Examination of Witnesses (Questions 80-96)
THE PENSIONS
REGULATOR & DEPARTMENT
FOR WORK
AND PENSIONS.
21 NOVEMBER 2007
Q80 Mr Williams: We are delighted
you have taken it on board. What we cannot understand is why you
could not appreciate something so self-evident previously?
Mr Norgrove: Perhaps I can answer
that. It is not entirely self-evident because, after all, Parliament
in putting in place the Act of 2004 recognised in that that if
commercially confidential information were to be published by
us regularly then companies would come to us very reluctantly
and we would not get the information that we need to do the job
properly. To be cautious about publication at the start I think
was right and we will continue to be cautious about publication
of information that we get through means other than determinations.
Q81 Mr Williams: By demonstration
it alerts other practitioners to faults, does it not, so in that
case can we now look to you providing the details on all your
past determinations? If you are going to do it on all your future
determinations, would it not be helpful now for those who have
not had the benefit of a determination from you to see where you
have given determination so they can avoid them?
Mr Norgrove: I guess that is something
that would be worth considering.
Mr Hobman: Thank you.
Q82 Mr Williams: I am delighted.
You do not have to thank me. What you could do instead is to send
me a note to let me know when it is being published and if possible
send a copy of whatever is published to the Clerk of our Committee
so he could circulate it to Members. Would that be all right?
Mr Hobman: Yes.[2]
Q83 Mr Williams: Well, that has been
a very satisfactory start. You have recognised that you have to
take a risk-based approach to so many schemes and you need the
individual schemes also to be based on an awareness of risk, so
why is it that 34% of schemes offered no formal training in risk
management last year? One in three?
Mr Hobman: Because you have identified
one of the important areas of governance that we know we need
to seek to improve amongst the trustee community. The truth is
that we have started in many of these areas of governance from
quite a low base and that is a tough reality that we all face.
Q84 Mr Williams: It is frightening—and
I am not getting at you—that for all these years there has
been so little awareness of the need for this training. The miracle
is that there have not been more serious problems.
Mr Hobman: I think that is a fair
assessment.
Q85 Mr Williams: Do you think we
have just been lucky or they have been well managed anyhow?
Mr Hobman: Have we been lucky?
Or is it perhaps that because there really has not been the focus
on these matters in the past that it has been difficult to say
what material issues may have emerged.
Q86 Mr Williams: If you look at Appendix
Five, it tells us in (v) that final salary schemes which have
£700 billion invested in them have 14 million members, massive
numbers, but two-fifths of these schemes did not have a process
to identify risk. That is staggering, is it not? When it says
two-fifths, is that two-fifths of the 14 million people who were
at risk (that is 5.6 million) because their schemes had not recognised
it, or is it two-fifths of the £700 billion?
Mr Hobman: It is two-fifths of
schemes.
Q87 Mr Williams: So 5.5 million people
--- well could you decide amongst yourselves which is right and
I will take it from there.
Mr Hobman: Two-fifths of schemes
but not members, so in general where these standards are less
prevalent are amongst the smaller schemes, so as a total of the
number of members it will be quite a large proportion of schemes,
it will be a relatively much smaller proportion of members.
Q88 Mr Williams: Yes so is that still
the situation? What is being done to reduce the 40% figure?
Mr Hobman: That is why in the
priorities that we have set out for governance overall and for
DC schemes in particular, where many of these smaller schemes
are, we have now agreed with the regulated community through the
consultation we have had that this is an important area to work
on and where in the year ahead we will be focusing very much on
ensuring that the tool kit is accessible and used by trustees.
That is one of the reasons that we made sure it was a free resource
to them so they could not say this was something they could not
afford to do, because we understand that costs are an issue for
smaller schemes, and also bolstering it with other guidance and
good practice examples which we referred to earlier that we will
creating ourselves in the months ahead, so we will focus on this.
Q89 Mr Williams: As an additional
safeguard, it probably is the case and I hope it is—but
I just have to ask it—is there a duty to give you an early
warning if problems emerge or can they just bury their heads and
hope they can scramble their way through it and you will never
find out that they were in trouble?
Mr Hobman: The strict duty in
whistle-blowing occurs if they believe there has been a breach.
One of the benefits of us helping the industry to focus on these
risks is that many of the people who work with trustees—they
after all need other people to make their schemes work, they need
advisers, providers, administrators and so on and so forth—are
themselves now much more focused on these issues and I think are
better able to work with us to ensure that some of these standards
are raised. That still makes it a big task but it shares the load.
Q90 Mr Williams: Coming back to the
title point, I am sure that most of them would alert you. Is there
a strict duty imposed on them to alert you if they see themselves
running into trouble and their membership being put at risk?
Mr Hobman: If they believe that
it amounts to a genuinely material risk to members then yes, we
expect them—
Q91 Mr Williams: You said you expect;
there is a difference between expecting and there being a duty
to do it.
Mr Hobman: It would be a duty
under the whistle-blowing requirements because if what they saw
amounted to a breach of the Act because it was a position of such
significance then they should. Beyond that there is, I have to
say, a grey area where they might view things as acceptable and
we might look at it and say there is mismanagement and, given
the landscape we face, particularly with this large number of
small schemes, that is why we have to focus so much of our efforts
on education and ensuring that they are enabled and get standards
up as quickly as possible.
Q92 Mr Williams: Are there any penalties
for anyone who deliberately fails to tell you that a scheme is
running into trouble and wilfully therefore runs it into greater
difficulty?
Mr Hobman: If they fail to report
a breach and it was material then, yes, there will be a penalty
under the Act.
Q93 Mr Williams: What would those
penalties be?
Mr Hobman: I think it would most
likely to be us considering whether they are fit and proper persons
to consider as trustees.
Q94 Mr Williams: You mean you might
sack them?
Mr Hobman: We might sack them.
Q95 Mr Williams: What about anything
else if millions of pounds are lost?
Mr Hobman: That would depend,
as you say, on the scale of the wrong. It comes back to the conversation
we had earlier and the circumstances in which the loss came about.
If it was through some form of criminal negligence or fraudulent
evasion then our response might be very different to whether it
was a large sum but still gross mismanagement.
Mr Williams: Thank you.
Chairman: I think Mr Mitchell has a last
supplementary.
Q96 Mr Mitchell: Mr Norgrove mentioned
more important now than the problem of the Maxwell-type fraud
was the problem of companies going belly-up and leaving the pension
scheme in a mess. It can often be that a problem with contributions
to the pension scheme is a warning signal that something is going
wrong, but it need not necessarily be so, so do you keep an eye
on the financial health of companies? Is there any reporting system
from the FSA for instance that: "Northern Rock is going funny"?
How do you keep in touch with the strength of companies to fulfil
their commitments?
Mr Norgrove: The first line of
defence is the trustees themselves who are expected now to watch
the covenant of their company and its financial health, and if
they think they need to do that to re-open the agreement reached
with the management about the funding of the scheme. In addition
to that, we have our own group of people who, as Tony said earlier,
scan all the sources of information that we can get to make sure
that we pick up so far as we can problems in companies.
Chairman: That concludes our business.
Thank you very much. I think it has been a very good hearing.
We were highly critical of Opra, as you know, in 2002 but I think,
partly as a result of our efforts, your more powerful organisation
has been appointed and you appear to have done your honest best
to make some good progress. I am sure in our Report we would be
happy to give you plaudits where that is appropriate and no doubt
we will therefore get no publicity for our Report! However, we
would also wish to encourage you to further effort particularly
with money purchase schemes where the governance might be more
lax and where they may be more at risk, so I am sure we will have
some useful recommendations to make in our Report.
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