Pensions Bill

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Clause 85

Supplementary powers

Question proposed, That the clause stand part of the Bill.

Mr. Waterson: The Minister should be a little worried, because the Under-Secretary has a better gag writer than he does. Who knows where that might lead?

Malcolm Wicks: At least we have one.

Mr. Waterson: We do not need one. Gags come naturally. ''It's the way I tell 'em.''

This is another sinister clause, drafted by the Darth Vader of the Department. It is far too wide. It states:

    ''The Board may do anything which—

    (a) is calculated to facilitate the exercise of its functions, or

    (b) is incidental or conducive to their exercise.''

It would have been bad enough if the Government had satisfied themselves with paragraph (a), but paragraph (b) goes way beyond anything that we could legitimately pass in what passes for a democracy. If we had not got ahead of ourselves, an amendment would have materialised in time for Thursday's sitting. It would have suggested that we simply insert the words, ''on administrative matters only.'' Surely the supplementary powers that the board seeks to have would relate only to the administration of its

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functions. Anything wider than that strikes me as sinister, so it would be extremely helpful if the Minister could explain why the Government believe that these extraordinarily wide supplementary powers are needed.

Mr. Pond: I can reassure the hon. Gentleman about his Darth Vader concerns. The clause does not mean that the organisation may do anything at all. It merely means that the action must relate to the exercise of the board's functions. It may not do anything that the legislation expressly prevents it from doing. It therefore clearly relates to the functions of the board and its administrative responsibilities. It will certainly not allow the board to take over the universe in a way that might concern the hon. Gentleman.

Question put and agreed to.

Clause 85 ordered to stand part of the Bill.

Clause 86

The Non-Executive Committee

Amendment made: No. 364, in

    clause 86, page 53, line 32, leave out 'discharged' and insert 'exercised'.—[Malcolm Wicks.]

Clause 86, as amended, ordered to stand part of the Bill.

Clause 87

Investment of funds

Malcolm Wicks: I beg to move amendment No. 365, in

    clause 87, page 54, line 25, after 'be', insert 'at least'.

Malcolm Wicks: The clause allows the board to invest assets in order to manage its affairs prudently. The Pensions Compensation Board has a similar power to invest funds that are surplus to its immediate requirements under section 85 of the Pensions Act 1995.

The pension protection fund board is required to appoint fund managers in relation to investing assets to manage its affairs prudently. The current wording of clause 87(2) requires the board to appoint two, and only two, fund managers to manage investments. This minor Government amendment will require the board to allow at least two fund managers to carry out the functions. The value of the pension protection fund's assets is likely to be significant in time. It is only reasonable, therefore, that the board should have the flexibility to appoint the number of fund managers that it thinks is required to maximise its investment returns and implement its investment strategy.

The amendment will enable the board to ensure that its fund managers have the breadth of knowledge, experience and expertise to manage the fund's assets to the best possible standard. We consider it appropriate for the board to have at least two fund managers, for reasons of propriety.

Amendment agreed to.

Question proposed, That the clause, as amended, stand part of the Bill.

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Vera Baird: I am conscious that the board of the pension protection fund will take over the functions of the current Pensions Compensation Board. I assume that a separate levy to that will continue. Is it intended under the Bill that that fund will be managed separately from the main fund of the pension protection fund? I imagine that that must be so. Is there a separate provision? I am slightly puzzled that the matter is referred to as if there is only one set of investments, when it is likely that there will be two.

Malcolm Wicks: The answer is yes—or two yeses. The new fund will take over the compensation regime from the previous, or existing, board, and there will be a separate fund to be managed. Mercifully, because of relative lack of fraud, the fund has not needed to be gigantic. The levy has been incurred only from time to time.

Question put and agreed to.

Clause 87, as amended, ordered to stand part of the Bill.

Clause 88

Investment principles

Mr. Waterson: I beg to move amendment No. 349, in

    clause 88, page 55, line 9, at end insert—

    '(5) The statement of investment principles prepared under this section shall be made available by all appropriate means to members of the public.'.

This is another amendment inspired by the National Association of Pension Funds and it is a sensible one. A statement of investment principles must be prepared, as we have seen, under the clause. That is quite right too. However, I can see no reason why that should not be available to members of the public. The body in question is, after all, a public body designed to protect members of the public who are members of final salary occupational pension schemes. The NAPF takes the view—and I agree—that the information should be in the public domain.

I cannot see any argument, for example, that the investment of the pension protection fund would be so enormous that knowledge of the investment strategy would affect other economic considerations. I can see no immediate reason for any secrecy or confidentiality. I think, although I cannot find the relevant clause off the top of my head, that I am right in saying that the board will publish its accounts annually, and that those will be open and available to members of the public, who take a close interest in such matters. So it seems perfectly sensible that the investment principles underlying the way in which those concerned deal with the funds or assets with which they are endowed, or the money received through levies, should be set out in a way that is accessible to the public.

Malcolm Wicks: I agree with the hon. Gentleman, but I do not think that his amendment is necessary to achieve the objective. I certainly support the aim that he outlined. We stress that although the body being set up will operate at arm's length from Government, it must abide by reasonable reporting requirements, which will include the duty to prepare annual reports and accounts. The account must also contain an

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actuarial valuation of the fund's assets and liabilities. The requirement to produce a written statement of the principles governing decisions about investments is similar to that which applies to trustees of pension schemes, which is set out in clause 199. It is intended that the statement of investment principles must be made available to members of the public on request as part of the disclosure requirements. The details of the disclosure requirements will be set out in regulations under clause 165(1), which we shall discuss in the coming weeks.

In view of that reassurance, I hope that the hon. Gentleman will consider withdrawing the amendment.

Mr. Waterson: I am grateful for the Minister's explanation; I am thoroughly reassured. I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 88 ordered to stand part of the Bill.

Clause 89

Borrowing

Question proposed, That the clause stand part of the Bill.

Malcolm Wicks rose—

Mr. Waterson rose—

The Chairman: Make up your minds.

Malcolm Wicks: We are both such gentlemen; we were deferring to one another, although that may not continue.

The clause allows the board to borrow sums that it may require from time to time to carry out its functions and to give security for any amounts that it borrows. The power to borrow is designed to address short-term liquidity problems and is normal for many executive, non-departmental public bodies. For example, the provision exists for the Pensions Compensation Board. The board may borrow from certain deposit takers or banks, and this term is defined as organisations authorised to accept deposits, and complies with the Financial Services and Markets Act 2000. However, the power will be restricted, in that the board may not borrow if its total borrowing would exceed its borrowing limit, which will be set by the Secretary of State in regulations. The board will, of course, also have to meet legal requirements for the prudent management of its finances and investments.

Mr. Waterson: I am grateful for the Minister's explanation, but I have some additional questions. First, he said that borrowing should be restricted to deal with short-term liquidity problems, but our concern is about longer-term liquidity problems. Does the Minister think there is a case for taking a slightly more relaxed attitude to that sort of borrowing? Clause 89(1)(b) states that the board may

    ''give security for any money borrowed by it.''

What kind of security does the Minister have in mind? Does he mean the uncharged assets of schemes taken over by the board, or other things?

I want to probe the Minister about the basis for the borrowing limit. The heart of the clause is missing,

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because the Secretary of State will have the power to decide the borrowing limit. What is the thinking behind the proposal? What criteria will be applied to produce a borrowing limit, and will it be related to the income from the levies, or the income on the assets being administered at a given time? Will the approach be based purely on liquidity or on other relevant issues?

The big question, which hovers around the edges of many of the clauses, is about the Government's position. From my brief but highly informative trip to Washington it seemed that there was a consensus on both sides of the political argument that the American Government could not allow the Pension Benefit Guaranty Corporation to go under. Our Government are being unrealistic in suggesting that they will set up the board and the fund, which will run themselves and not require input from the Government if things go horribly wrong.

In the context of clause 89, that translates into the cost of borrowing because, as I said earlier, if the Government bit the bullet and said that they would stand behind the fund, that would not only satisfy the concerns of people such as the hon. Member for Cardiff, West, but reassure people who need assurance. It is pointless to have this elaborate structure if it does not reassure people, but the cost of borrowing would be that much lower simply because the board would not have to go to the commercial market and there would be some benefit in having support from the Government.

I am sure that the last thing the Treasury wants is to be seen to be backing the fund and I understand the narrow approach that would produce that result. However, the Treasury wants to interfere in all sorts of other aspects of the Bill, as we have seen, so will the Minister give a little more detail about the basis of borrowing, the borrowing limit, security, the Government's role and the cost of borrowing?

 
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