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Lord McIntosh of Haringey: My Lords, the intention of the amendment is acceptable, but we wonder whether the Insolvency Service was consulted before the Bill was drafted.

Lord Lucas: My Lords, I can confirm that it was consulted. I commend the amendment to the House.

On Question, amendment agreed to.

Clause 97 [Other permitted disclosures]:

Lord Lucas moved Amendments Nos. 40 and 41:

Page 59, line 25, leave out from ("1989") to end of line 26.
Page 59, line 27, leave out from ("proceedings") to second ("the") in line 29 and insert ("under the Insolvency Act 1986 or").

On Question, amendments agreed to.

Clause 98 [Disclosure of information by the Inland Revenue]:

Lord Lucas moved Amendment No. 42:

Page 60, line 9, leave out from ("functions") to end of line 11.

The noble Lord said: My Lords, I spoke to this amendment with Amendment No. 35. I beg to move.

On Question, amendment agreed to.

Clause 14 [Requirement for member-nominated trustees]:

The Earl of Buckinghamshire moved Amendment No. 43:

Page 6, line 32, leave out ("deferred members of the scheme") and insert ("those deferred members of the scheme from whom it is reasonably practicable to obtain approval").

The noble Earl said: My Lords, in moving Amendment No. 43, I should like to speak also to Amendment No. 48. I moved a similar amendment in Committee and should like to remind your Lordships that this amendment deals with the practical problems of consulting deferred members. When trustees consult members about changes to the rules of a scheme, they have to consult current pensioners and active members, but have discretion about whether to consult deferred members.

The current drafting of the Bill suggests that if the trustees decide to consult deferred members they must consult all or none. Practically, that would mean that none of the deferred members would be consulted, because in many schemes current addresses are not available for all deferred members.

In Committee my noble friend the Minister accepted the principle behind the amendment, but felt that the amendment as drafted would enable the trustees to be discriminatory. The amendments have therefore been redrafted to achieve the same purpose, but will no longer allow discrimination. On that basis, I beg to move.

Lord Mackay of Ardbrecknish: My Lords, the substance of these amendments was raised in Committee. At that time, I recognised that an important issue had been identified and I undertook to consider the matter very carefully.

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I acknowledge that not all deferred members may be known to the trustees. For example, they may not hold up-to-date addresses for all deferred members. If trustees are faced with the difficulty and expense of tracing all deferred members they may be reluctant to use their discretion to include them in the statutory consultation procedure. I do not want this clause to work to the detriment of deferred members.

I am happy to accept the principle of this amendment. However, I do need to consider in more detail the specific wording needed and I hope my noble friend will allow the Government more time to consider what the appropriate criterion should be. We will thus be able to bring forward any necessary amendments in another place. With that answer, I hope that my noble friend will feel able to withdraw his amendment.

The Earl of Buckinghamshire: My Lords, I am grateful to my noble friend for his reply. On that basis, I beg leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Clause 14 [Requirement for member-nominated trustees]:

Baroness Hollis of Heigham moved Amendment No. 44:

Page 7, line 6, at end insert ("or, in the case of a money purchase scheme, at least two-thirds of the total number of trustees").

The noble Baroness said: My Lords, the amendment relates to trustee membership. In Committee we pressed an amendment that 50 per cent. of trustees of a defined benefit or final salary scheme should be scheme members. We argued that on the ground that it was standard practice among the country's blue-chip firms—Shell, Unilever, ICI, Boots, Sainsbury, Courtaulds, Albright and Wilson, Allied Lyons and many more —and that such companies valued such arrangements as they offer better scrutiny, a better information flow, and more confidence in the pension scheme and the company.

It seemed right that trustees should reflect the balance of interest involved to bring the poorer schemes up to the practice of the best. We emphasised, too, that it in no way reduced the employers' existing freedoms, in the sense that the pension remained voluntary: employers would still define rules of eligibility; they could still veto any improvement in benefit; they could still take contribution holidays; and they could still wind up the scheme. In other words, all the long-stop powers remained with the employer—a recognition of the fact that he stood guarantee for any deficit on the scheme.

When we argued in Committee that 50 per cent. of the trustee members for defined benefit schemes and final salary schemes should be scheme members, we were defeated. The Government made three points in reply. Two of them were contradictory. The third, I hope, makes my case tonight.

The Government argued, first, that trustees held a fiduciary duty on behalf of the scheme: they were not delegates and therefore it did not matter from which side of the management divide they came. Whether one-third

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or 50 per cent. of the trustees were scheme members should not alter their behaviour, according to the Government. The proportions were irrelevant.

The Government's second argument was precisely the opposite. So far as concerned the employer, the proportion suddenly became relevant. The Minister said:

    "The employer is the one giving the guarantee. He is the one who has to top up or make good the fund in the event of any deficiency. Therefore the employer has a major interest in the successful operation of the fund. We believe that it is appropriate that that should be recognised in the composition of the trust board".—[Official Report, 13/2/95; col. 448.]

In other words, on the second argument the Minister was saying that trustees drawn from scheme members had a fiduciary duty to all interests and so it did not matter whether they formed one-third or one-half, but that the trustees nominated by the employer clearly had a primary duty to protect the employer's interests because of his responsibility for funding the deficit. Therefore the employer was entitled to claim, said the Minister, a majority two-thirds of the trustees. Scheme member trustees, on the Government's arguments, were stewards for all; employer trustees, however, were stewards for the employer.

Finally, the Government emphasised that because defined benefit and final salary schemes were voluntary, and they lay off the risk on the employer, who is obliged to meet the deficit, any tilt of power away from the employer on the trustee board would encourage employers to wind up defined benefit schemes and go instead for defined contribution or money purchase schemes, where the investment risk was laid off not on the employer but on the employee. And that, said the Government, was why Goode recommended that only one-third of trustees in defined benefit schemes should be drawn from the members whereas two-thirds of the trustees should be scheme members where money purchase schemes were being handled. That is the point of the amendment. We seek to follow word for word the logic of the Government's argument in Committee.

We are arguing tonight that if scheme members should represent only one-third of the trustees in defined benefit schemes, while the employer should have two-thirds because he takes the risk, then for those same reasons, in money purchase schemes, where the risk is taken by the employees, they too should have two-thirds of trustee members.

If the Government wish to argue the fiduciary point then each, in both sets of schemes, should have 50 per cent. of the trustees. If the Government wish to argue the opposite —that the majority interest of trustees should lie with where the financial risk is laid off—then if it is appropriate for the employer to have two-thirds on final salary schemes, it is appropriate for the scheme members to have two-thirds of the trustees on money purchase schemes. I do not mind which way the argument goes, but the Government cannot argue both, because they are contradictory.

As the Government said, either all trustees have a fiduciary duty, in which case we have 50 per cent. on both, or the majority reflects where the financial deficit

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funding lies, in which case, on money purchase schemes, the majority of trustees should remain with the employees.

Every argument the Government adduced for the two-thirds of trustees representing employers on defined benefit schemes applies word for word for two-thirds of scheme members on defined contribution schemes—no more, no less. That is why Goode recommended it, and stated:

    "For money purchase schemes ... where the employer has no liability beyond the employers' contribution, scheme members should be entitled (but not obliged) to appoint at least two-thirds of the trustees, with the employer being able to reserve the right to employ the remainder".

The Government Actuary's recent report makes it clear that whereas in final salary schemes employers may often be contributing between 10 per cent. and 15 per cent. while employees contribute about 5 per cent. to 7 per cent. only of salary where the scheme is not in surplus—in other words, employers contribute about 2:1 on final salary schemes—when it comes to money purchase schemes, the employees' contribution is usually larger than that of employers: employees contribute 6 per cent. to 7 per cent. while the employer usually contributes under 4 per cent. In other words, whereas in final salary schemes the employer pays more, takes the risk, and, therefore, according to the Government, has two-thirds of the trustees, in money purchase schemes, the employee pays more—a higher proportion—takes the risk, and should therefore also have two-thirds of the trustees.

We now wish to hold the mirror up to every argument put forward by the Government in Committee to make the same arguments on behalf of scheme members where they are dealing with their money, their savings, their financial contributions, their risk, and their right. I beg to move.

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