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Mr. Waterson:
I beg to move amendment No. 157, in
clause 50, page 24, line 13, at
end insert— ‘( ) A scheme
established under this section shall not be subject to the requirements
to obtain audited accounts and an auditor’s statement about
contributions under regulations made pursuant to section 41 of the
Pensions Act 1995. ( ) The
Secretary of State may make regulations requiring that the trustees of
a scheme established under this
section— (a) make a
declaration regarding the scheme systems and controls,
and (b)
appoint a reporting accountant to review the
scheme’s systems and controls and obtain a statement from such
reporting accounting about their design and
operation.’. I
hope this will not be as controversial an amendment, but it may take a
while to explain it and in the course of explaining it, even I may
begin to understand some of the finer points behind it. It is a bit
tech-y, but here goes.
I take absolutely no credit for
this, it is entirely sponsored and put forward by the Institute of
Chartered Accountants in England and Wales, a body this Committee
should hesitate to argue with on these matters. Amendment 157 seeks to
set out exactly what kind of independent scrutiny the Government
intends to have for the personal accounts scheme. We can all agree
there has to be independent scrutiny and the non-accountants among us
might assume that should just mean an annual audit of the traditional
kind, which will ensure that the millions of new members in the scheme
get their proper entitlement, that the contributions are correctly
accounted for and broadly that the administration and financial probity
of the whole thing is as it should be. The Institute of Chartered
Accountants tells me it
is “very concerned that a
national scheme such as the personal accounts scheme cannot be audited
within the rules applying to occupational pension
schemes” and that the
scheme should instead be required to have what it
calls “a controls-based
assurance
review.” I hope
no-one intervenes to ask me what that is, but I hope I will be able to
give a clue later on. I understand there has been some contact with
officials on the technical aspects.
Mr.
O'Brien indicated
assent.
Mr.
Waterson: The Minister nods, so it may be that he could
put me out of my misery now by popping up to say that he accepts the
amendment. Let me just explain for the benefit of the Committee and
those outside what is behind
this. As I understand
it, if we do not have something like amendment 157 the assumption will
be that the audit requirements of existing pensions legislation will
apply to the personal accounts system. It is not a subject that has
been keeping me awake at night, but on the face of it, that appears
sensible; apparently it is not. It is partly because personal accounts
will be such a different animal from traditional pension schemes, not
only because of the order of magnitude but for all sorts of other
reasons.
Mr.
O'Brien: It might assist the hon. Gentleman to know that
we are still looking at the proposals we have had from the institute.
We want to ensure that the method of dealing with the accounts is the
best that can be achieved. It is true that this scheme will be of a
different scale and type from other schemes and therefore we need to
look at the particular scheme. We do not need primary legislation to
disapply the provisions of the Pensions Act 1995, we can amend these as
necessary either by regulations under section 41 of that Act or under
clause 106 of this Bill. I understand his point and we are still
considering this, but we wish to look at what is a complex issue in
more detail before taking a final decision on
it.
Mr.
Waterson: I am grateful for that
indication and although I will go into a bit more detail, I will go
into considerably less detail than I might otherwise have done. There
will be people out there who will be totally tantalised until the end
of time as to what I was coming
to say. Although the Minister’s intervention was partially
helpful, and I accept—I think the institute accepts—that
it is perfectly possible to deal with this point by regulation, the
institute wants a clear idea of where the Minister is going on this. I
share that
concern. I
will touch upon the main points of concern to the Institute. In a
traditional audit of possibly one million employers—of which
many thousands will be small employers—often with very mixed and
different record-keeping systems and so forth, all the contribution
records of all those employers would need to be checked so that an
auditor could give an opinion. This is vastly time consuming and vastly
expensive. The ICAEW says it is firmly of the view that it would be
impractical and that the enormous cost would be of little benefit to
the members who would have to bear it. The basic point it is making is
that there is a confusion between an audit and an overall check on all
internal systems and controls. What would be meaningful for savers and
personal accounts would be to call for a third party to check that the
administration is conducted properly. It calls this assurance
engagement, which looks at all the internal controls—operational
as well as financial.
There is a
precedent apparently. According to the institute, following the
introduction of internal controls requirements under the 2004
Act—who could forget it?—a number of institutions that
work for pensions schemes, trustees in managing scheme administration,
scheme investments and custody have adopted this controls-based
approach. It says that it would be cost-effective, and will provide the
appropriate comfort to job holders and savers. I think the institute
has a very good point. Moreover, having a provision whereby this is
reported to Parliament, perhaps annually, also makes a lot of
sense. I accept the
Minister’s point that this could, and perhaps should, be dealt
with by regulation. But the institute could not be clearer in its own
conclusions and who am I—or indeed, who is the
Minister?—to argue with that expert view? I therefore press the
Minister to perhaps be a little less coy about telling us and, in
particular, the institute where his thinking is going on this and how
he intends to deal with it.
Mr.
O'Brien: Clause 50 enables the Secretary of State to
establish the fact that this scheme is a trust which, like all
trust-based schemes, will be run in the interest of its members. The
Institute of Chartered Accountants in England and Wales has raised this
particular issue with my officials; I am grateful to them for the help
that they have given.
The amendment
seeks to change the way in which the Pensions Act 1995 applies to the
personal accounts scheme. It is based on the premise that the
requirement for an auditor’s statement about contributions would
be costly and difficult to compile due to the sheer numbers of
employers participating in the scheme. We acknowledge that this is
complicated by the fact that the employers in the scheme are likely to
be small employers who may not necessarily employ an accountant. An
auditor may not be satisfied that contributions have been paid properly
and would therefore only be able to compile qualified accounts, which
would not be of much benefit to the members.
The principle of proper
accounting is paramount and all equivalent schemes should be subject to
the
same, or effectively the same, level of scrutiny and transparency. That
is an important point. As part of having confidence in personal
accounts we need to ensure that we do not have a situation where either
the accounts are unduly qualified or, alternatively, a system of
accounts which raises questions about personal accounts. The institute has a point in
terms of its view, but as yet, we are not necessarily convinced that
its approach is one that we can sign up to wholeheartedly. There may
well be other options that we wish to examine before reaching a final
conclusion. I have been assured that officials are looking at this
issue with care. They have not yet reached a final conclusion, but it
is safe to say that they have considerable sympathy with the concerns
of the ICAEW and they are to let me have advice in due course about
whether the approach favoured by the ICAEW, or an alternative approach
for dealing with the problem they have identified, would be the best
way forward. We could then deal with that through regulations. I hope
that with that reassurance the hon. Member will be able to withdraw his
amendment. 1.45
pm
Mr.
Waterson: I am grateful to the Minister for reassuring me.
He has put my mind—and, I hope, the institute’s—at
rest to the extent that this is being looked at very carefully. There
is considerable sympathy for the proposal, but also an underlying
acceptance that we cannot just work on the basis of the existing audit
requirements and that there has to be a solution. This is one of
perhaps two possibilities. On that basis, I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
50 ordered to stand part of the
Bill.
Clause
51Scheme
orders:
general
Mr.
Waterson: I beg to move amendment No. 26, in
clause 51, page 25, line 15, leave
out subsection
(5). This is a rather
simple probing amendment. It is not entirely clear why such a scheme
order should exclude liability for a trustee, officer or employee of
the trust arising from administration or management, or provide an
indemnity for such liability. It might be merely that there is a
precedent and that is what happens already. However, there will,
potentially, be significant liabilities for trustees, officers and
employees in running the scheme, so one wonders why they should be
excluded from liability. If they are not liable, who is?
Putting it another way, and
looking at the analogy of non-executive directors, is there a prospect
of insurance being obtained against that liability? If there is a
liability, that presumably means that somebody, somewhere—the
members, I guess—have lost out. If they cannot look to the
trustees, officers or employees, who would they look to? That is a very
long question to the Minister, which I am sure that he will answer in
his inimitable fashion.
Danny
Alexander: I will not detain the
Committee long, but this is an interesting issue, and I will be
interested in the Minister’s response to the questions that the
hon. Member for Eastbourne has rightly posed. The deregulatory review
of private pensions also looked at this issue and said:
“We
believe that as a quid pro quo for the increased visibility and
controversy surrounding trustee duties, all pension scheme trustees
should be covered, at employer or scheme expense, by appropriate
indemnity insurance or assurances from the employer and/or scheme, that
would at least cover the cost of litigation so long as the trustee is
not found to have acted
improperly.” I
thought that subsection (5) was, essentially, trying to follow the
advice that there should be some degree of indemnity. While some
protections already exist for trustees who have acted in good faith,
there is unease as to whether the law would continue to be interpreted
as it is at the moment. There seem to be good reasons for ensuring that
trustees have that degree of protection to allow them to carry out the
important role that the Bill allocates to them. When drafting the Bill,
did the Minister read what the independent reviewers said in the
deregulatory
review?
Mr.
O'Brien: I agree with the hon. Member
for Inverness, Nairn, Badenoch and Strathspey that there has been
concern that trustees should not be the subject of undue liability in
respect of their actions. They will retain an obligation to fulfil
their fiduciary duties. However, it is anticipated that there will be
an indemnity to cover them in respect of any decisions that they make
that are other than flagrant and deliberate breaches. They will be
fully liable for any flagrant or deliberate breach of their duty, but
they should not be liable for having made decisions with which others
merely do not agree. There could be all sorts of legal challenges to
such decisions, and the trustees might end up having to defend
themselves
individually. It
is right that indemnities should cover the trustees for the costs of
any such actions. PADA or, in due course, the Personal Accounts Board,
should be able to pay any legal costs that the trustees incur, should
they be challenged on the basis of any decisions that they have made
after due consideration. As the hon. Gentleman says, the board will
have a high profile and a lot of people will be interested in its
decisions on investment and other matters. We do not want trustees
dragged into court unnecessarily, and if there are court cases, it is
right that an indemnity should cover them. Trustees are indemnified in
many existing private pension schemes. There are exclusions to their
liabilities. We will be broadly following such a precedent, which does
not apply to all schemes, but does to a lot of
them. It
is fairly straightforward and standard for trustees to have
indemnities. We want to ensure that we attract high-quality trustees
who are not going to feel that they will end up having to pay a lot of
money in court fees because someone has challenged a decision that they
made properly. That is the basis for the provision. I appreciate that
the amendment is probing and I hope that I have addressed the concerns
of the hon.
Gentlemen.
Mr.
Waterson: The Minister has not let me down. I am reassured
by his answer, as I thought that I would be. I beg to ask leave to
withdraw the
amendment. Amendment,
by leave,
withdrawn. Clause
51 ordered to stand part of the Bill.
Clause
52Consultation
of members and
employers
Danny
Alexander: I beg to move amendment No. 154, in
clause 52, page 25, line 26, leave
out subsection (3) and
insert— ‘(3) The
Members’ Panel is to consist of such members and future members,
or persons representing the interests of members and future members, as
the trustees may appoint. (3A)
The trustees must appoint one of the members of the Members’
Panel to be the chairman of the
Panel. (3B) The trustees must
secure that the membership of the Members’ Panel is such as
to: (a) give a fair degree of
representation to members and future members;
and (b) respect diversity among
members and future members of the
scheme. (3C) The chairman and
other members of the Members’ Panel are to
be— (a) appointed for a
fixed period, and on other terms and conditions, determined by the
trustees, and (b) paid by the
trustees in accordance with provision made by or under the terms of
appointment. (3D) But a person
may be removed from office in accordance with those terms and
conditions only with the approval of the Secretary of
State. (3E) A person who ceases
to be a chairman or another member of the Members’ Panel may be
re-appointed. (3F)
Representations by the Members’
Panel— (a) the Trustees
must consider any representations made to it by the Members’
Panel. (b) if the Trustees
disagree with a view expressed, or proposal made, in the
representations, it must give the Members’ Panel a notice to
that effect stating its reasons for
disagreeing. (c) the
Members’ Panel may publish such information as it thinks fit
about any representations made by it to the
trustees. (d) where the
Members’ Panel publishes information about any representations
made by it, the trustees must publish any notice it gives under
subsection (2) in respect of those
representations. (3G) Advice
and research functions of the Members’
Panel— (a) The
Members’ Panel may, at the request of the
trustees— (i) carry out
research for the trustees; (ii)
give advice to the
trustees. (b) The trustees must
consider any advice given and the results of any research carried out
under this section. (c) the
Members’ Panel may publish such information as it thinks fit
about advice it gives, and about the results of research carried out by
it, under this
section.
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