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Baroness Seear: Surely the weakness in what the Minister has said is that the regulator, as rather loosely defined in the Bill, relies on somebody else to blow the whistle. It will be recognised that there are 150,000 pension schemes. But on these Benches as well as on the Labour Benches we feel very strongly indeed that the regulator must be proactive, and that he must not rely on whistle blowers. We shall discuss this point in relation to a later clause in the Bill. He must be in a position to be completely independent and to take the initiative himself. Otherwise, the regulator will not be able to carry out the functions which, as all sides of the Committee are agreed, he must control to be able to take action in time against any offences which could lead to a recurrence of what we have seen in the past.
Lord Marsh: I tremble to think that I begin my remarks by disagreeing with the noble Baroness, Lady Hollis, on this issue, and I am sorry because I share her views on many matters. However, the amendment states that,
There are two major elements in pension fraud and in fraud generally in the financial services sector. The first is the financial ignorance of most people and their flat refusal to take a serious interest in their own financial affairs. In this area the level of people's naivety cannot be exaggerated.
A second feature is that many of those who transgress in this area over and over again have drawn the attention of those whom they seek to defraud to the regulatory authorities as a sign of their good housekeeping"I am a member of so and so", so to speak. The regulatory authorities frequently give the impression that they can exercise a degree of supervision which in fact they cannot. That was true in the Barlow Clowes case and in a number of other cases.
A third feature can be exemplified by the Maxwell case, although we all agree that the Maxwell affair was not typical. There were a number of peoplenot just the trusteeswho were in a much better position to exert supervision over what was going on than any outside regulatory authority could have been. There will be court action elsewhere which will decide exactly where the blame lay. But it is not just the trustees in general; board members also have a role to play, as do the auditors and the managers of pension funds who are employees.
With great respect to the noble Baroness, Lady Seear, I differ greatly from her. The provisions of the Bill which deal with whistle blowing and place those direct responsibilities on individuals are a much more likely way of preventing some of the abuses than trying to give a central authority detailed responsibilities in relation to tens of thousands of different schemes.
We do not have an enormous problem with dozens of schemes collapsing every week. But when a scheme collapses it is traumatic in the extreme for those who lose out on it. It is a major issue. The great problem is not the failure of a regulatory authority but the failure of a number of individuals who knew what was going on but for one reason or another did not blow the whistle.
The noble Baroness, Lady Dean, gave a moving example of one particular case. Such things do not happen with no one knowing about them. They happen without the knowledge of the regulatory authority. But certainly they do not normally happen without somebody within the organisation knowing, whatever particular responsibility that person may have.
Lord Monkswell: Perhaps I may intervene on this point. The noble Lord, Lord Marsh, put forward some powerful arguments, effectively saying that the regulator can keep control of the situation. That argument strikes a chord with me.
I was concerned that, in his opening remarks, the Minister stated that 150,000 schemes are operating very satisfactorily. How do we know that? That is one of the difficulties. To a large extent the whole business of regulating the pension fund industry is a matter of confidence.
We are trying to ensure that there is a satisfactory regime in which everyone can have confidence. I am not sure that it helps to say that there are 150,000 schemes and they are all operating satisfactorily. We need to put in place some mechanisms that can demonstrate to the public and the scheme members that there is some overview and that some confidence can be placed in it.
Baroness Seear: I should reply to the noble Lord, Lord Marsh, since he did not seem to agree with me. What we ask for in ordinary parlance is a belt and braces operation. We do not say that people cannot blow the whistle; we say that, in addition, the regulator should be able to intervene proactively. It is a double safeguard that we want. We do not rule out the other people.
Lord Mackay of Ardbrecknish: Let me respond to some of the points that have been made. I was a little mystified by the question of the noble Baroness, Lady Seear, about the complete independence of the authority
We have to look at the Bill as a whole. Listening to some of the noble Lords opposite, one would believe that that was the only defence. But we must look at all the other defences that have been put in place in the Bill. As the noble Lord, Lord Marsh, rightly pointed out, primary responsibility rests with the trustees, the auditors and the actuaries. We shall come to that issue later in the Bill. Their primary responsibility will be spelt out in some detail. Because they are in the right position, they will be obliged to blow the whistle if they see or come across something which they feel is suspicious.
Let me repeat that the authority will have a wide range of investigatory powers in order to act when it suspects that something is amiss. It will not need to wait for a whistle blower, so to speak, nor to respond only to a whistle blower. For example, if it has come across a problem in a pension scheme and believes that there may be a similar situation in a similar pension scheme, there is nothing to prevent it moving across.
But there is a great difference between that and the position being urged on me, which is to make the regulator look over and supervise routinely something in the order of 150,000 pension schemes. As the noble Baroness, Lady Hollis, pointed out a few moments ago, the Bill departs from the PLRC recommendations on the issue of routine monitoring. It was recommended that the new regulatory body should require schemes to submit copies of annual reports and other documents on an annual basis. We rejected that on the grounds that it would not be a good use of resources and would add hugely to the expense of the authority. Frankly, we are very doubtful whether the collection of those reports simply sent in to the authority would give the authority any real basis on which to make the kind of judgments which, if we go down the road that noble Lords ask me to go down, they would expect the authority to make.
I entirely agree with the remarks made by the noble Baroness, Lady Seear. We are not pursuing the role of the regulator in terms of detailed scrutiny. We are trying to establish on the face of the Bill the compact or contract between the regulator and the bodies that he regulates. This amendment will spell out his duties. That would mean a more active and interventionist role. It would be a general supervisory role, and so on. On the one handprecisely as the Government themselves wanted under the Financial Services Act 1986, so that there is no precedent here but well established practicewe are trying to establish his duties and responsibilities as one side of the compact; and, on the other hand, that then allows scheme members and new trustees to understand what the function and duties of
I remind the Committee that at this point in time over two-thirds of existing schemes, covering nearly one-third of all employees, have no elected or nominated trustees. That means that the new trustees are coming in cold. We shall come on later to other points relating to codes of practice. But at the least those trustees are coming on to trustee boards for the first time and are entitled to know what the function, duty and responsibility of the regulator is if they are to seek to bring the scheme up to the best practice that we all want to ensure.
What can be more reasonable than that we spell out in the Bill what the regulator does so that those he regulates know what he intends to do? What can be more reasonable? Why this reticence? Why this hesitation? Why this cloaking in obscurity? Why these shadows? How do we expect new trustees, in schemes for the first time, to operate as we would wish as "whistle blowers" when they do not know the job and function of the regulator? The Government established that principle in previous legislation and are refusing to put it in place here, even though it has been urged on them by one of the most high-powered and significant committees on pension law reform since the war.