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Baroness Hollis of Heigham moved Amendment No. 8:

After Clause 1, insert the following new clause:

Codes of practice to be issued

(".—(1) The Authority may issue codes of practice containing such practical guidance as the Authority thinks fit for the purpose of promoting good practice with regard to occupational pensions.
(2) Without prejudice to the generality of subsection (1) above, the Authority shall in one or more codes of practice provide practical guidance on the following matters;
(a) arrangements for the appointment of member trustees;
(b) the time off to be permitted by an employer for the purposes of sections 36 or 37 below.
(3) When the Authority proposes to issue a code of practice, it shall prepare and publish a draft of that code, shall consider any representations made to it about the draft and may modify the draft accordingly.
(4) If the Authority determines to proceed with the draft, it shall transmit the draft to the Secretary of State who shall—
(a) if he approves it, lay it before both Houses of Parliament; and
(b) if he does not approve it, publish details of his reasons for withholding approval.
(5) In the case of a draft code of practice containing practical guidance on the matters referred to in paragraph (a) or (b) of subsection (2) above, if the draft is approved by resolution of each House of Parliament that Authority shall issue the code in the form of the draft and the code shall come into effect on such date as the Secretary of State may by order appoint.

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(6) In the case of a draft code of practice not containing such practical guidance, if, within the period of 40 days beginning with the day on which a copy of the draft is laid before each House of Parliament, or if such copies are laid on different days, beginning with the later of the two days, either House so resolves, no further proceedings shall be taken thereon, but without prejudice to the laying before Parliament of a new draft.
(7) In reckoning the period of 40 days referred to in subsection (6) above, no account shall be taken of any period during which Parliament is dissolved or prorogued or during which both Houses are adjourned for more than four days.").

The noble Baroness said: The amendment relates to codes of practice. In the light of the Minister's replies to Amendments Nos. 1 and 7, I have some hope that this amendment represents the next best thing.

The Minister made much of the fact that the regulator cannot reasonably inspect each and every scheme from scratch. In fact, we were not arguing for that. We were arguing for spot checks in addition to annual reports being sent to him so that he could spot check.

We all accept that, according to the 1994 report of the Government Actuary—that is, the latest report—there are some 128,000 private sector schemes. Of those, 96,000 have fewer than 11 members and 26,000 have fewer than 100 members. We all accept that, in other words, the vast majority of schemes are small.

It is also the case that most of those schemes do not have elected or nominated members. Of the schemes with more than 11 members, 1,500 have no trustees and 21,000 have no elected or nominated trustees. In other words, two-thirds of all schemes—which represents almost one-third of all members—have never had scheme member trustees.

Most of those schemes, if not all, will have elected trustees starting from scratch. One must consider the responsibilities that they will be asked to undertake and the learning curve and liabilities that will follow. We will explore some of those issues on the next Committee day when we are debating the position of trustees.

We are arguing that the many thousands of small schemes, which will have member trustees for the first time, will need a code of guidance within which to operate in order that each scheme's trustees will not have to re-invent the wheel. Such a code from the regulator would give them a clear steer, clear guidance and, following the remarks of the noble Lord, Lord Marsh, a surer sense of when they should whistle-blow. The less interventionist the regulator, the more important it is that the trustees have confidence about what is in his mind.

For that reason, Goode believed that the codes of practice had a useful role to play, and perhaps I may give some examples. There are the procedures for electing trustees, for key information to be disclosed to scheme members, for the prior notification of any proposed changes in scheme benefits; the procedures on transfers or for the frequency and conduct of meetings of trustees. Ideally, KPMG has suggested, there should be a local scheme compliance officer to buttress them. We believe that the provisions in the amendment will be a highly desirable, useful and welcome addition to the regulator's activity. We are sure that the trustees of smaller schemes will find them helpful.

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Precisely because the Government are unwilling to have a regulator who is pro-active and intervening in the schemes by spot checking, it is important that, through a code of practice, the regulator should give trustees guidance about his expectations against which they can measure their schemes and on the basis of which they can have some steer as to when they should whistle-blow. In the light of the Minister's previous comments, I hope that he will accept the amendment or come back at Report with a version of his own to that effect. I beg to move.

Lord Ezra: I support the noble Baroness in promoting the amendment. One of the prime objectives of the Bill must be that best practice should be pursued in the management of pension schemes. The Goode Report referred to codes of practice as providing a useful supplement to legislation. I think that the function of the regulator—particularly if he is not to be as pro-active as we on these Benches would like—could be enormously helped by the establishment of codes of practice which could be modified from time to time. Those who have to operate pension schemes would also be helped by these codes. The question arises whether the regulator himself should prepare codes or whether they should be prepared by one or other of the professional bodies concerned with pensions.

In that connection the noble Lord—perhaps he has this among his various briefing papers—is no doubt aware that his colleague at the Department of Social Security, Mr. James Arbuthnot, exchanged correspondence with the president of the Pensions Management Institute last October about the codes of practice prepared by that institute. They number about a dozen and the president of the institute suggested that they might be seen by the regulator and, if he agreed with them, approved by him so that they could be regarded as codes which could help both the regulator and those concerned with running the schemes to run them effectively.

I feel that if there is no guidance given on a practical basis to those running the schemes, one of the great opportunities presented by this legislation will have been missed. I hope that the Minister, when he replies, will say that this is an issue which—as his colleague said in his reply to the president of the Pensions Management Institute—the Government will consider and on which they will come forward with some proposals, or that he will leave it to us, if he likes (if he cannot accept this amendment), to come forward with further amendments at a later stage.

Lord Mackay of Ardbrecknish: I believe that there are really two parts to this amendment. I am sure the noble Baroness will accept that. One part seeks to put on the face of the Bill the words,

    "The Authority may issue codes of practice".

The other part requires the authority to prepare codes of practice in certain circumstances. I believe that the noble Baroness mentioned in particular the appointment of trustees. Those codes of practice would have to be approved by the Secretary of State and by Parliament.

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I hate to keep saying no, but my reason this time ought to find favour with the Members of the Committee who have spoken. I am asking the Committee to reject this amendment not because I have any objection to the codes of practice, indeed quite the reverse. There is an important role for such codes in setting standards of excellence in the day-to-day administration of pension schemes. The noble Lord, Lord Ezra, rightly referred to correspondence by my honourable friend Mr. Arbuthnot on this matter. Of course codes of practice are valuable supplements to legislation but I do not think they can stand in place of it.

The Bill, and the regulations which will follow it, will provide a comprehensive and effective legislative framework for regulating pension schemes. I very much hope that pension professionals and administrators will see fit to complement that framework with codes of practice which they are best placed to devise and promulgate. Indeed I know—the noble Lord, Lord Ezra, has mentioned this—that the major pensions organisations are already committed to the task, and I welcome their initiative.

When the new regulatory authority is established, I am sure it will wish to consider publishing guidelines and practice notes on the way it will operate. But that is a matter for the authority itself to decide. Codes of practice undoubtedly have their place alongside the law but I do not believe they should be enshrined in the law. If they were enshrined in the law, they could not be amended and updated quickly in the light of practice and experience and I believe they would lose much of their value.

The regulatory authority will have the powers to produce codes of practice. While that is not specifically on the face of the Bill, it can be found in paragraph 2 of Schedule 1, which states:

    "The Authority may do anything (except borrow money) which is calculated to facilitate the discharge of their functions, or is incidental or conducive to their discharge".

It has to be said that the authority may not borrow money. I am happy to put it on record—if that helps the Committee and satisfies it that we are serious about codes of practice—that we would expect the authority, in pursuance of the powers in this part of Schedule 1, to issue codes of practice on many and varied issues surrounding the operation of funds and trustees and so on. Perhaps I have not gone as far as the noble Baroness, Lady Hollis, would like. She would like certain of these codes of practice to be approved by the Secretary of State and by Parliament. However, I hope with these assurances about codes of practice and the important role they will have to play, the noble Baroness will feel able to withdraw the amendment.

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