to run the scheme in the interests of the beneficiaries. The overwhelming majority of trustee boards work together in that way for the interests of members as a whole. Indeed, I am told that trustee decisions are rarely made by anything other than complete consensus.
It is important to work with the pensions industry and sponsoring employers to continue to encourage good quality occupational pension schemes. I think that my hon. Friend will acknowledge that the changes we propose represent a genuine step forward, although there is some discussion among us about whether a third or a half is the appropriate proportion. They will lead to more ordinary scheme members sitting on trustee boards, while at the same time giving schemes more flexibility to devise nomination and selection arrangements that are best suited to their own circumstances.
We are removing the employer's right to opt out. That is an important step forward. We are also ensuring that we get member trustees on all trustee boards and that we simplify the prescriptive legislative requirements that schemes are currently forced to follow. Our priority is not to prescribe the proportion of member trustees or who they should be, but my hon. Friend made some important points and we are prepared to consider the matter further.