Pensions Bill

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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 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 51

Scheme 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 52

Consultation 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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